By Geoffrey Cann
How can digital technologies transform the work of the front line oil field worker, who is overworked, underserved and under equipped to cope with the increased workload? Hear from Bertrand Groulx, a tech entrepreneur, financier and educator, about upgrading the job of the front-line worker.
This is an edited transcript of the interview with Bertrand.
Geoffrey: Today I’m joined by Bertrand Groulx, who is a tech entrepreneur, financier, and educator, in many different areas of interest in the upstream oil and gas industry.
Bertrand: Thank you very much for inviting me to join you.
Geoffrey: Today’s theme is about the future of the upstream operator. The pandemic is having one kind of effect, and low commodity prices are having another effect. They both push operators to achieve lower costs and improved productivity across all of the upstream. There are challenges that many basins face as their government leadership endeavors to try to comply with the climate regulations. The future of the upstream operator is going to have to look very different in the future than what it looks like today.
Bertrand: The industry is in a challenging time right now. What makes it even more challenging is that there’s been so many layoffs. Everybody is swamped with more tasks than they can possibly deal with. And they’re spending a good part of their day just reacting and prioritizing. It reminds me of my world when I was a busy executive. Without an executive assistant, I was constantly getting a huge volume of random inbound messages, and I was trying to decipher which was important to set my priorities. The work has these inherent inefficiencies. Imagine it as a bricklayer trying to lay bricks when they’re surrounded by flies. If you’re currently swatting flies, then the quality of the work that you can do is going to be subpar. For an operator, that really ends up being wasted time and wasted energy. It involves a lot more driving than it should, it creates higher GHG emissions, and we’re trying to focus as an industry on reducing that. More driving also means more safety worries. Upstream oil and gas is also extremely complex. We support legacy infrastructure connecting hundreds, if not thousands of wells. They’re all at different life stages, different reservoir conditions, and it creates unique operating challenges. While there are innovators out there, they’re just building their own tools, and they often get limited IT support relative to other industries.
Geoffrey: I’m sure that some supermajors may feel they have a very good handle on this. Is this something on their radar? Or is this more of a small and midmarket issue? Is this a problem which is unique to a certain part of the industry?
Bertrand: I think it’s quite pervasive. There are pockets of innovation happening out there, but from my perspective they seem to be driven by specific individuals who have that foresight, more than a broad-reaching application across the industry. You are right that as you get down to smaller companies, they often don’t have the resources, or the wherewithal to go out and seek technology. I do think the super majors are trying. The bulk of those efforts still are concentrated on capital projects and applying technology on the capital side.
Geoffrey: If you can accelerate capital, you can make a huge difference on the economic return of the asset that you’re building. Shaving pennies out of op-ex might not appear to be all that exciting. Is it fair to say that op-ex just doesn’t get the attention capital gets?
Bertrand: It is; if you just look at a typical Spirit River well, for example, you’re looking at 34% for drilling, about $3.2 million, another 18% for completions, and 48% of the total lifetime cost of oil is operating costs. Now, that makes it sound really important and you think you might be able to get someone’s attention. But if you look at it from a spend rate perspective: with drilling, you’re going for a few weeks, and you’re spending about $150k a day; completions, you’re going for a few days, you’re spending $335,000 a day; whereas operating costs over the life of a well average out to about $490 per day. When companies are looking for savings, they’re going to focus on the capital side, drilling and completions. The small value, high frequency items, like operating costs, get overlooked. People really don’t focus enough on the economics. For a lot of wells, wastewater disposal alone can often cost more than drilling in its entirety. If you look at this from a reserves perspective, if you can shave your operating costs by 10%, you can extend the economic life of your well. On a Cardium, or Viking well, that might be only a 1.5% increase in reserves, but you’re replacing reserves by reducing op-ex. On a 100 well field, that could be the equivalent of drilling two new wells, without actually having to drill two new wells.
Geoffrey: You have to look at it through both the lens of the balance sheet, or reserves, as well as on the income statement, or op-ex and costs per well.
Bertrand: And in cash flow. It’s the degree to which it can afford you freedom of cash flow, which is really important.
Geoffrey: I’ve been contacted by a Middle Eastern concern recently who has a very mature field. They stated that if they can shave 2% out of the op-ex of running this field, it’s the equivalent of drilling 100 new wells. When you get into these national oil companies, the math starts to become very compelling at 1 or 2%. If it’s done at that scale, the impact can be huge. If you looked at it across the whole of industry, such as safety benefits, what other costs are out there?
Bertrand: One that’s resonating these days is the carbon footprint. We have a bigger carbon footprint than we need to have. It creates higher than necessary costs and makes us less competitive to other basins, particularly in the US, because we are competing for capital quite heavily with them now. But ultimately, it makes us more susceptible to commodity price drops. Currently, the industry tends to be reactive. If these efficiencies were in place, they could plan ahead and actually have scenarios and actions planned out at different price scenarios. It’s something that I don’t see nearly enough of. It’s a very reactive industry as a whole.
Geoffrey: What drives that?
Bertrand: A joke I tell at my SPE talks is that the oil and gas industry, when times are good, is “too busy cutting down trees to sharpen the saw”. When commodity prices are low, they’re “too busy drowning to invest in a swimming lesson”. There seems to be no middle ground. Aside from that short-term thinking, it’s inertia, and inertia includes a big people component. I’ve heard you say that this is not a technology issue, it’s a people and process issue. People are protective of legacy technologies they might have implemented; they think they work fine. They don’t want change. There are also perverse incentives throughout the industry. For example, a drilling engineer’s incentive is to drill a fast, but not a good, hole. Those full-asset quality considerations are not there. Those perverse incentives discourage innovation and change. Underlying all of it is that people are concerned about their jobs. People are afraid that technology is going to replace them. A big part of selling technologies is selling a vision, selling a better version of yourself using technology. A big part of that is educating the market about what’s possible.
Geoffrey: Let’s turn to the question of what the future world of that operator might look like. What do you think that future will be?
Bertrand: There’s always going to be a need for the expertise of the frontline worker, of the operator. What we’ve seen in other industries is employee augmentation with digital personal assistance, where they use their digital twins to help identify priorities, urgent needs, and shift work towards a value-based perspective. Digital tools take care of scheduling, compliance, and maintenance. It augments the capability and the capacity of the operator, and lets them perform much better than they would be without that technology. It’s the bricklayer swatting flies: if we take those flies away, then we can really let an operator be as effective as possible.
Geoffrey: If you’re a company, you have a team of operators. The supervisory layer will know which of their team is a top performer, on top of the data, always ahead of the challenges, and production is always high. Do we have the tools that enable the ability to lift all of the operators up the curve of performance to where they all can perform close to, or at the level of the very best performers?
Bertrand: In the visual analytics space we always used to say that the rising tide floats all boats. If you can provide sophisticated capabilities that are consistent across your entire workforce, then everybody’s going to get better. I think that one of the troubles right now is that there isn’t enough data gathered for supervisory people to have a real understanding if people are effective in the field.
Geoffrey: What holds them back from that? Is it that they don’t understand, or they may not see or have exposure to how these newer tools can play a role?
Bertrand: Their perspective is “if it ain’t broke, don’t fix it.” It’s challenging to change the mental models about how people think about technology. Very often in our industry we see technology as a cost burden, rather than being an investment in either efficiency or information or insight. That model needs to change.
Geoffrey: In many oil and gas companies, there are two IT budgets. There’s a corporate IT budget for handling enterprise grade and corporate technologies. I typically see that budget reporting up to the Chief Financial Officer. The day-to-day stewardship may be under the CIO, but the CFO generally calls the shots. And the CFO is generally “Dr. No” when it comes to putting money into these sorts of things. Am I being unfair?
Bertrand: I’ve had meetings where I’ve had somebody from finance and IT sit in the meeting. and introduce themselves as: “I’m the person the CFO sent to say no.” Not a good start to a meeting. On the other hand, there’s the operator. It’s really interesting that an operator has spend authority for chemical drips or a bridge plug, or getting different services done, which can be $45,000. The technology costs relative to those expenses is really quite low. But they’re not given the authority to purchase that kind of technology. It tends to come out of that G&A IT budget. How things actually get billed can often dictate what budget they come out of.
Geoffrey: Who carries the budget drives the decision making around it. I’ve learned that there is an organizational bias effect on selecting solutions. The bias frequently meant that the company ended up with the correct answer from a very narrow perspective, and the completely wrong answer from a broader industrial perspective. If we were to change this, how long would it take, considering the sheer scale of the industry?
Bertrand: It’s not far off. All the building block blocks are in place: cloud network, mobility solutions, AI, sensors. Now, whenever I’m looking for innovation, particularly for oil and gas, I like to de-risk it. I like to look outside of oil and gas and say, okay, what’s similar, and what has worked and what’s been successful, and we can use that to accelerate adoption. Because this notion of a digital assistant augmenting the employee has already happened in large industrial assets, whether it be the downstream oil and gas, utilities, or other industrial-asset sectors. That’s a “solved problem” that hasn’t moved over to upstream oil and gas, because upstream is a little more complex. It is geographically distributed, assets are at different life cycle stages, there is legacy infrastructure, all of these kinds of complications. However, it’s just a matter of taking what’s worked in another industry, and tailoring it to suit the nuances that upstream oil and gas producers are facing.
Geoffrey: If I were to think about the upstream operator in a much more connected worker model enabled by these technologies, what would likely be the beneficial outcome from that? We’ve talked already that there would be a potential reduction in drive time, but at the end of the day, that’s not sufficient to really motivate change. What else is out there that could create benefits?
Bertrand: It’s going to elevate operators to be the best they can be. That’s going to drive a positive impact on the bottom line, period. But as a side effect, there’ll be better production, less downtime, and more effective use of things like chemical drips, dialing all of those efficiencies in and making the asset as effective as possible. The side effects, and I’ve seen this in visual analytics, are that the right tools result in a happier workforce. I’ve had people say they’ve had better vacations because they can hand things off to people who now have all the data they need to manage the asset. It’s going to attract new talent, better talent, train them faster, retain the best, high-grade the rest. Then all those other things, lower cost, lower carbon footprint, better safety outcomes, are going to result in fewer but better jobs. It’s going to be the thing that is going to distinguish between those that can be part of a thriving industry and those that are going to be victims of commodity circumstances. Ultimately, operations are going to be moving away from a scheduled approach toward managing by exception, or using predicted failure to drive the activities in the field.
Geoffrey: How does this relate to the challenges of talent that the industry faces? Young people have had an earful now for a couple of years about the prospects in the industry. If you offer young people an opportunity to work in any industry they want coming out of high school ,would they take studies in petroleum or the oil and gas industry as their first choice? My sense is probably not. The headwinds and the noise in the society about the industry is discouraging for young people who may be thinking about their career in a longer-term sense. But I’ve always maintained the industry is one of the most high-tech industries around. Is the adoption of new digital tools accretive to creating a positive talent story?
Bertrand: Yes, but I think the industry has to evolve to be that attractive. It’s kind of the catch 22, right? We want to attract people who have the technology skills to join the oil and gas industry and help it to be effective. But in the same breath, the industry has always had a long-standing reputation as a latent adopter of new technology. So, we’re at an impasse, and it’s going to be the forward-thinking companies that are going to start to hire the workforce to enable that kind of vision.
Geoffrey: There’s a tremendous upside lurking here. But the industry has to get over many of its latent practices on risk and risk mitigation.
Bertrand: That makes it challenging for new technology to come in with workforces that are technology averse. Adoption becomes a significant obstacle.
Geoffrey: Just thinking about the numbers of companies I’ve had engagement with, there’s not a lot that come to mind as subscribing to this vision. Who do you see as a sector-leader, or someone you keep an eye on for their alignment with this future state?
Bertrand: I’ve been having conversations with a number of technology companies out there, and there’s a couple. But the one that really comes to mind that has articulated that vision is a company called EZ Ops. What they’ve got is an Upstream Field Operations Management Platform, and it’s tailored to oil and gas, built by operators, so they’ve had great adoption. It captures and organizes all the data that they use to inform and support operator decisions. Now they’re working on the next step, because now that they have the data to potentially integrate with other systems, they can start to identify those assets managed by exception or predicted failure opportunities. They can prioritize assets based on value. One hour of downtime at one well is very different than an hour of downtime at another well. They can organize and prioritize all of that information so that the operators get a list of tasks ahead of them. Layered on top are optimized driving routes to minimize the amount of mileage and potential safety issues. That vision to me is the digital assistant that we’ve seen in other industrial asset operations management platforms. I think they’ve got the vision and I think they’re well on their way to making that happen.
Geoffrey: It really drives a new business model for the operator when you dig into it. Rather than being hit with this random set of data and emails and messages, all the flies buzzing around the bricklayer, the tools and assistance can leverage the accumulated data and will be able to sift, decipher, prioritize, and provide quality direction to the operator on how best to time their day.
Bertrand: It can be much more focused, and ultimately, they’ll be making better decisions. Additionally, if you’re capturing all this data, you’re focused, you’re making good decisions and better decisions, then you’re going to feel better about your job. That sense of job gratification is going to create operators who feel better about their contributions, because they can actually see and measure them.
Geoffrey: And that can’t be a bad thing, given the amount of headwind in this industry. Making people feel good about their day to day, motivating them to just continue to be part of this industry, I think is going to become a critical variable in the future.
Bertrand: It’s a real challenge for people to understand what impact they actually have. I think technology can play a role in helping people measure that.
Geoffrey: Bertrand, this has been very good conversation, I appreciate you coming in and sharing a perspective around what the future of the upstream operator could look like. I think all the readers will join us in hoping and wishing that this future arrived sooner rather than later. Because we can use it today, not 10 years from now.
Bertrand: Indeed. Thanks very much for having me. I’m excited to be part of a number of companies that are trying to make this industry successful.
Check out my book, ‘Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas’, available on Amazon and other on-line bookshops.
Take Digital Oil and Gas, the one-day on-line digital oil and gas awareness course on Udemy.