In the Cloud
Strange oil-and-gas bedfellows? No, just sound digital strategy.
By Brent Potts
Five years ago, had the CIO of a major oil and gas company been bold enough – or maybe “bold” isn’t the appropriate adjective – to propose working with some of their closest competitors to develop common software solutions, and to house those solutions in a public cloud environment, he or she may well have met with a perplexed silence, if not derisive laughter.
Looking back, however, that CIO may well have gotten the last laugh. The oil and gas business has come a long way in five years, to the point where today seven competing production companies, including some of the industry’s biggest global names, have spent roughly the last 18 months doing what until recently would have been unthinkable, almost heretical. They have been collaborating as part of a consortium to develop parameters for market-standard upstream digital solutions housed in the – wait for it – public cloud. In this context, market-standard means taking “parity processes” – common business processes where customization and competitive differentiation aren’t considered necessary or cost-effective – and developing cloud-based solutions with standard configurations and public interfaces that can be shared by multiple companies.
The goal for the consortium, which includes BP, Devon Energy, Apache, ConocoPhillips, Chevron, Equinor (formerly Statoil) and Shell, with development help from SAP and Accenture, is to operate more efficiently and innovate more effectively by jointly developing market-standard cloud-based SaaS (software as a service) and PaaS (platform as a service) solutions to manage certain workflows and processes. In doing so, they seek to eliminate the pricey, proprietary and highly siloed solutions on which so many in the industry have relied for so long.
What’s more, these companies want to take their peers along for the ride.
“For us it’s important that as an industry we define the right sort of [digital] processes and standards for oil and gas,” explains Dan Smith, build and test manager for BP in Houston. “We want to collaborate with other operators and other industry players to do that definition. At end of the day this is about removing complexity from our landscape.”
The consortium’s ongoing work provides yet another indication that the oil and gas industry has shed its competitive blinders and evolved beyond the cautious, proprietary-over-public technological mindset that was once its hallmark. Slowly but surely, that mindset has yielded to a new open-mindedness, whereby companies are realizing the merits of cooperating with their peers to standardize and automate certain operational aspects of their business, based on the belief that doing so actually will strengthen their overall competitive position.
“When you have automated processes in place, you can focus on the higher-value work,” Shell CIO Jay Crotts explains.
Key Value Points
The rationale for embracing market standard digital solutions housed in the public cloud is rooted in several key value points.
1. Relying on market-standard digital solutions means not having to reinvent the wheel at every turn to develop and maintain costly proprietary apps, processes and platforms. The goal here is to reduce business and IT lifecycle costs by capitalizing on market economies of scale.
As part of its digital strategy, Shell is following an 85/15 rule, whereby 85 percent of the business processes on which it relies are points of parity that can be handled with market-standard, multi-tenant solutions housed in the cloud, and the remaining 15 percent are proprietary solutions. That 15 percent is the “special sauce”: custom digital processes and solutions the company can leverage to differentiate, extend and transform its brand and its business.
2. Moving key business processes to the public cloud and embracing SaaS and PaaS solutions make for a more intelligent enterprise, one that is more capable of leveraging its data to optimize the value of its field assets.
Here consortium members are looking to realize significant gains in operational efficiency by replacing aging, siloed, on-premises legacy systems with standardized, scalable enterprise-wide solutions. From internet of things sensor-equipped equipment in the field to data-driven, machine learning and analytics tools, to an enterprise-wide digital core that integrates them all, the latest breed of cloud-based digital solutions enables oil and gas companies to simplify and optimize processes, and to collect, analyze and strategically act upon data from across the enterprise, in real time. That’s the essence of an intelligent enterprise.
3. They’ll be better equipped to explore and quickly scale up promising new business models, and to integrate businesses they may acquire. Exploration has taken on a new meaning for oil and gas companies as they diversify “beyond the barrel.” In late 2017, for example, Shell announced plans to develop electric vehicle fast-recharging outlets at traditional petrol filling stations in Europe. Having a digital platform capable of sourcing and modeling data from other industries is bound to help Shell and its partners develop a customer retail experience around those new EV charging outlets.
For companies in merger and acquisition mode, meanwhile, integrating two large and complex organizations becomes eminently more manageable with an industry-standard approach to digital infrastructure. Two companies’ previously disparate ecosystems, as well as their workforces, can be united seamlessly and quickly with end-to-end business processes and workforce management solutions, enabling data, learning and best practices to flow freely and securely across the newly merged enterprise.
Led by the likes of Shell, BP and the other members of the cloud consortium, energy companies are realizing that in order to innovate, differentiate and compete in certain high-value areas of the business, they must be open to cooperating with their competitors in other areas of the business. Embracing market standards and the public cloud gives them the means to do exactly that.
Clarifying Cloud Types: Public vs. Private
Whereas a private cloud environment resides behind a company’s firewall, a public cloud resides outside the company’s firewall. It’s usually administered by a third party and used by multiple customers of that third party, which brings hardware and software costs down. Connections to the software and platforms housed in the public cloud are established through the public internet.
Brent Potts is senior director of global marketing, oil and gas, at SAP. He is based in Arizona.