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Collaborating for systemic change in #oil and #gas

 What new disruptive business models will emerge that will drive powerful and systemic change in the oil and gas industry? What can oil and gas learn from other industries where collaboration is thriving? 

 

Given the mounting pressures on the oil and gas industry, tweaking at the edges, i.e. finding better ways to do things in the way that the industry has already been operating for years, will no longer suffice. That approach has been largely exhausted. Industry players need to challenge the status quo, and challenge existing business models.

 

Collaborating with industry peers to drive deeper systemic change is increasingly being promoted by industry leaders, yet it’s not yet bearing fruit and is leaving some sourness among industry participants. Other industries are finding innovative new ways to get work done together that increase the pie and develop win-win solutions, and are well ahead of oil and gas in this matter.

 

A hard reality

 

The hard reality that oil and gas companies are facing is that to survive, they need to bring their cost structure down significantly, many say by half, to be competitive on a world stage. That, while reducing GHG emission and confronting ever increasing and powerful advocacy groups who are building a track record in slowing resource development.

 

The fact is that the industry’s favourite, proven decades-old tactics (wait it out, or at most, tweak at the edges) have run their course and will not guarantee survival.

 

Bone crunching margins

 

That’s not to say that the industry hasn’t achieved some strong results already in cost reduction. But how have these been achieved? At what expense?

 

A serious chunk of those cost savings have come from simply squeezing the supply chain to reduce prices, while maintaining or even compromising safety performance and service levels. For example, an executive with a leading service company told me that prices need to come up by 50% just to get to break even. Service companies have reduced their prices to bone crunching levels to keep the business, to weather this storm while they hope for a recovery that’s not coming.

 

That’s simply not sustainable, and would not bode well even if a hypothetical recovery emerged. Service companies would then try to recuperate and soothe their pain through higher pricing. A different solution is required.

 

To add to the pain of this story, many innovations in the industry have been coming from, or been developed with the support of, service companies. You just need to go to the global oil and gas innovation centre, visit the focus areas for innovation, and see for yourself how those are being developed by or with the services industry. We have had several service industry executives tell us they are struggling to invest in innovation with negative margins.

 

Being left behind?

 

While much has been said and written about collaboration, ecosystems, open innovation, or sharing economies in other industries, the oil and gas industry is leveraging its external network less effectively.

 

Ecosystem approaches to business are rapidly evolving in other industries, as the white space between companies is being leveraged fundamentally differently than in the past arm’s length, closed models.

 

New business models are emerging that are based on open sharing of data, resources and ideas, real time coordination, fast learning systems, zero wastage, and joint investing and profit sharing. They build trust through new systems of transparency such as those enabled by blockchain. Indeed, Forbes recently wrote how if you’re not a startup leveraging ideas such as those of Uber and AirBnB, then you’re a turnaround.

 

Different world lenses?

 

The collaboration catchword is increasingly heard in O&G circles across the globe. Producers believe one of the key underexploited ways to achieve cost reduction is through a different way of collaborating in the supply chain, while service companies are hoping for a different business model to achieve cost reduction, so that they can just survive.

 

But both producers and service companies have different definitions for what good collaboration looks like, and to what end they want to collaborate.

 

Both face challenges in coordinating more effectively. For example some service companies are not reconfiguring their offering dramatically enough to meet the changing priorities of producers, while many producers are fragmented in their supplier interactions across multiple functions that are driven by different interests, from procurement to asset owners to operations leads. Results are mediocre at best, and frustrations abound despite the talk about needing to collaborate better.

 

A different way of collaborating is required

 

Great potential awaits oil and gas by leveraging the supply chain collaboration to a greater extent. Powered by technology and digital, fundamental new models are developing for how players in other industries are collaborating, leading to new businesses, new sources of revenues, and growing sense of trust among industry players.

 

The industry will need to find structural solutions that encompass a change in mind-set and business culture in order to develop new business models that allow for step change and the sort of innovation that achieves radical new ways of doing things and radical cost reduction.

 

Shift in mindset

 

We’ve been taught since a young age, through school and then university, that the size of the pie is only so big, and the best we can do is either fight for more, or find peace in caring for others and giving up selfish interests in order to benefit others.

 

Indeed, in the oil and gas industry the investment pie has been shrinking dramatically for the past 3 years, and that implies the need to do more for less. But that doesn’t need to be so.

 

Increasingly we are hearing about collaboration as a central tenet that enables success. Indeed studies have shown that better quality and more innovations come from collaborations among a complex set of discrete companies or individuals, vs the genius in the lab. Collaboration is nothing new!

 

Darwin mentions collaboration 3 times more often in his writings than competition, yet modern economics and commerce is based on competition and we’re conditioned based on this principle. So fundamentally, this is a mindset change in how individuals interact within their own companies, and the interactions between companies!

 

This is about solving problems together, about setting audacious goals and working on the solutions in a collaborative environment which involves multiple players from within the producer organization, and including the supplier, academics and regulators. Legal structures may need to be rethought to enable this, to allow and enable win-win outcomes to emerge.

 

A way forward

 

Before we can begin to tackle this topic in oil and gas, it’s important the industry understands and takes into account where others are at in their thinking around, and objectives for, collaboration.

 

Deloitte recently published studies in both Netherlands and in the UK that are getting to the heart of the issue, by measuring collaboration in a way that is unbiased and fact based, and solution oriented so that players can sit down and begin to discuss solutions. And they’re achieving meaningful dialogues and results.

 

What if we did this work in Canada, and created a meaningful dialogue for change? Imagine the healthy dialogue from leadership of forward thinking organizations who want to approach collaboration differently. Imagine an industry that embraces changes such as an Uber model for field services (rather than resisting as did Canada’s taxi industry)? Oil and gas will enjoy meaningful step change improvements to how the industry is collaborating to achieve radical results.

 

Here are some concrete steps I propose to move forward:

 

  • Develop a collaboration study in Canada such as the UK and NL study, that baselines collaboration intent, effectiveness, and goals for collaboration

 

  • Based on this study, begin meaningful dialogue to coordinate the intent for collaboration, and develop some concrete actions to get better at coordinating as an industry

 

  • Leverage lessons on collaboration from other parts of the globe and other industries

 

  • Run challenge sessions, led by forward thinking producers, to tackle the most pressing challenges. Imagine setting one big audacious goal, and challenging the industry to achieve the impossible!

 

  • Develop collaboration business models powered by digital, such as Uber models for well servicing, focusing on non-competing interests, such as spare part inventory sharing, joint emergency response centres, training, safety solutions, etc.

This article was written by Silke Otremba, a strategy consultant at Deloitte, and owner of a stellar B&B on the Naramata Bench.

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2 Comments
  • Jeremy Ferrett
    Posted at 17:00h, 16 January Reply

    Great Article Geoff,

    The key to driving these important changes is liberating innovation from under the boot of middle management in both Producers and Service providers.

    Although the big picture benefits of shared ledger technologies are fantastic I think there are some easier shorter term gains that are enabled by related technologies.

    The more mundane aspects of the digital revolution, give rise to the ability to collect and manage data with little to no increased overhead while driving behaviours through systemised workflows.

    Bespoke project operating systems are emerging that unify commercial/ supply chain and engineering. This reduces the main measure of project inefficiency which is the number of excel worksheets you need to manage your capital project.

    Cheers
    Jeremy

    • geoffrey cann
      Posted at 18:37h, 17 January Reply

      Jeremy – our studies show that oil and gas tends to drive the bulk of its innovation dollars to improving the efficiency of resource extraction, and to improving the efficiency of product transformation (processing bitumen to synthetic crude). Little goes towards new business models, improved supply chain, better stakeholder engagement, new commercial models, new systems, etc.

      Who would be leading in these new project operating systems? that sounds like a great new development.

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