As the industry prepares to move from a year marked by volatile commodity prices, a change at the top of the oil and gas production leaderboard and continued price increases, companies could face additional pressure in the year ahead.

However, technology could be the differentiator, according to panelists speaking during a recent IDC Energy Insights webinar that highlighted conditions companies will face in the next three years.

“If you’re a cutting-edge oil and gas company that believes that the use of information technology is a competitive differentiator, you may be ahead of some of your peers in deployment, reuse or leveraging of existing technology,” said Jill Feblowitz, vice president for the IT advisory firm. “Things are changing in a rapid and radical way in the oil and gas industry.”

Oil prices that plummeted from more than $100/bbl to about $55/bbl (WTI) and about $60/bbl (Brent) a few days before the Christmas holiday are pressuring expansion plays and profitability.

“It has been proven that the finding, development and production costs continue to increase, making a barrel of oil produced today much more expensive than what was produced in the past,” Feblowitz added. “There are large capital investments that continue to be risky.”

There might be some pullback in new ventures, she added, noting ConocoPhillips already announced it is cutting back. The company earlier this month announced a 2015 capital budget of $13.5 billion, down 20% from 2014.

Divestitures, merger and acquisition activities are increasing with companies settling on core competencies, she continued.

“Also, there is a new supply and demand paradigm with resources moving now more west to east: west where the great portion of the supply is; east where the great portion of the demand is,” Feblowitz added. “We believe that energy supply changes will be even more dynamic going forward. From a social perspective, the industry has been dealing with changing demographics and the thought of changing demographics for years. Now, we’re getting to a tipping point.”

Another driver is technology.

“The digital oil field started the movement and took greater and greater instrumentation. We only see that growing with development of technologies like sensing fiber optics, microseismic and the use of rich media like the analysis of subsea video,” Feblowitz said. The adoption of third-platform technologies, such as big data and analytics, is spreading.

And this is expected to raise productivity expectations.

Economic, social, technical, environmental and business drivers are expected to lead to innovation as the industry reconfigures its approach, according to IDC, which unveiled its top 10 decision imperatives as part of its worldwide oil and gas 2015 predictions presentation.

Information technology (IT): During the next three years, 40% of the oil and gas majors and all software divisions of oilfield services will co-innovate on domain specific technical projects with IT professional service firms, according to IDC.

“Exploration has been on the cutting edge of deploying technology like reservoir characterization with techniques like 4-D visualization. We see deployment of sophisticated technology making its way into other segments of the industry including drilling, completion, production, pipelines. These technologies are increasingly dependent on advances in information technology,” Feblowitz said.

IDC believes IT’s role will shift from being builders to being managers of deliverables. Among the firm’s guidance was the advice to vet professional service firms for experts and have oil and gas training programs as well as hire managers with business and technical backgrounds to insure that service firms are using technology best suited for E&P.

Advanced analytics: IDC believes that 50% of oil and gas companies will have advanced analytics—predictive analytics and optimization in drilling, production and asset integrity—capabilities by 2016.

Although the industry has had much experience with high-performance computing, especially in exploration, IDC’s Roberta Bigliani said many managers are “still in the dark about what it takes to harness the power of big data for improving data-driven decision-making.” The plethora of technology choices makes it even more difficult to devise a strategy.

But a roadmap addressing not only strategy but also people, process, data and technology will be needed, she said, noting attention should be paid to data quality and trustworthiness.

“The future of the oil and gas industry will swing on big data analytics capabilities,” Bigliani added.

Capital efficiency: By 2015, 25% of the top 25 oil and gas companies will apply integrated planning and information to large capital projects to speed up delivery and lower over-budget risks by 30%, IDC said.

“The industry continues to struggle with management of large capital projects with budget and schedule overruns being frequent,” Bigliani said. “To deliver better performance integrated planning has proven to be effective, and it’s critical for success as well as the adoption of an enterprise-wide project portfolio management framework that includes standardized project methodology and governance model, knowledge/content management, resource management and supply chain management.”

In this area, IDC said analytics and collaboration platforms could also be used to enable data sharing and decision-making among engineering, design, procurement, construction, logistical and operations teams. Virtual reality and modeling also could come in handy during planning.

Shale plays: “The CEO will expect immediate and accurate information about top shale plays to be available by the end of 2015 to improve asset value by 30%,” said Chris Niven, research director for IDC. Historical data and advanced analytics will be required.

For example, in the Eagle Ford, he said several wells with less expensive, smaller pumps were producing about two-thirds of what wells with larger, more expensive pumps were producing. In this instance, the decision was made to replace the pump at a well, which went down for two months. The cost was about $1 million, he said; however, the well now produces about 1,000 bbl/d, which is about a $6 million annual increase in revenue.

“The main idea is to look at all the factors that impact cost of productivity and find pockets where costs can be safely reduced and productivity can be increased,” Niven said. Steps for improved operations include integrated applications and data to corporate dashboards as well as providing analytics and collaboration platforms allowing engineers, geologists and drilling and production crews to jointly develop recovery techniques.

IDC Energy Insights also said:

  • The top 25 oil and gas companies will apply modeling and simulation tools and services for field development by year-end 2017;
  • 80% of the top oil and gas companies will reengineer processes and systems to optimize logistics, hedge risk and efficiently and safely deliver crude, LNG and refined products by year-end 2017;
  • By 2016, 70% of oil and gas companies will have invested in programs to evolve the IT environment to a third platform-driven architecture;
  • Companies will turn to IT to help meet productivity goals amid continued labor shortages. More than 40% of the oil and gas workforce will be under 44 in three years;
  • Spending on connectivity-related technologies will increase by 30% between 2014 and 2016; and
  • Mergers, acquisitions, divestitures and new integrated capabilities will drive 40% of oil and gas companies to reevaluate their current deployment and integration of enterprise resource planning and hydrocarbon accounting in 2015.

“Energy is both a driver of some of the reconfiguration of other industries and it’s also reconfiguring itself,” said Robert Parker, group vice president, IDC. “Innovation is key, and oil and gas companies have to become leaders in technology investment if they are going to be successful in the future.”

Contact the author, Velda Addison, at vaddison@hartenergy.com.