Integrating a new strategy
Despite its recent uptick, few people in the oil industry expect the price of crude to return to the $100-a-barrel mark any time soon. In fact, most oil producers are adjusting business models in ways that indicate they believe lower prices are the new normal.
Paul Goodfellow, United Kingdom vice president for Royal Dutch Shell, said as much in detailing how Shell is revamping its North Sea operations after acquiring BG Group, a well-known offshore producer, earlier this year.
"Our integration with BG provides an opportunity to accelerate our performance in this ‘lower for longer’ environment," Goodfellow said at a late May news conference. "We need to reduce our cost base, improve production efficiency and have an organization that best fits our combined portfolio and business plans."
Oil and gas producers across the globe—regardless of size—have similar goals. Most also realize that achieving those goals requires getting a handle on all of the data flowing through the enterprise—from the reservoir to the wellhead, through the pipeline, and beyond. Adept management of enterprise-wide data makes it easier to spot potential problems before they begin to hinder productivity. It also can help uncover ways to improve even the best operations.
Start by aggregating data
The first step toward that level of data management is undertaking a process known as enterprise application integration (EAI), which involves developing methods for aggregating and organizing the data residing in various systems scattered across the enterprise. The idea is to funnel all that data to a central repository that can be accessed by people in all areas of the business. This has two benefits:
- It gives all employees easy access to the data they need to perform their individual jobs at optimum efficiency;
- It gives management a clear picture of how all areas of the business are performing, making it easier to adjust strategies and processes as needed to maximize profits.
Oil and gas producers are finding this level of data access increasingly important as they struggle to thrive in a low-price environment, which is why there’s now heightened interest in EAI across the industry.
As director of client services for Panorama Consulting Services, William Bauman helps oil & gas companies select and install ERP systems, and he has witnessed an evolution in thinking about the need for EAI as low oil prices have persisted.
When prices first began falling, most companies adopted what were essentially short-term cost-cutting measures, such as reducing employee headcounts or asking vendors to cut prices on products and services. "There was a lot of emphasis on lowering operational costs," Bauman recalled, "but there wasn’t much interest in spending money on new systems. However, as companies have come to realize that the era of low prices is likely to be with us for a while, they are thinking about installing new systems, and making fundamental process changes."
A more efficient machine
The goal is no longer just cutting a few expenses or revising obviously inefficient processes; it’s about becoming a more efficient enterprise—one that can remain profitable even if lower prices indeed prove to be the new normal. "This line of thinking goes to the core of what EAI addresses," Bauman said. "It allows companies to answer the question, "What can we do become a more efficient machine?"
Historically, EAI primarily meant connecting operational systems to an ERP platform. That’s largely because ERP is where the financial data resides, and corporate management’s primary interest was in knowing how changes in business processes would impact the bottom line. Recently, however, the nature of EAI has changed, for a variety of reasons.
For instance, ERP vendors have been trying to eliminate the need for integration altogether by expanding their offerings to include pre-integrated applications that manage areas of the business far beyond the back office.
"Twenty years ago, ERP was pretty much an accounting system, with some supply chain management components throw in," Bauman noted. "You could use it to procure materials and manage them as inventory, but not much else. Now, most ERP systems have a host of other systems linked in that provide a much broader view of the business."
It’s also now common for ERP suppliers to tailor solutions for specific industries. The ERP vendors known for targeting the oil & gas sector include IFS, SAP, Oracle and Sage. Some ERP suites contain modules that help oil & gas companies manage functions such as asset management and equipment maintenance quite well. However, Bauman said it’s unlikely that any ERP suite can be the sole information system for an oil and gas company that wants to operate at optimum efficiency, particularly in a low-price environment.
"To a large degree, we’re simply talking about marketing," Bauman said in reference to ERP vendors’ claims that their solutions are tailor-made for the oil and gas sector. "In most cases, they’re selling the same software across industries, but they use different nomenclature to make customers believe the vendor knows that customer’s industry and has the expertise to address its unique problems."
Some ERP vendors have taken the step of populating their suites with functionality that addresses specific needs of the oil and gas industry—such as GIS mapping systems or reserve management applications. But Bauman said there’s reason to be wary of such offerings. "The operational functionality of these solutions may not be very robust," he warned. "In many cases, these systems were purchased from another vendor and bolted on to the ERP platform, and the promised integration is not as tight as advertised."
Given these circumstances, most oil and gas companies at some point will have to tackle an EAI project. And the nature of the industry dictates that many of those projects will be complex undertakings.
Technical data in obtuse formats
"Oil and gas is a very data-intensive industry," said Michael O’Connell, chief analytics officer for TIBCO, a supplier of EAI and data analysis software. "A lot of the applications developed for this industry are highly technical with data created in obtuse formats that are difficult to access." It also not unusual for two different systems employed by the same company to have different methods of identifying the same piece of data—such as a well attribute or drilling information—and that can make it difficult for the company to get a clear picture of its overall performance. That is precisely the type of problem EAI is designed to resolve. Vendors in this space have developed various methods of reconciling the differences between data residing in various systems so users can comb through it and do meaningful business analysis. Typically, this data reconciliation involves the use of a software layer known as middleware that acts as a communications backbone, taking messages from one application and translating them into a format that other applications can understand.
The format for creating messages can vary among EAI vendors, but users rarely have to worry about that part of the process. Normally, they just tell the vendor what information they want to share across the enterprise and the vendor creates an infrastructure for merging that data via the middleware platform. The middleware layer should then be connected to a dashboard or portal through which users can enter queries for information related to their jobs and get answers that may have required the platform to merge bits of data from multiple systems. The positive effects of this type of integration are flowing across the oil & gas industry. O’Connell said TIBCO customers are merging data from multiple systems to make faster—and more informed—decisions about where to drill, and how to treat and complete wells, among other things.
Bauman has seen companies improve in areas ranging from reserve management to equipment maintenance and regulatory reporting after completing EAI projects.
Problem: A continuing price slump has oil and gas producers searching for ways to boost productivity while also lower operational costs. Achieving those goals requires getting a handle on all of the data flowing through the enterprise-from the reservoir to the wellhead, through the pipeline, and beyond, which is a complex undertaking.
Solution: The first step toward effective enterprise-wide data management is undertaking a process known as enterprise application integration (EAI), which involves developing methods for aggregating and organizing the data residing in various systems scattered across the enterprise. The idea is to funnel all that data to a central repository that can be accessed by people in all areas of the business.
Action to take: Examine your business processes and determine which ones are hindering your ability to be a cost-effective producer. Look for ways to streamline those processes, first without purchasing new technology. Once that’s done, you’re likely to see which parts of the operation need better methods for sharing data. That will offer a clue as to the proper place to start an EAI project. Also, do research on industry consultants and vendors who have managed successful EAI projects in the oil and gas sectors. Companies to consider include:
- P2 Energy Solutions: www.p2energysolutions.com
- Panorama Consulting Services: http://panorama-consulting.com
- TIBCO: http://www.tibco.com
- Oracle: http://www.oracle.com/index.html