Digital Transformation in the Offshore Oil and Gas Exploration and Production supply chain operations

Abstract

The offshore oil and gas exploration and production (E&P) industry currently faces significant challenges that jeopardise its profitability and future. Sustainable operations are needed to comply with increased regulations and to help address climate change, while at the same time, global demand for energy and other consumable products is increasing at a rate that alternative sources of energy cannot meet alone. Nonetheless, competing sources of energy pose an economic challenge to the industry, which needs to reinvent itself to remain competitive and become more sustainable. Meanwhile, higher competition for exploration areas and increased complexity in their exploitation translate into higher capital and operational costs and lower oil prices, which usually result in lower profits. Sources such as DNV, UNDP, Boston Consulting and McKinsey strongly suggest that the Norwegian E&P industry requires a digital transformation of its operations, and the industry has been adopting technology and digital solutions to tackle these challenges. To this end, the recommended and adopted technology has mostly focused on the drilling operations and offshore activities within the industry. Paradoxically, the support offered to drilling operations by supply chain and logistics operations have been minimal, with limited software and tool upgrades focused on replacing the “pen and paper” practises of everyday operations without taking advantage of potential benefits for streamlining or integrating the functions. This research addresses these challenges by investigating the transformation already started in the offshore E&P supply chain operations support underway in an established Norwegian operator and aims to contribute to the success of this transformation through (1) an analysis of how the operational functions can be made more efficient, (2) a presentation of potential alternatives based on research into state-of the art options, and (3) a strategic roadmap as a guide for their implementation. The discussion in this research, the proposed alternatives and the roadmap focus on the supply chain and logistics support to the drilling operations that are part of E&P due to the sheer size of the industry and the value of addressing an area most in need of attention. The research was designed as a longitudinal action research study conducted in three cycles over three years, resulting in three articles that present the research outcomes and contributions. The body of knowledge of this research lies mostly within supply chain management and system theory, while systems engineering and systems thinking have greatly influenced this research. Systems engineering and systems thinking provided the foundation to design and execute this research. Their methods and approaches provide a transdisciplinary and integrative way of looking into complex systems to focus on how to design, integrate and manage them, using multidimensional principles and concepts from several scientific fields. The results from this research are presented in relation to the supply chain operations’ “AS-IS” and desired “TO-BE” states. To reach the research objective, a thorough investigation of the operator’s operational structure, its goals, and the potential alternatives to reach these goals was conducted. This investigation showed that the current “AS-IS” supply chain operations are fragmented into silos within and across the organisation, lack software and data interoperability, and have a high dependency on manual inputs to collect the information that is required to execute the operational tasks. Three root causes were identified: (1) a traditional organisational culture that dictates how operations are conducted, (2) a traditional lack of urgency in improving supply chain operations due to high profit margins, and (3) failure to invest in technology that focuses on supply chain operations. The desired “TO-BE” vision presented by the stakeholders involved in this research shows an end-state for supply chain that addresses different organisation levels, with focus spread into cultural, organisational, operational, and technological elements. The results indicate that technology and organisational change are at the centre of the desired transformation for supply chain operations. With technology at the centre of supply chain activities, the focus shifts to automation, software, and data interoperability, and the use of data as triggers to operations to decrease the dependency on manual intervention. The results show that such an infrastructure could be expected to lead to more autonomy, that is, less reliance on human decisions that could be a bottleneck to the efficiency of operations and suggests potential changes to many other aspects of current operations. The results also indicate that this transformation and vision can only be reached through organisational and cultural changes that embrace new approaches to how operations are to be conducted. The main contributions from this research are threefold: (1) for the industry, (2) for academia, and (3) for policymaking. Contributions to the industry include the description and visualisation of current and desired states through rich-picture techniques that provide the convergence of goals and ideas from multiple stakeholders into one common image that can serve both the operator and as a benchmark for other operators in the industry. Still, with the industry in focus, this research contributes to the body of knowledge by suggesting methods and techniques that the Operator and others in the industry can adopt to innovate their business models as a precursor to help them in this transition from current ways of working to newer, more digital, ones. Finally, this research presents a strategic roadmap that shows the steps to be taken to conduct this transformation based on the identified “AS-IS”, “TO-BE” and proposed alternatives, thus helping to achieve a successful digital transformation journey. The academic contributions from this research come in the form of helping to enrich the existing literature and practice through the dissemination of empirical, scientifically peer-reviewed reports from an industry that is mostly new to the existing offshore E&P and the upstream supply chain academic literature. The present research also presents soft systems engineering applications in a domain that expand and contribute to its body of knowledge and literature. Technology roadmapping for the oil and gas industry is relatively undocumented, and this research offers a practical adoption of the methodology through a scientific process and with peer-reviewed disseminated results for a traditional and engineering-oriented industry. Finally, this research contributes to policymaking by providing real-world observations from the offshore E&P industry that may contribute to the creation, verification, and/or validation of policies aimed at the industry. Although the results of this research are not intended to be generalised to the whole industry, the information revealed in this research is in line with the generalised industry tendencies exposed by the accredited research institutions that were used as sources of data collection in this research. The information revealed through this research gives explicit direction based on the Operator’s current status on important issues, such as sustainability, and the direction that operations are heading in relation to technology creation and adoption, digital solutions, and technological innovation. Such information guides decisions towards policies aimed at sustainability and human/work relationships within the E&P industry.