The New Spindletop: If Data Is The New Oil, Look To The Cloud
At first, only mud bubbled out of the hole. Then natural gas came shooting out, spraying the mud 150 feet into the sky, followed quickly by oil, and lots of it. For nine days, the oil shot into the sky. Vast pools of oil surrounded the well. They called it the Lucas Geyser, and once they got it capped it was producing more oil than all the other wells in the world combined. You know it best, of course, as Spindletop.
The oil and gas industry has a new Spindletop, and it’s nowhere near being capped. People like to say data is the new oil, with 90% of it create¬d in the last two years alone, and the volume is only increasing. But in this data boom, the oil and gas industry is up to its neck in petabytes (with fifteen zeros) of data, generating thousands of terabytes per day, with the volumes doubling every 12-18 months, and using less than 5% of it for decision making.
The vast amounts of that unused data, currently locked in silos, represents not just several hundred billion dollars of trapped value. It’s actually more important than that. That wasted data offers a way forward during what I’ve called the perfect energy storm. To navigate the interconnected, simultaneous, and dire pressures it’s facing, the oil and gas sector needs to use those virtual lakes of data and transform entire companies into intelligent enterprises able to operate at lower break-even numbers.
Using data to make decisions is not a radical idea. In fact, most industries are undergoing rapid digitalization that has only increased during the pandemic. But while this is perhaps even more necessary for oil and gas, there is not a single energy company that has completely transformed itself into an end-to-end intelligent enterprise. In fact, the energy sector is almost a decade behind the industries that are doing this right. That’s the bad news.
The good news is that the oil and gas industry is well-positioned for quick progress because it already generates the aforementioned petabytes of sophisticated data. There are sensors up and down the energy supply chain – on wells, on pipelines, on pumps, in the refineries – everywhere. A single rig creates a terabyte of data every day. The problem is that the data from these sensors are not being used to look for the right thing. Since Spindletop, oil and gas companies have been using increasingly sophisticated means to see underneath the Earth’s surface in constant search of oil and gas.
Now, thanks to disruptions on both the supply and demand sides, the primary challenge is to find not oil but value. Future growth requires maximizing the value of every single molecule as it moves along the supply chain. Incremental improvements will only prolong an untenable status quo, whereas a complete transformation can double or even triple the return on capital.
Turning a data Spindletop into an intelligent enterprise is not unlike what they did back in East Texas: build the platform, control the resource, and then get value out of it. In this case, the first step is to move to a cloud-based platform that can manage the velocity and volume in such a way that the capacity can be dialed up or down rapidly.
The public cloud market is booming, with 20% year-over-year growth on an annual spend rapidly approaching $300 billion. And we are still in the early part of this journey, as only a small fraction of the workloads have been transitioned to the cloud. This leaves plenty of room for energy companies to turn their data deficiencies into a competitive advantage.
After you move into the cloud, the next step is to control the resource – in this case data and not oil – by building an intelligent foundation to take data out of silos and establish a clear set of rules and procedures applied consistently. This governance framework builds trust and confidence, which is vital when you’re sharing data throughout your enterprise and beyond. Doing this also creates a flexible “data supply chain” that enables a scalable glidepath to production, increases security, and allows for continuous innovation.
After capping your data Spindletop, then you get to use your data to make smarter business decisions. Using a suite of applied intelligence capabilities, data can tell you when to perform maintenance to minimize downtime and avoid production losses. Once it’s flowing, data can take the guesswork out of well design, provide real-time visibility to dynamically allocate capital and manage the supply chain for lowest life cycle cost, and increase sustainability by measuring emissions, enhancing energy efficiency, and reusing or recycling materials.
Turning an oil and gas company into an intelligent data enterprise changes today’s untenable cost structure. In upstream operations, analytics would help allocate capital more wisely, optimize asset and supplier utilization, enhance production and even help cap greenhouse gas emissions. This could reduce break-even costs by at least $10 per barrel of oil equivalent. Revenue and margin gains in midstream and downstream operations are equally impressive. Together, analytics-driven outcomes can improve ROCE by more than 10 percentage points, fundamentally resetting the paradigms for the industry.
The world’s is still going to need oil and gas, and the imperative to digitally transform oil and gas companies, long an obvious, if not an immediate need, is now acute. The perfect storm facing the energy sector requires every company to make foundational changes, starting with the smart imperative of, if you will forgive the unforgivable play on words, becoming an intelligent data enterprise. There might be black gold in them thar hills, but the future is in the cloud.