The digital imperative for GCC oil and gas companies

strategyNational oil companies (NOCs) need to adopt an accelerated and holistic approach to digital transformation to retain their advantage, say Anil Pandey, partner at Strategy& Middle East, and David Branson, senior executive advisor at Strategy& Germany

The dual shock of the COVID-19 pandemic and a sharp decline in oil prices has created significant challenges for oil companies worldwide. As a result, some may be tempted to stop their investments in digitising their operations. For most companies, however, the case for investing in digital is as strong as ever. Despite the ongoing energy transition, oil will remain an important part of the energy mix for the foreseeable future. The national oil companies (NOCs) of the GCC are well-placed given their low costs of production. However, they too need to transform their business to reinforce their natural cost advantage, boost efficiency and remain competitive and resilient to demand and price shocks. Digital transformation is a critical element in this respect.

Strategy& recently published a 2020 Digital Operations Study for Oil & Gas Companies. The results show that leadership teams worldwide are well aware of the potential of digital applications to improve operational and financial performance. Over the next five years, industry leaders expect a 10 per cent increase in revenue from getting projects online faster, and an 8.5 per cent decrease in costs from operational efficiency. 

Our analysis also found that most companies – NOCs, large international players, and independents – are still in the early stages of digitisation, with more than 70 per cent of respondents saying they were still in the early stages of digital maturity.

Promising technologies identified in the Strategy& study include manufacturing execution systems, cloud computing, energy analytics, the Internet of Things (connected devices), and machine learning. What these technologies have in common is that they can integrate real-time data and advanced analytics to improve decision-making and power applications to dramatically improve efficiency and sustainability. These tools have already been successfully deployed in other industries.

In common with their international counterparts, NOCs in the GCC have taken their first steps towards digital transformation. They have piloted digital applications, modified their organisation structures to embed digital, and have developed digital models and visualisation of the flow of hydrocarbons across their portfolios. With digital transformation still at an early stage of adoption across the industry, NOCs – with greater control of operations across the value chain – have an opportunity to lead the next phase of digital transformation.

Four core principles

To achieve a leadership in digital, NOCs should apply four core principles

First, digital initiatives should be driven by business priorities rather than being viewed as an extension of “traditional” information technology. Increasing efficiency by lowering costs and/or increasing production, and managing increasing sustainability expectations are core business priorities. In addition, digital can have a key role in helping ensure optimisation of hydrocarbon flows and maximisation of value across the portfolio. Digital initiatives should be defined and championed by the “owners” of the assets where benefits are expected to accrue.

Second, companies need to invest in foundational capabilities, including an enhanced focus on rapidly improving the skills of their existing workforce, while hiring outside experts where necessary if they have skill gaps for emerging technologies. 

Third, management needs to adopt a digital operating model with clear governance and accountability guidelines. For GCC NOCs which have traditionally had strong assets acting with a degree of autonomy, effective digital governance will require re-calibration of relationships between assets and central functions.

Fourth, NOC leadership teams need to understand that digital transformation goes beyond merely investing in new technologies, and rethink traditional ways of working. Digital can be a strong enabler of cross-discipline and function collaboration and optimisation of operations. 

The oil and gas industry worldwide faces considerable challenges. However, NOCs still have a tremendous advantage over the rest of the world, with a much lower cost base. The challenge now is to build on that progress through an accelerated and holistic approach to digital transformation to retain their advantage, and continue to power the world.

Strategy& is part of the PwC network. 


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