The coronavirus pandemic has wreaked havoc on the energy industry by driving down demand and engineering the worst-ever crude crash. At the same time, the crisis has fast-tracked the sector’s remote transformation to ensure business continuity.
While the adoption of digital technologies in energy had started to show significant growth even before the outbreak of the contagion, clearly, the pandemic has acted as a catalyst in shifting from the traditional drilling and fracking system and changing the way of exploring for oil and gas.
The oilfield service providers, for example, have been at the forefront of this technological revolution.
Growth in Oilfield Digital Technologies
Let’s start with Halliburton HAL, which is undergoing a rapid digital transformation. It has signed a five-year strategic agreement with Microsoft MSFT and Accenture ACN to boost its digital prowess in the Microsoft Azure cloud platform. The pact will help Zacks Rank #2 (Buy) Halliburton improve its client services by strengthening real-time monitoring of operations, augmenting AI-driven analytics capability, and speeding up the deployment of new technology and applications. Moreover, Halliburton will shift all of its physical data centers onto Azure cloud. Meanwhile, Accenture will collaborate with Microsoft to help Halliburton with the transition and provide additional transformation opportunities by utilizing its comprehensive cloud migration framework.
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A few days earlier, Halliburton collaborated with fellow operator TechnipFMC FTI to launch Odassea, the first distributed acoustic sensing solution for subsea wells. This technology is said to improve seismic imaging and reservoir diagnostics while reducing costs and improving the data gathered for oil and natural reservoirs below the sea floor.
Smaller rival Baker Hughes BKR is also executing on its digital solutions. The company had more than 70% of its drilling activity supported by remote work during the second quarter compared to 60% in the first quarter and roughly 50% in 2019. As part of its digital capabilities, Baker Hughes successfully implemented the remote operations model to support Equinor’s (EQNR) drilling and well construction activities in the Norwegian Continental shelf.
Meanwhile, the world's largest oilfield services company, Schlumberger SLB has experienced a solid increase in drilling remote operations so far this year, with an expansion of more than 25% during the second quarter. Currently, more than two-thirds of Schlumberger’s drilling operations utilize remote capabilities. In fact, the company is looking to double the quantum of its digital business in the foreseeable future with a primary focus on remote operations and digital inspections.
Remote Expansion Helps Reduce Costs, Improve Margins
The successful and expanded use of digital technologies has helped the companies to enhance performance and lower operational risk — especially amid the COVID-19 pandemic. Simply put, it allows them to remove equipment and/or crew from site, substituting with software solutions. With fewer personnel on location, jobs being monitored offsite using remote data center management tools, and the replacement of expensive hardware by software solutions, the operators are able to reduce costs and capital investment. In other words, the increasing cloud-based data flow between site and the back office translates into expanded margins for oilfield service providers.
Does it Kill Jobs Too?
For the energy industry, this technological migration comes at a time when more than 100,000 oil and gas jobs are already lost due to the effects of the novel coronavirus outbreak. The industry is battered big time due to the prevalent pandemic with fuel demand experiencing a massive meltdown following large-scale travel restrictions imposed globally.
Companies are now increasingly opting for remote operations via digital infrastructure with lesser number of field staff. While essential in this virus-infested world, the worrying part is that some of these jobs might never return in the new energy landscape. As it is, improvements in technology over the last few years led to dwindling employment in the field of oil services even as U.S. production broke all records. Now, with the stress on new technologies and innovative ways of working, data analysts and remote operational personnel are in demand at the expense of traditional jobs like frack engineers or those in the operational/manufacturing sphere.
The slump in oil prices and the coronavirus-induced demand shock have pushed drilling activity lower by introducing tremendous uncertainty around the exploration and production spending outlook. Obviously, this translates into lesser work for the companies that make it possible for upstream players to drill for oil and gas. To survive, their cash outflows as capital expenditure continue to fall as the oil service firms reign in their spending levels. They are also pushing for a reduction in overhead and other costs in an effort to become smaller but at the same time striving to improve efficiency and profitability. Most firms claim that the digital push has helped them get more with less.
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Microsoft Corporation (MSFT) : Free Stock Analysis Report
TechnipFMC plc (FTI) : Free Stock Analysis Report
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