Oil industry at technological turning point

The recent decline in oil prices has had a drastic effect on the oil and gas industry, and industry is restructuring itself accordingly. While making its way through this "strategic inflection point," industry also must continually evaluate what role information technology (IT) will play in the newly formed landscape.

This suggestion was at the core of the message offered by Robert P. Peebler, Pres. and CEO of the Houston-based Landmark Graphics Corp. at the Offshore Technology Conference earlier this year.

According to Peebler, the industry has reached this point of inflection from colliding with a "10X force"-a term penned by retired Intel CEO and author Andy Grove.

A 10X force is a force that is so great-typically outside of a company or an industry-that it changes the structural nature of the business to the point of changing the competitive landscape. When a 10X force hits a business or industry, it causes a strategic inflection point, a phrase also coined by Grove.

"I`d like to suggest that, in our industry, we are right in the middle of a 10X force. I think the force is not so much the price of oil dropping like it did over the last year or so, but I think that it`s about the change in mindset that the drop in oil price has created in the minds of all the executives running the oil and gas companies around the world," said Peebler.

Integrating technology

The collision with this 10X force typically triggers a restructuring within businesses. Along with this transformation, said Peebler, businesses must modify the way technology is integrated in the workplace.

In Peebler`s opinion, industry is spending a lot of time, money, and resources reengineering the "back office." And, generally speaking, not enough time and money reinventing the "front office," where the actual business is conducted.

"Because of that, I don`t think we`re creating, as an industry, (as many) significant competitive advantages as we could if we were more aggressive in using technology and using different business approaches in the front office.

"It`s not a surprise we`re consolidating," he added.

According to Peebler, the petroleum industry spends just 2% of its total spending on the front office-on software, computers, internal support, and training of all the people that are expected to use the technology.

"We (as an industry) spend more money on the drilling fluids for dry holes then we are spending on the front office to reinvent ourselves. What is wrong with this picture?," he asked.

"I`ll suggest that in 3-5 years, we`ll look back, and we will say that 1998 was the year of the strategic inflection point. And I think in 5 years, we`ll look back and look at what`s around us and see winners and losers. We will see companies that were in leadership positions before 1998 that have disappeared in one way or another, and we`ll see other companies that have emerged and are top of the pack. The question is, who will these companies be and what will they look like?

"Integration, to me, primarily has been about data. The process has been to move data from function to function, but we really haven`t begun to truly integrate. We`ve started with computers, and have connected them through networks, and that`s where we stand today," he said.

On the other side of this inflection point, Peebler predicts that technology development will begin to accelerate rapidly. "It`s what I think of as a new era," he said.

Learning curve

"The problem with integration is that it is difficult to do, and there are almost predictable steps that one needs to go through, and that`s where the hierarchy of integration comes in," said Peebler.

There are four levels of integration: connecting individuals to the data, looping teams around groups of activities with a process perspective (workflows), networking these groups together to perform tasks (operational processes); and allocating resources.

"Many companies are stuck at the first level, or just getting data on-line and accessible. It`s at Levels 3 and 4 that a company gains power," explained Peebler.

In the near future, Peebler envisions worldwide communication becoming second nature. "We are literally going to have bandwidth around the world (enabling us to) effectively communicate point to point anyplace in the world. And it`s going to come within 5 years, plus or minus," he said.

"What that means is that you can move large amounts of information and data around the world. Networks will become the computers-when you log in, you won`t know where the system is running from, you`ll just have access to whatever you need."