The unconventional oil space (shale, tar sands, etc.) has been largely based on a drill, drill, drill mentality. Drill a well, and when the asset degrades, just go drill another one. But this kind of thinking has made unconventional operations that much more susceptible to the downside of today’s low oil prices.
“Their capture costs are a lot higher than traditional oil wells. Because of that, there’s been a big pullback in spending across the board, especially in upstream,” says Brent Potts, senior director of industry marketing for oil and gas at SAP.
The industry, which has always relied heavily on a contingent workforce, is tightening its belt in part by shedding a lot of those people. But producers are also looking at ways to make their well operate more efficiently, beginning to move away from the procedure of moving so quickly on to the next well.
“Now they’re looking at, ‘How can I make the ones I have run more efficiently?’” Potts says. “They’ve done the financials, and it absolutely makes more sense to invest in some of the operational efficiency software solutions.”
That’s a change for SAP, which has traditionally been involved with most of these companies at more of an enterprise level, providing software for financial, inventory, HR and other transactional-type activities. More recently, the company has been taking its HANA platform directly to operations to help companies throughout the oil and gas industry make sense of their operational efficiencies.
“For us, the Internet of Things is all about this Big Data thing,” Potts says. “Because everything’s got a sensor on it now, there’s an explosion of data. But people don’t know what to do with it. That’s where we come in. HANA allows a level of analytics that just wasn’t possible before.”
HANA is a relational database management system that’s designed to handle high transaction rates and complex query processing on the same platform. Manufacturers that had traditionally been using software for ERP-related tasks are now using it to make sense of the data coming from all their sensors as well.
“With SAP HANA, we can now do transactions and analytics in the same environment,” says Coy Wright, vice president of information technology for Pacific Drilling, a company that provides ultra-deepwater drilling services. “With landscape simplification, our costs are greatly reduced, with the added benefit of reducing our database size.”
With the ability to quickly manipulate the data and get to usable information, companies are seeing significant increases in operational efficiencies, Potts says. “Predictive maintenance is going that direction as well,” he adds. “The sensor technology is allowing enough data to come in to accurately predict when something is going to fail.”
Last year, SAP announced a long-term contract with Shell to extend their relationship through 2019. The deal involves Shell working with SAP’s HANA Cloud platform to improve operational excellence.
“We have to know what is happening everywhere in the world at any given time, and we need to help people working on assets or in the business have the information they need at the tip of their fingers on a day-to-day basis,” says Simon Henry, Shell’s CFO. “And the platform that we have is excellent in doing that if we make fullest uses of it. We, at Shell, I believe, are really just learning the potential of what we have in our hands.”
The deal with Shell demonstrates a shift away from simply selling software and letting customers implement that software, according to Rob Enslin, member of SAP’s executive board. “We’re now changing that to business outcomes and consumption-based use of our software so that Shell can actually really benefit from it, and SAP and Shell can have a relationship where we can co-innovate together,” he says.
HANA helps large multinational oil companies like Shell scale and reduce total cost of ownership, but the Cloud platform also makes it more accessible to smaller, unconventional oil companies that might not have a lot of capital to work with, Potts says.
Some of these companies simply don’t have the cash to invest in the software outright. “Even if you convince them that the ROI is incredible, they just don’t have the cash,” Potts says. “But with the Cloud, you can do it on a subscription basis, you can do pay as you go. There’s a big increase in interest in that.”
Though the current drop in oil prices is not expected to stick around forever, it’s sticking around long enough for companies to really rethink the way they’re doing business. “Nobody’s really looking for a short-term recovery,” Potts says. “The consensus that we’re hearing is that this is probably going to last through 2015, and then start to recover.”