Recently, Casey Hall, managing director in Vaco’s Houston office, joined host Michael O’Sullivan on the Oil and Gas Global Network’s (OGGN) podcast, “Oil and Gas Tech.” They covered a lot of ground while discussing how oil and gas IT leaders responded to 2020 business conditions and how they’re moving forward in 2021. We’ve got the highlights right here!
The wide-ranging conversation started with the state of IT in oil and gas in 2020 then moved on to how to achieve better value from new technology solutions. From there, Hall weighed in on the value of tier 1 and tier 2 ERPs, TIME impact analyses, technology roadmaps, and finding the right partner. And, for those who follow Casey’s posts on LinkedIn, they discussed the power of a Bitcoin revenue stream, of course.
State of IT in the oil and gas industry in 2020
O’Sullivan kicked off the discussion by acknowledging the painful challenges and smorgasbord of surprises that oil and gas companies — and the people behind those companies — faced in 2020. Hall then joined in to share an overview of the state of IT in the oil and gas industry and how leaders responded during the early days and months of the pandemic.
Basically, what did things look like from their eyes?
“At the time, everybody was hoping for a V-shaped recovery,” said Hall. “[Then] we started getting anecdotal information about how much cutting was going on in some places . . . [but] I had another client that was still investing. So what we ended up doing in July, because time was starting to pass and it was all lasting longer than any of us wanted, so we sent a survey to Houston IT leaders.”
This is what Hall and his team discovered:
- 75% of the companies surveyed reported deferring non-critical projects
- 33% of them deferred nearly all projects
- 50% reported that their company had reduced IT headcount
- 14% reported aggressive cuts, with oil and gas IT leaders reporting the heaviest cuts
- 48% cut third-party IT services
Somewhat surprisingly, 41% of companies reported seeking new software to replace existing, more expensive systems. Assuming that some companies may experience permanent changes to their business model and scale, resetting IT strategies and updating application portfolios may help lower costs and improve efficiency down the road.
Doing more with less … Yes, you can!
“It’s an eternal problem [for IT leaders]: somebody always wants you to manage your budget down, but every department in the company wants IT support because they need to get their budgets down,” said Hall. “Technology is the most common lever that departments can use these days.”
Despite all the hardships in the short term, in the big picture, it’s a great time to try on new technologies and for IT departments to demonstrate their value.
In the early days of the pandemic, companies were cutting pretty much everywhere, but they still needed to accomplish new things. Hall noted that technology is helping companies do everything so much better and more efficiently. It’s helping teams accomplish incredible things during incredible times. Ultimately, technology makes everyone’s lives so much better.
Hall shared a great example of how operational technology (OT), which can monitor equipment and detect changes, and data historians, which correlates data over time, can improve efficiency and keep costs down within the pipeline business:
“We have one client that has a lot of data and the data historians are doing what they need to do day-to-day. But now, because Amazon Web Services has machine learning that you can use without spending a lot of money upfront, they’re able to use that technology — they’re piloting this right now — to take the data that’s coming out of the data historian and look at how their compressors are running. What they’re going to try to prove to themselves is that they can get some cost savings out of how they’re managing these [compressors].”
The best thing about this pilot? It’s relatively inexpensive and if it pans out, they have direct cash cost savings. This means an IT leader can make a case for investing a part of that cash cost savings elsewhere.
Does a tier 1 ERP still fit the bill?
Finding new ways to use technology, like blending OT with a data historian, is one way to cut costs. Some companies are looking at retiring their tier 1 ERPs — like SAP and Oracle — and implementing a right-sized tier 2 solution.
Technology continually evolves and there are quite a few good tier 2 ERPs that are less expensive to implement than upgrading and supporting tier 1 solutions. Cloud-based ERPs specifically have improved tremendously over the past decade and can be implemented at a reasonable cost. In some instances, the entire cost — from acquisition to implementation — of a new, cloud-based ERP can be less than a single year of tier 1 operation and maintenance costs.
As business models change in size, scale, and scope IT leaders and financial officers are starting to kick around the idea of whether or not a tier 1 ERP is overkill for their business.
So is it time for a tier 2 ERP restructuring? Take a quick quiz and find out …
- Are the company’s transaction volumes less than 15,000 per day?
- Was the tier 1 ERP implemented five or more years ago?
- Is the tier 1 ERP due for costly upgrades?
- Is it too hard to maintain internal IT expertise to support the existing ERP?
If “yes” is the go-to answer, it’s time for a cost-benefit analysis. For companies that are too large for tier 2, or for those with ERPs that are too new, third-party maintenance may ease the burden on internal IT teams and keep costs in check.
Is it TIME for impact analysis?
Figuring out when the time is right for a change can be overwhelming. Unless you have a field-tested, tried-and-true methodology.
“A TIME analysis takes your portfolio of applications and IT services and looks at what they cost you and what benefit you get from them and are there risks associated with them,” said Hall. “Then, you start classifying them in one of four categories: T is ‘tolerate’, I is ‘invest’, M is ‘migrate’, and E is ‘eliminate’.”
Core systems that are working well go into the “invest” bucket. The rest, however, warrant closer scrutiny. Some are easy to eliminate and others may fall in the gray area — you’ll tolerate them. And then, there’s the “migrate” bucket. Essentially any duplicate system or systems that perform similar functions fall into this category. You’ll see this bucket start to overflow when a company has been part of a merger or acquisition — both of which are on the rise in our post-COVID times.
“This is the thing about right now. There’s a lot of cutting going on. It’s very hard to defend things that on the surface don’t make a lot of sense,” said Hall. “And the faster you make a decision, the better off you’re going to be. You could keep two employees for what some of these systems cost. And those employees are very valuable.”
How best to use consultants to make progress
Taking an objective look at your IT systems and applications can be difficult. If separating the gold from the brass is harder than it seems, it might be time to call on an outside assist. O’Sullivan asked how companies should approach finding the right advisors and consultants.
Hall, who has found himself on the buying side of the table as well as on the delivery side, noted that companies first need to think about whether the problem or goal they have requires specialized knowledge of their company, or is a new capability outside of the company’s experience altogether.
When a company has expertise internally, the best path may be to free up your own internal experts and supplement them with either an external advisor or coach, or with backfill resources for their support duties. For oil and gas, the previous example of piloting machine learning around data historians may fit this model.
In cases where the problem or goal truly is new, then use the external consultant to work on the solution pretty much start to finish so that the result and benefits can be achieved sooner. Hall’s personal interest in cryptocurrency became the example here.
“If you’re in oil and gas and you’ve got excess energy and you’re flaring, you can start Bitcoin mining,” said Hall. “It creates an alternate revenue stream. The odds are that your internal people are probably interested in cryptocurrency, but that doesn’t mean if you’re going to set up an auditable, controlled Bitcoin mining opportunity somewhere out in the field where you’re generating electricity, that you want to spend a lot of time on that versus bringing in somebody;the fact is the faster you get it working, the faster it pays you cash versus going through a learning process.”
When kicking the tires on different vendors, Hall urged companies to look for solutions providers that come to the table with detailed proposals with more content focused on the problem the company has rather than general content that might apply to anyone. It’s not a one-size-fits-all world and there shouldn’t be a one-size-fits-all solution. The best vendors will invest time in describing the unique aspects of the client’s situation and what approach would actually be used.
You can find the full podcast here!