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Why The Oil Industry Has To Go Digital

Irina Slav

The oil industry has been notoriously slow in joining the digital age, but now it has been forced to do it as the efficiency drive trumps expansion in the post-oil crisis world. For software solutions developers, this new normal could turn into a windfall, at least for some of them, if they act fast.

When oil traded at US$140 a barrel, nobody really cared about making its operations more efficient. No one put much effort into saving costs. Now, efficiency is the top priority, and anything that can lower costs in the oilfield is welcomed with open arms. Enter digital platform developers.

The oil service industry has for decades relied on manual processes in its life cycle – anything from equipment installation and repairs to logistics in the water waste disposal is done the traditional way: by hand.

This, however, is no longer economically sensible, as Houston Chronicle author Lydia DePillis notes in an extensive analysis. A growing number of service providers are waking up to these new realities, which include hosts of software development companies offering to make life easier – and cheaper – for the guys toiling in the oil fields.

This influx of specialized software development companies is part of a larger trend, in tune with the global evolution of technology: automation, smart tech, and cloud solutions are taking up more territory by the day, regardless of industry.

Despite its conservative nature, the oil and gas industry could not stand aside and watch—not when it desperately needs every penny it makes. So, there are now cloud solutions for E&Ps being developed, though the adoption is slow due to the highly sensitive information the industry works with. There is supercomputing, which promises to substantially enhance the accuracy of seismic research, while at the same time lowering the costs.

These kinds of digital solutions are, however, in the early stages of adoption, and there are kinks, including data protection for the cloud, for example, or the cost of supercomputers – not everyone can afford a supercomputer like Exxon’s.

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With oil well logistics platforms, things are a little bit different. The reason there is so much competition in this segment of the software industry is that the solutions are relatively straightforward – they automate various processes, bringing down costs and improving the organization of the service cycle as well as controlling it. The solutions offer E&Ps and the companies that service them one of the best achievements of the digital revolution: automation.

There is one important problem, however, as DePillis notes. There are too many solutions right now that need to be made mutually compatible by the companies that use them. If, say, Occidental Petroleum uses ShaleApps – a billing and cash collection solution provider – then the service providers it works with would need to adopt it too. This is good for ShaleApps and potentially good for the service provider – unless it is already using another company’s software.

There seems to be two ways this could play out. One, the market could remain as fragmented as it is now, with software developers focusing on flexibility and compatibility in their products, so that they can remain profitable. Two, there will be a race for domination: those that manage to take on the most clients will win thanks to the network effect. The smaller ones will die.

By Irina Slav for Oilprice.com

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