Driving Digital Transformation for Oil and Gas Independent Producers in North America

Independent producers are operators that could be either a private entity or a publicly owned company with all activity based in the United States. According to the Independent Petroleum Association of America (IPAA), there are about 9,000 Independent producers that make up 91% of wells drilled in the United States and are producing 83% and 90% of its oil and natural gas respectively. ( Independent Petroleum Association of America - IPAA , n.d.)

For those producers, tapping into the latest and greatest digital solutions has always been on the radar. However, the ability to acquire the right technology, deploying it effectively and gauging its cost effectiveness has always been challenging.

But first what is there to gain from digital transformation?

Contrary to what is advertised, the oil and gas industry is not a stranger to digital. Software and computing power were always a part of the endless goal of continuous improvement and maximization of asset value.

Since the beginning of automation, the oil and gas industry saw this integration advantageous in all phases of O&G explorations such as prospecting, planning and execution. Consequently, the new advancements in technologies in the recent years has raised the bar on the capability of what improvements could be realized.

According to McKinsey, major oil companies saw the value in this transformation positively impacting their bottom line with a potential $220 to $260 million dollars gained by improving production efficiency by 10%. (Stefano Martinotti, 2014).

What is preventing Independents from catching up?

Independents have great agility in adapting to new technologies, due to the shorter decision-making process giving them theoretically less red tape to cross. But eventually it all comes down to their ability to build the right business case and secure enough capital needed to invest in these technologies.

Investing in new software capabilities has always been categorized as a capital expenditure, or CapEx. In a capital restrained market, other needs might take priority such as leasing new acreage and hiring human talent to perform tedious tasks. However, there is a missed opportunity that would end up being costly if those Independents don’t take that risk. ( Geoffrey Cann , 2022)

How can Independents work around the obstacles to accelerate digital transformation?

Reimagining the balance sheet is the key to unlocking the potential of these technologies and the impact it will have in the long run. Converting digital expenditure from a capital expense “CapEx” to an operational expense “OpEx” is a viable solution. This is done by changing the current model of acquired Software technologies to Software as a Service model “SaaS”. ( Geoffrey Cann , 2022)

SaaS is simply using software as a subscription service that is charged on a monthly, or could even be charged on an hourly basis. This is not a new invention, in the 1960’s due to the outrageously expensive cost of computers, time sharing concept emerged where people had the opportunity to physically lease the machines to perform computational tasks. The same concept reemerged in the form of software as a service model and finally making its way into the oil and gas industry.

An Independent now can gage the opportunity cost accurately using SaaS model as it prevents software underutilization, and it has the capability to upscale or down scale instantly adapting to the highly volatile market nature of this business. In addition, it could be a tool to free capital.

The last piece of the puzzle is that cloud services would allow those Independents real time access to the latest and greatest without missing a beat.

References:

Retrieved from Independent Petroleum Association of America - IPAA : https://www.ipaa.org/

Cann, G. C. (2022). Carbon Capital and the Cloud. MadCann Press.

Stefano Martinotti, J. N. (2014). Digitizing oil and gas production. McKinsey & Company.