The world has changed. It has been a little over 8 years since the launch of the iPhone, a moment in time I consider a turning point in the widespread adoption of “usable” technology tools. Today the information in your life flows through your smart phone.
Well, most of your life. If you work in the Oil & Gas industry, besides email, almost all of the information you need to run your business is locked away. Hidden behind complex ERP systems, scattered in spreadsheets, stuck in cobbled together in-house software, or trapped in a file drawer. The entire industry has struggled to adopt effective information technology at a level other industries come by naturally. How close are you to being able to see the real-time field ticket revenue in your business like this financial treemap of the stock market? This struggle to adopt technology has killed some industries (publishing, rental video, rail, and lately: taxi, national space programs, network television, etc.) and while ours is so essential it won’t die, we are getting a nasty bloody nose.
Why We've Struggled
There are a variety of reasons why this is the case, but let’s focus on the ones we can overcome. Here are the top four reasons the Oil & Gas industry is struggling to leverage powerful information technology:
1. Failed AttemptsCompanies have tried and failed to implement off-the-shelf software or have spent unfathomable amounts of money on internal teams to make custom software that’s terrible. Software fatigue is a real phenomenon in a business where the pace of change and disruption combine with the dollars spent to cause almost all parts of a business to actively resist software implementations.
2. The Boom and Bust RollercoasterWhen times are great everyone is too busy to make themselves more efficient and there is enough money that no one worries about losing a couple million dollars here and there. When times are bad no one wants to spend money to make their businesses run more efficiently.
3. Many Technologists Don’t Find the Industry AttractiveThe best technology hubs in the world, e.g. San Francisco, Boston, and Austin tend to have a negative view towards anything related to hydrocarbons. That creates a tiny pool of top talent who are willing and motivated to create significant software and hardware innovations for the industry. The challenge is multiplied by the nature of software which is fundamentally a talent based business, where a great software developer is 50 to 100 times more effective than a mediocre one. So despite the proven effectiveness of great software tools on increasing productivity and effectiveness, great software and great software teams are an extremely rare find in the industry.
4. Generational Gaps and Technology MasteryMany industry leaders have not fully realized the significance of the revolution caused by the digital age. The information age requires an entire worldview shift, which is understandably difficult to make. After the first 30 years of the internet, the world today is as comparatively different as it was 50 years after crude oil was first available at an industrial scale. The generation who have lived with the internet most of their lives has a different expectation of technology. Those that will inherit the industry want the ability to look at the performance of 1000 wells at the same time on their iPhones. The lack of tools not only frustrates them, but also hinders knowledge transfer. The roller coaster crude market has caused instability in career opportunities and is creating generational gaps of experienced professionals. The great crew shift happening now will bring the loss of an entire generation of hard won experience. Where a gut feeling brought on by 25 years of hard earned knowledge has been sufficient, a whole new generation will be forced to rely on data to make decisions if they are to be effective.
Unfortunately these issues contribute to keeping the two driving industries of our civilization, hydrocarbon energy and technology, from working well together. Equally unfortunate is fact that the proven way to make an industry more efficient and resilient is through the widespread adoption of great information technology. Where other industries are flush with success stories, we have so few that many of the best industry professionals have a hard time believing what is possible with information technology today.
The situation simply cannot continue. Producers must stop longing for the $90/barrel days. The industry must become more efficient, have more visibility into the reality of operations, and make decisions based on accurate data. Every part of the industry has to begin adopting great software, from the directional driller with two jobs to the multibillion dollar operator. We all need to revolutionize the way we think about effectively running a business and push towards every decision being data driven or at least data informed.
Over the next sections we will look at a few different industries and contrast them with Oil & Gas. I hope you are surprised by what other industries have accomplished with information technology. These industries are less essential and have fewer resources, yet they have still made incredible progress using data to give themselves seemingly precognitive knowledge about their operations and their customers.
At certain times in a person’s life their buying habits go into a state of flux. Old habits like, always buying groceries from one store and toys from another store, change during these major life events. Becoming a new parent is one of the most important times and therefore a critical moment for retailers trying to grab consumer dollars.
In 2014, a family began getting flyers addressed to their teenage daughter with ads for baby merchandise. When it continued to happen the father walked into his closest Target with a handful of flyers and demanded to see the manager. He explained that these ads for cribs and newborn merchandise needed to stop being sent to their daughter and asked if Target was trying to encourage teenage pregnancy. After an initial apology, the manager called the man back a few days later to apologize again. The man interrupted him to apologize instead, letting the manager know that after a little digging he got it out of her that she was actually pregnant and was due in August.
Target had created a pregnancy prediction score based on algorithms which analyzed the shopping habits of millions of shoppers to correlate the buying habits of certain items together. And it was accurate enough to predict the pregnancy of someone obviously trying to hide it. They built amazing (somewhat creepy) analytics on a foundation of data and infrastructure to capture that data built up over many years.
The retail industry has demonstrated the foresight to continue to innovate on both capturing data and leveraging the best statisticians and engineers to craft the data into knowledge previously thought impossible to access.
While the Oil & Gas industry is in it’s infancy with analysis at this level of expertise, retail is moving into uncharted territory with intelligent ads, artificial intelligence based predictive analytics, and human behavioral research. Capturing consistent and complete information about the life cycle of a well is just the beginning of what we should do. Yet it is something we still struggle to do as an industry leaving a wide gulf before we are able to analyze the data to gain insight into well production and hydrocarbon movement.
Once we reach that level of sophistication, we will have the power to make decisions based on more than just feelings, we will be able to see wells and entire plays in ways previously impossible, making decisions that will drive productivity which can accommodate a low priced crude market. Imagine knowing with certainty which bit and motor combination drill the straightest well path with fastest ROP through the horizontal of the permian in southern half of Midland county, or where you need to slow down because of heat and vibe buildup in order to save your tools, or which driller ran with the fewest incidents over the last two years in Oklahoma.
The sophistication in the pick, pack, and ship industry is getting to the point it has outpaced our collective wonder. The fact that we can order something on Amazon.com at 7PM and it arrives at our front door the next afternoon seems like the height of ecommerce decidence. It does until you realize Amazon has same day delivery for some items in some markets and if the FAA lets them, will deliver packages to your door step with drones. The video below is a strangely relaxing look into the clatter of little robots helping Amazon employees put together orders to fulfill our online shopping obsessions.
While that is fascinating, the software infrastructure facilitating that automation is even more clever. Not only does it control all of those little drones, it builds in efficiency based on your behavior. Depending on what Amazon knows about your buying habits, if you place an item in your cart, Amazon’s software may kick off a shipment to move that product to your closest fulfillment center in anticipation of you buying it. Since they know most of us have very little patience, this process allows Amazon to reduce the time it takes to get items to your doorstep and facilitates a deceptively simple sentence in the shopping experience; “Order in the next 18 hr 3 min to get it by Sat”.
That abbreviated statement hides shocking complexity and logistics. To simplify the concept, Amazon logistics infrastructure is sophisticated enough to tell every single one of its 240 million users when one of a billion items in their warehouses must be ordered to get there in one or two days; down to the minute! Breaking out the complexity of the software infrastructure to accomplish this, one can imagine software that understands: the closest warehouse to the customer that has the item, where that item is in warehouse, how long it will take to get that particular item in that particular location to be picked, packed, and shipped, how long it will take the carrier to deliver the item, how cost effective the carrier delivery will be, and when the item should be pulled. All of this happens as fast as a customer can refresh a web page or look at the item on her iPhone. An entire team, from amongst Amazon's thousands of software engineers, works on that one small component of Amazon’s software infrastructure. All from a company that started it’s life by selling books on a website.
If you take a look at an Amazon’s warehouse you won't see neatly arranged goods all put together with their like kind on a shelf. You'll see what looks like a chaotic mix of different items strewn together. They do not have to neatly organize in a way a person can catalog. They organize in a way that 10,000 computers tell the system so that they can get specific items to specific customers as fast and efficiently as possible based on what and when that customer is likely to buy.
That level of dedication and vision for the power of the information technology, not massive spreadsheets, is what will bring the logistics power needed to change how our industry is capable of working.
Can you imagine that level of sophisticated logistics moving assets on and off a well site? What about seeing in real time the production of every well, how much crude was moved that day from each well, and when a crude truck was demerged and why? How about, in real time, switching the location of a crude delivery to get a better overall blend at the L.A.C.T.?
There are many more publicly available examples that will surprise with industry secrets that are even more impressive. I can safely say our industry is years away from the level of sophistication and operational knowledge these other industries have accomplished. Though it seems daunting there is a clear path forward. A first step is to start to gather the data we need in well-built platforms with sufficent quantity to perform the data science and predictive analytics which are standard elsewhere.
The key is capturing data and while in some cases that can happen in an automated fashion, the way to capture human experience is through well designed tools with great user interfaces. We need to improve the software tools used by the people in the field doing the work and making decisions. We need to improve the software tools available to the people at the office managing and facilitating a well being developed and produced.
Just as important as the tools, is the attitude toward information technology. As an industry we’ve tended to shun IT and sometimes for good reason. Done right, it can make for a more efficient industry and give you a massive competitive advantage. It will be critical for the industry to become more familiar with software. The ability to differentiate between great and mediocre software will determine failure or success in these initiatives.
By giving the people in the field and in the office great ways to capture data and then by turning that data into usable knowledge, we begin the first steps toward facilitating the large data sets needed to create the almost unimaginable operational knowledge we see in other industries.
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