The oil and gas industry has historically been slow to optimize working capital and adopt best practices, but this trend has changed over the past three years. Oil and gas companies are being increasingly aware of the importance of managing working capital properly if they want to stay competitive in a challenging economic context.
While there is improvement, further actions need to be done as there is still a lot of cash trapped on balance sheets. According to the recent “Cash in the barrel" report from EY and American Express, up to CAD$30 billion remains trapped on oil and gas companies' balance sheets.
To address this problem, companies have adopted short-term measures, such as cutting costs and putting pressure on suppliers to extend payment terms. While these strategies are working well during a short period, oil and gas companies must go further to improve their working capital situation in the long term. The industry needs a digital transformation.
Why digitization is essential?
You may wonder if it is worth it to invest in technology and innovation, as it bears a high cost. Digitization indeed has a cost, but you should see it as an investment that will bring long-term benefits to your company.
New technological developments have brought oil and gas operators into areas that were once inaccessible, creating an oversupply that brought down oil prices. This weaker-prices environment requires oil and gas companies to focus aggressively on capital and operational efficiency to reduce costs and improve cash flow. Digital solutions supporting this new approach are crucial to transform the oil and gas industry so it can succeed today and in the future.
Secure digital technology can connect producers and consumers with common sources of information to achieve better operational efficiency. As these networks expand, operational efficiencies will increase as well. The value created by these networks results in better and faster operational decisions, greater use of assets and lower operating costs, which will ultimately increase efficiency and improve cash flow.
To begin your company's digital transformation, you should start by connecting critical assets and machines. Then, analyze data to determine what can be improved. Technology helps you to assess anomalies and take corrective actions quickly. Finally, use digital technology to maximize your assets' total life to increase availability, minimize costs, and reduce operational risk.
According to the EY and American Express report, digital transformation covers the following five areas: topside production optimization, predictive maintenance and repair, logistics and warehousing, integrated planning and execution and digital finance transformation.
How one Canadian oil & gas company is implementing technology?
An oil and gas company exemplifying a culture of innovation is Imperial Oil, one of Canada's largest integrated oil companies. Over the last 20 years, Imperial has invested more than $2.1 billion in research and technology development. The majority of investments are going to the development of advanced oil sands recovery technologies, designed to improve environmental and economic performance. The energy company uses new technologies and efficiency improvements to reduce the intensity of greenhouse gas emissions from its oil sands operations.
Imperial has a strong digital foundation, connecting its equipment, assets, and people. The company is installing LTE networks on its sites and fiber optic connectivity from its assets. Asset improvement teams link together experts from all over the world to find ways to improve Imperial's assets. The oil producer uses low cost, low power sensors to capture information and machine learning to optimize operating parameters. Virtual technology is deployed for training and drones are used for mine planning and equipment inspection.
The future is digital
Digital transformation not only reduces operational costs and free up cash flow, but it also positions early users for the future. Companies that embrace digital technology will not only improve efficiency but also attract and retain the best talent.
This article is intended for general informational purposes only and does not constitute legal advice or an opinion on any issue. It should not be regarded as comprehensive or a substitute for professional advice.