April 2019, Vol. 246, No. 4


Operational Intelligence Needed in Preparing for Oil and Gas Upswing

By Chuck Rathmann, IFS North America

In the oil and gas industry, pressure can ramp up twofold during peak times and companies must figure out how to maximize extraction to optimize return.

Employees are a vital component for business success, and capital assets are crucial to daily operations, but companies often struggle to hire skilled workers or deploy assets at short notice to ensure they are operating reliably and at maximum efficiency during heavier duty cycles.

Individual equipment components may last 25 years or more, but during slow times a rig may be idle for a year, two years or even longer. Deactivation and re-activation of equipment carry hefty price tags, and the equipment is not worth much from a resale perspective on the open market.

Finding Balance

In order to maintain their footing during these wild fluctuations in price and demand, companies in the oil and gas industry need to balance several interdependent factors from profitability and revenue to performance and operations – those that can’t will struggle to remain in business for long.

Asset maintenance systems comprise the heart of operations, maintaining assets and providing a full view of operating costs.

However, asset-focused systems don’t always cover the company’s other main assets – its employees – and compliance, HR and finance are usually siloed off in separate software platforms. Establishing balance across these different parts of the business is essential and here’s where a comprehensive ERP platform that encompasses as many of these disciplines and functions as possible is key.

Tipping the Scales

Even when executives have full visibility and control over internal processes, there are always elements outside the organization that have an effect on the business and must be accounted for in management decisions. Commodity price and various economic indicators can provide insight into where price and therefore demand are headed.

Oil and gas executives need the ability to pull all of these factors together from multiple enterprise software products, along with information from external data sources on a real-time basis. And this is exactly what a higher class of software, operational intelligence, can provide.

It’s not BI

Decisions in the oil and gas industry are often supported by standard business intelligence tools. These tools are not up to the task faced by the industry.

They do a great job of displaying information from published data cubes, but they rely on third party applications and manual implementation to pull information from multiple sources in an intelligent way. They will not compare directly to goals and business processes. And while they may generate an attractive visual representation of individual metrics, they are not designed to act on that information by pushing down or even automating decisions.

Operational intelligence is the next step and enables decision makers to take action on the information, either manually or through automatic triggers.

Organizations that must manage based on real-time business signals from within their four walls benefit from operational intelligence because it provides clear visualization of how value flows through the organization.

It aligns metrics from numerous enterprises or point source systems and provides a way to take immediate action directly in those operational systems – enabling a much more rapid response to emerging information.

But for organizations impacted substantially by external factors, operational intelligence can provide advance notice of potential business impacts before business signals would manifest themselves looking simply at internal metrics. Operational intelligence will also provide a way to act on this information.

Regulations Made Easy

The price of oil is not the only external variable operational intelligence software can track. Price shocks and other forms of operational risk can also be associated with compliance.

Regulation of fracking, traditional land-based drilling and offshore operations can change on a national level, but in a country like the United States, national regulations typically include lengthy periods of notice that act as a cushion for business impacts.

Given the effects of fracking operations on municipal transport systems and water resources though, we are seeing more county governments passing local ordinances that could affect operations or the ability to exercise lease options for given sites. These regulations could impact site viability in the case of a ban or moratorium or increase cost through the imposition of impact feels or mandates for water treatment reclamation.

State governments are also re-examining such things as minimum royalty statutes which again could drive the cost of developing or continuing operation at a given site or group of sites affected by advancing regulation.

Offshore drilling is also affected by regulation, but even as regulations designed to protect health, safety and the environment (HSE) are rolled back, the underlying HSE concerns must be addressed to prevent civil or even criminal liability.

As rigs move from United States to international waters, different regulations apply, and this can impact not only safety and design of the rig, but the amount of inventory kept on the rig in instances where a tax is levied on that inventory.

Operational intelligence software can include these compliance concerns and provide alerts if regulation begins to threaten the viability of a project or if changes to a project design begin to run afoul of current or planned regulation.

It can also identify or even automate operational changes such as staffing levels or inventory levels to avoid compliance problems or unnecessary taxation given the patchwork of regulations in international waters.

Evolving Industry

The terminology used to refer to operational intelligence software is still developing, so trying to research solutions is difficult. Some vendors and analysts use the term “business operating system.” Others lump operational intelligence in with corporate performance management solutions; and then there are tools for strategy management, business modeling, business process outsourcing, BI and action management.

Operational intelligence includes elements of all of these encompassed in a real-time operational intelligence system. Without this you will always face a delay in action and decisions that will leave you exposed to needless enterprise risk.

Today, many middle-market to large companies in the oil and gas industry still rely on spreadsheets for decision support. That can result in lag times of a month or more, and a lot can happen in that time that you will not be able to react to.

Operational intelligence will tell you what you need to know in real-time, give you suggestions for decision support and help you operationalize those decisions in the enterprise. P&GJ

Author: Chuck Rathmann, of IFS North America, has 30-years’ experience in business communication, ranging from business journalism to media relations. He holds a bachelor’s degree in news-editorial journalism from the University of Wisconsin-Oshkosh.

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