The digital dividend: Oil companies expecting their investments to pay off in hard times
- May 1, 2020: Vol. 7, Number 5

The digital dividend: Oil companies expecting their investments to pay off in hard times

by Mike Consol

As traditional energy producers struggle under the burden of oil prices that have dipped below $30 per barrel and face the need to reduce costs, technological advances in the way they operate are expected to soften the blow — and maybe even allow for some profits during the current price collapse.

Many oil producers have already figured out ways to find, extract and refine oil more cheaply, helping to promote lower oil prices during the past decade. Credit the discovery of large unconventional oil reserves in the United States for lower prices, and add the muscle and dash of technology advances that have allowed faster and better drilling techniques, as well as automation processes, cloud computing and the use of advanced analytics. Shale oil companies such as Pioneer Resources and EOG proudly talk about their data science teams and their big data platforms being a significant help in keeping them cost-competitive, according to BloombergNEF.

Oil majors such as BP, Shell, Equinor and Total have stated their aims to invest big in becoming “digital” organizations. AI-centered digital software has Shell executives pointing to the prospects of a $1 billion to $2 billion revenue boost. BP also expects its foray into digital technologies to bring billions in cost savings or profits. Equinor has flat-out forecasted cash flow will rise by $3 billion based on its digital investments between 2020 and 2025, reports BloombergNEF.

Digitalization in the oil space includes the collection and analysis of data from operations ranging from streaming from pumps on oil rigs, compressors in refineries and headsets on field workers, to the use of artificial intelligence, machine learning and the aggregation of large data sets for statistical analysis. These digital tools — sensors, cloud computing, advanced analytics and data science teams — can control oilfield machinery remotely, optimize energy use and monitor the equipment’s status, even alerting operators when a part is nearing failure and needs replacing. The economies achieved by digitalization include reducing the cost of labor, energy, machine maintenance and back-office operations, while increasing the amount of oil a company can produce annually.

Some $200 million was spent between 2017 and 2020 by Equinor on its new digital strategy, and $100 million is being spent per year by Repsol on these technologies, and oil majors are spending hundreds of millions each on cloud computing services.

BloombergNEF writes: “While current oil prices do not encourage exploration for new oil, nor drilling new wells, the world still needs oil, and producing from existing wells as cheaply as possible is a priority.”

The cost benefit to oil companies in the United States for optimizing existing unconventional oil production is $3.3 billion, BloombergNEF calculates. This is particularly helpful for remote sites. In the United States, it can take four to eight hours for an engineer to drive to an oil field to inspect equipment — something digitalization can help eliminate.


Mike Consol ( is editor of Real Assets Adviser. Follow him on Twitter @mikeconsol to read his latest postings.

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