Oil and gas companies used to spend their dollars on engineering technology. But that’s starting to shift toward information technology as companies try to stay competitive in an industry fraught with change.Alberta solution providers are finding lots of gaps to fill with vertical-specific IT solutions.
Energy was traditionally a “cowboy” industry focused on punching holes rather than being systematic in how you ran your business, said Wayne Sim, president and CEO of Calgary’s 3esi Innovations Inc., which helps exploration and production companies optimize their supply chains.
Not now. “The giant pools are all gone, the big producers are all gone,” he said. “The economics have changed significantly over the last 10 years.”
And it’s estimated about 50 per cent of the oil and gas workforce will retire over the next five years – which means their knowledge will walk out the door with them. Companies are now scrambling to capture that knowledge, said Sim. But it’s difficult to get buy-in from management for a complete infrastructure overhaul.
“Our approach has been to develop the enterprise backbone and put vertical slices on top of it so we can deliver to specific groups,” he said. “Eventually they’re sharing common data.”
3esi is 18 months old, focusing on enterprise workflow across functional groups in the upstream sector. “It’s completely missing, not in the energy sector per se but the upstream sector specifically,” he said. The aim is to provide a framework for collaboration, with a layer on top to help management, since they spend more than 50 per cent of their time digging for data.
The oil and gas sector is made up of two fundamentally different businesses, said Rod Heard, vice-president of sales and corporate development with zed.i solutions in Calgary, a provider of production operations management solutions for the energy sector: Finding the assets, drilling wells and producing hydrocarbons; and operations.
“We’re focused solely on that operations side and we’re enabling our customers to make a productive shift in operational efficiency,” he said. Once zed.i digitizes and centralizes a customer’s information, it then focuses on back-office management, health and safety, fixed asset management and infrastructure optimization.
Aside from an aging workforce, there’s also an acute labour shortage. Add to that manual processes, siloed work processes and siloed legacy applications. “They’re just pressed to the floor with less people,” said Heard, adding that there’s a real need to investigate technologies that will help companies become more efficient.
“The extra workload plus the increased stringency and personal liability associated with the regulations is a catalyst for people to shift the way they’re doing business,” he said. There’s also recognition that significant gains in operational efficiency can be made through the deployment of new technologies.
In the Canadian oil and gas sector there has never been a dominating horizontal application, said Heard. Eighty per cent of all financial accounting packages are tailor-made, with only a handful of SAP or other enterprise applications in use.
As a result, the industry’s IT spend on integration is humungous. “[Customers] are looking for the silver bullet to pull information, slice and dice it, do guided analysis, understand their operations,” he said. “There’s some serious dissatisfaction with some of the legacy applications right now.”
This industry represents a classic case of IT complexity resulting from legacy system support and continuing cost pressures that can hinder modernization plans, said Darin Stahl, lead research analyst with Info-Tech Research. Upwards of 85 per cent of IT budgets in these organizations are focused on support and maintenance of legacy systems. Add to that increasing energy demands and deep regulatory oversight from multiple layers of all government, along with a unique requirement for safety and monitoring systems for critical infrastructure.
Consolidation is complex
“The approach to cost reduction runs the gamut from traditional infrastructure consolidation plays to the adoption of the utility infrastructure, where organizations abstract the IT service delivery from legacy infrastructure,” said Stahl. Virtualization is the latest manifestation of this, where the server is abstracted from the hardware, but this can also be done across service delivery, ultimately finding new uses for those services.
But even traditional consolidation of infrastructure in this sector is complex. “IT leaders are not only contending with a mixed bag of legacy applications,” he said, “but they also typically have a hodge-podge of IT supplier relationships.”
The industry is also known for its mergers and acquisitions, which means a company might have several disparate systems that need to fit together. “You have to balance that against the backdrop of a company that is trying to integrate their ERP systems and information-sharing of Sarbanes-Oxley and all these things that are driving the company,” said Mark Amelang, executive vice-president of Decision Dynamics Technology in Calgary.
The solution provider has an offering called Wellcore that focuses on information sharing and lifecycle management – from planning a well to the time it’s put into production. “There’s a hole in the market,” he said. “Traditionally there has not been a lot of technology deployed there, so we’re filling that niche.” It also provides a project cost management solution focused on capital projects in the energy industry, which integrates with ERP systems on the backend. But the domain expertise is so specific that a generic package alone won’t give customers what they need, he added.
Losing knowledge Experienced workers with that domain knowledge are retiring, so oil and gas companies are losing that knowledge and don’t have enough new people in training. “That’s why knowledge management, information sharing and the new dashboarding, analytics and decision-making are so critical,” said Amelang. “Now we want to make decisions based on our data, not just based on someone’s years of experience, because in many cases that doesn’t exist anymore.” The solution provider plans to roll out a business analytics solution with dashboards to help companies not only capture and share information, but to provide analysis and predictive views to drive business.The industry tends to be made up of two distinct camps: the established players with large IS/IT groups, and income trusts, start-ups and smaller companies that don’t want to make a heavy investment in IT and rely more on outsourcing relationships.
Pandell is one solution provider that targets junior and mid-sized oil and gas companies with three products: JVNexus handles joint venture accounting, GeoNexus handles land management and AFENexus handles capital expenditure tracking (and is offered as a hosted or on-site solution).
All three use a software as a service licensing and support model. “They pay monthly subscriptions, so it’s a subscription licence versus a one-time licence,” said Greg Chudiak, president and CEO of Pandell Technology Corp. in Calgary.
A lot of these smaller companies have short life spans, maybe two to five years, and are often bought out at some point by a larger company. “So it’s a very attractive model for them to get up and running quickly at relatively low cost and without a lot of IT infrastructure and overhead,” he said.
These companies have typically been underserved, he said, since horizontal products don’t provide specialization unique to the patch. “General accounting doesn’t work in the oil and gas industry,” said Chudiak. With joint ventures, there are so many partners involved in expenses and revenues, it can get complicated -from how they share in the costs of drilling a well to how they share revenues.
Using SaaS to modernize The solution provider uses an underlying technology called Pandell Liquid Intelligence to develop new products, and it will use this as the basis of a new offering aimed at migrating legacy applications to Web-based technology.“We do see a real business need with so many enterprise customers having these older applications built in the ’80s and ’90s,” said Chudiak.
“They’re difficult to support, they’re difficult to maintain and enhance, and this is really going to create an opportunity for them to do that in a relatively cost-effective manner.”
It’s not easy to modernize applications and streamline the delivery of IT services, but it can create a sustainable cost-reduction environment and, in some cases, uncover streams of new revenue, said Info-Tech’s Stahl.
Most of these companies are taking it one step at a time, since they can’t afford or safely manage a complete overhaul. They should be ruthlessly eliminating redundant processes, he said, and standardizing on multiple software platforms and management environments. But it could take three to five years to realize the full potential of these changes.
Still, technology advances have made it easier to manage an application without worrying so much about where it’s running. “Enterprises have learned that the physical hardware matters less than TCO and risk management, especially in this sector,” said Stahl.
“The technology, the tools and the processes available also support the creation of a more agile and cost-efficient delivery model.”