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The Reality of Digital in Oil & Gas

What does digitization mean for the oil and gas industry?

Digital has been the big buzz word in the industry for some time now – but what exactly does it mean. McKinsey & Company Senior Partner Matt Rogers sat down with the Financial Times US Industry and Energy Editor, Ed Crooks in the first of the Digital Dialogues in Oil & Gas series to discuss the impact of digital in the industry.

Ed Crooks

Ed Crooks

US Industry and Energy Editor

FINANCIAL TIMES

See bio 

Matt Rogers

Matt Rogers

Senior Partner

MCKINSEY & COMPANY

The Financial Times is one of the world’s leading business news organizations, recognized internationally for its authority, integrity, and accuracy. In 2016 the FT passed a significant milestone in its digital transformation as digital and services revenues overtook print revenues for the first time. The FT has a combined paid print and digital circulation of more than 910,000 and makes 60% of revenues from its journalism.

The McKinsey Center for Future Mobility was created to help business leaders and policymakers come to terms with a future that is increasingly autonomous, connected, electrified, and shared. Based in four global hubs (Beijing, Detroit, Munich, and Silicon Valley), our forward-thinking and integrated perspective, industry expertise, proprietary research, and global convening power give us a unique combination of assets to help clients navigate the mobility revolution.

www.mckinsey.com

August 2018, McKinsey & Company, www.mckinsey.com. Copyright (c) 2018 McKinsey & Company. All rights reserved. Reprinted by permission.

Our fresh commitment to low carbon

The world is demanding more energy every day to support growth and prosperity. At the same time, it’s demanding energy with fewer emissions. At BP we’re taking on this dual challenge across all of our business activities. We’re growing our business, providing more energy to the world. And at the same time, we’re reducing emissions in our operations, improving our products and creating low carbon businesses. This is how BP is helping the world transition to a low carbon future. As part of this, we are setting some new and important targets. Head to bp.com/energytransition for details.

Published by BP on Apr 16, 2018

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Rethinking the oil and gas organization

December 2016, McKinsey & Company, www.mckinsey.com. Copyright (c) 2018 McKinsey & Company. All rights reserved. Reprinted by permission.

Organizational choices made during a time of resource scarcity need reexamination when the cycle turns.

When business cycles turn, cyclical industries can struggle to retool their organizations for the new environment. For instance, today’s oil and gas companies were developed in a time of resource scarcity. To get at those hard-to-find, difficult-to-develop resources, companies greatly expanded the role of their central functions—mandating them to set common standards, make technical design decisions, track company-wide metrics, and disseminate best practices. This worked well during a decade of high growth and high prices but created complexity that added costs, stifled innovation, and slowed down decision making. As these central teams expanded, general and administrative costs grew fivefold, hitting nearly $5 per barrel in 2014 (exhibit), with the biggest increases coming from technical functions such as engineering, geosciences, and health and safety.

Oil companies have cut support functions since 2014 but must consider more radical organizational changes as prices remain weak.

With prices now below $50 a barrel, that organizational blueprint is no longer sustainable. While companies have cut their support functions since 2014, the overall organizations supported by these functions are also smaller. This suggests further reductions in corporate functions will be needed, as well as new organizational models.

A more agile organization, with fluid teams and looser hierarchies, can lower costs and create greater responsiveness to today’s vastly different markets—ranging from megaprojects to less asset-heavy unconventional shale-oil and renewable-asset plays. Technologies such as networked sensors that generate and share data can help optimize production processes, while digitally enabled automation of routine manual activity can reduce human risk and spur productivity. Critically, the structures built to manage scarce talent and large-scale megaprojects will need to be fundamentally redesigned. We see two models arising: for lower-risk assets such as tight oil, a very lean corporate center with highly autonomous asset teams will suffice, while higher-risk, more capital-intensive assets will need a comparatively stronger center with deeper functional and risk-management capabilities.

For additional insights, see “The oil and gas organization of the future.”

About the author(s)

Christopher Handscomb is a partner in McKinsey’s London office, Scott Sharabura is an associate partner in the Calgary office, and Jannik Woxholth is a consultant in the Oslo office.

ExxonMobil to Join Stanford Strategic Energy Alliance

  • Builds on Global Climate and Energy Project’s 15 years of success
  • Strong science and exploratory research to develop low-carbon energy solutions
  • $20 million commitment in addition to ExxonMobil’s GCEP investment of more than $100 million
  • Expands company’s collaborative work with academic and research institutions around the world

IRVING, Texas–(BUSINESS WIRE)–Exxon Mobil Corporation (NYSE:XOM) today announced that it will become the first founding member of the new Stanford Strategic Energy Alliance, an initiative that will examine ways to improve energy access, security and technology while reducing impacts on the environment. As part of its commitment, ExxonMobil will contribute $20 million in funding over five years to research and develop lower-carbon energy solutions.

The Stanford Strategic Energy Alliance builds on the success of the Global Climate and Energy Project (GCEP), also led by Stanford, which focused exclusively on low-emissions, high-efficiency energy technologies. ExxonMobil has sponsored GCEP since its inception in 2002 with a commitment of $100 million and additional contributions toward specific projects. In its 15 years of work, GCEP has evolved into a pioneering collaboration of scientists, engineers, researchers and students focused on identifying breakthrough low greenhouse gas emission energy technologies that could be developed and deployed on a large scale.

“ExxonMobil has worked with Stanford to advance low-carbon technologies over the last 15 years, and we’re excited to be the first founding member of this new endeavor,” said Bruce March, president of the ExxonMobil Research and Engineering Company. “Identifying scalable solutions for addressing the dual challenge of supplying energy to meet global demand while minimizing the risk of climate change is one of our core missions. We are continuously looking for ways to improve existing supply options and manufacturing processes while managing carbon intensity.”

Since its creation, GCEP has sponsored more than 100 research programs in the United States, Europe, Australia, China and Japan, and has resulted in over 900 papers in leading journals and more than 1,200 presentations at conferences. Building on fundamental science, significant advances have been made in the areas of photovoltaic energy, renewable and lower carbon fossil fuels, batteries and fuel cells. More than 60 technologies have also been developed and 15 patents have been issued. Multiple companies have also started up as a direct result of or inspiration from GCEP research.

The new Stanford Strategic Energy Alliance will pair industry alliance members and Stanford professors who share common research objectives across the spectrum of energy topics from science and engineering to policy and business. Managed by the Stanford Precourt Institute for Energy, the alliance will also fund some early-stage research at the direction of its faculty leadership.

ExxonMobil’s support for the Stanford Strategic Energy Alliance expands the company’s collaborative efforts with other academic and research institutions that are focused on developing an array of new energy technologies, improving energy efficiency and reducing greenhouse gas emissions. The company currently works with about 80 universities in the United States, Europe and Asiato explore next-generation energy technologies, including founding members of MIT Energy InitiativePrinceton E-ffiliates Partnership and University of Texas at Austin Energy Institute.

Source: Exxon Mobil Corporation

ExxonMobil
Media Relations, 972-940-6007

Offshore, oil, gas, drilling

Petroleum Engineers Play an Important Role in Sustainability

Some people balk at the idea that oil and gas has a role to play in a sustainable future, but the reality on the ground suggests otherwise.

“Supplying energy for the world is a monumental task. There continue to be improvements in renewable energy sources; however, reasonable forecasts of growth in renewables suggest fossil fuels will remain the primary source of the world’s energy for decades to come,” Nathan Meehan, president of the Society of Petroleum Engineers, wrote in an article published by SPE in March 2016.

Even with the increasing adoption of renewable energy resources, Meehan notes that fossil fuels still play an important role in meeting today’s energy needs and using them prudently is the best way to make sure that our generation does not compromise the ability of future generations to meet their own needs.

The drive toward renewables is evident in the US where last year nearly half of utility-scale capacity additions on the power grid came from renewable sources like solar and wind, according to the US Energy Information Administration.

But even with the recent gains, renewables only account for a minority of total US power production and their intermittent nature creates the need for energy storage or backup generation that can be brought online quickly – like natural gas fired power plants – to stabilize the grid. The bulk of heavy lifting in the US power generation sector is still done by natural gas (34%), coal (30%) and nuclear (20%), according to EIA data.

This data suggests that fossil fuels will still be needed for decades to come in the power generation sector, and that’s only the tip of the iceberg. A myriad of other industries count on energy and products derived from oil and natural gas.

Considering this, SPE takes seriously the need to extract these resources sustainably.

Though many people may not realize it, there are many things that petroleum engineers can do to help ensure that oil and gas is part of a sustainable energy solution. Meehan says these areas include:

  • Minimizing methane emissions
  • Reducing or eliminating flaring
  • Supporting energy efficiency and conservation
  • Ensuring wellbore integrity
  • Reducing the surface footprint of wells
  • Eliminating spills
  • Optimizing field development and management

SPE offers its members opportunities to train, share knowledge and advance practices to further these goals.

SPE’s efforts supplement work being done by a number of producers, several of which voluntarily release sustainability reports that highlight their unique measures – like Statoil, Shell, and Hess. To learn more about what petroleum engineers can do, visit SPE’s website or read Meehan’s full article on the subject here.

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