Major Oil Company Uses Analytics to Gain Business Advantage
According Michelle Fox of CNBC and Stephen Schork, the oil industry is in ‘dire straits’. U.S. crude posted its ninth-straight weekly loss this week, landing under $50 a barrel. The news is bad enough that it is now expected to lead to major job losses. The Dallas Federal Reserve anticipates that the Texas could lose about 125,000 jobs by the end of June. Patrick Jankowski, an economist and vice president of research at the Greater Houston Partnership, expects exploration budgets will be cut 30-35 percent, which will result in approximately 9,000 fewer wells being drilled. The problem is “if oil prices keep falling, at some point it’s not profitable to pull it out of the ground” (“When, and where, oil is too cheap to be profitable”, CNBC, John W. Schoen).
This means that a portion of the world’s oil supply will become unprofitable to produce. According to Wood Mackenzie, “once the oil price reaches these levels, producers have a sometimes complex decision to continue producing, losing money on every barrel produced, or to halt production, which will reduce supply”. The question are these the only answers?
Major Oil Company Uses Analytics to Gain Business Advantage
A major oil company that we are working with has determined that data is a success enabler for their business. They are demonstrating what we at Informatica like to call a “data ready business”—a business that is ready for any change in market conditions. This company is using next generation analytics to ensure their businesses survival and to make sure they do not become what Jim Cramer likes to call a “marginal producer”. This company has said to us that their success is based upon being able to extract oil more efficiently than its competitors.
Historically data analysis was pretty simple
Traditionally oil producers would get oil by drilling a new hole in the ground. And in 6 months they would start getting the oil flowing commercially and be in business. This meant it would typically take them 6 months or longer before they could get any meaningful results including data that could be used to make broader production decisions.
Drilling from data
Today, oil is, also, produced from shale or fracking techniques. This process can take only 30-60 days before oil producers start seeing results. It is based not just on innovation in the refining of oil, but also on innovation in the refining of data from operational business decisions can be made. The benefits of this approach including the following:
Improved fracking process efficiency
Fracking is a very technical process. Producers can have two wells on the same field that are performing at very different levels of efficiency. To address this issue, the oil company that we have been discussing throughout this piece is using real-time data to optimize its oil extraction across an entire oil field or region. Insights derived from these allow them to compare wells in the same region for efficiency or productivity and even switch off certain wells if the oil price drops below profitability thresholds. This ability is especially important as the price of oil continues to drop. At $70/barrel, many operators go into the red while more efficient data driven operators can remain profitable at $40/barrel. So efficiency is critical across a system of wells.
Using data to decide where to build wells in the first place
When constructing a fracking or sands well, you need more information on trends and formulas to extract oil from the ground. On a site with 100+ wells for example, each one is slightly different because of water tables, ground structure, and the details of the geography. You need the right data, the right formula, and the right method to extract the oil at the best price and not impact the environment at the very same time.
The right technology delivers the needed business advantage
Of course, technology is never been simple to implement. The company we are discussing has 1.2 Petabytes of data they were processing and this volume is only increasing. They are running fiber optic cables down into wells to gather data in real time. As a result, they are receiving vast amounts of real time data but cannot store and analyze the volume of data efficiently in conventional systems. Meanwhile, the time to aggregate and run reports can miss the window of opportunity while increasing cost. Making matters worse, this company had a lot of different varieties of data. It also turns out that quite of bit of the useful information in their data sets was in the comments section of their source application. So traditional data warehousing would not help them to extract the information they really need. They decided to move to new technology, Hadoop. But even seemingly simple problems, like getting access to data were an issue within Hadoop. If you didn’t know the right data analyst, you might not get the data you needed in a timely fashion. Compounding things, a lack of Hadoop skills in Oklahoma proved to be a real problem.
The right technology delivers the right capability
The company had been using a traditional data warehousing environment for years. But they needed help to deal with their Hadoop environment. This meant dealing with the volume, variety and quality of their source well data. They needed a safe, efficient way to integrate all types of data on Hadoop at any scale without having to learn the internals of Hadoop. Early adopters of Hadoop and other Big Data technologies have had no choice but to hand-code using Java or scripting languages such as Pig or Hive. Hiring and retaining big data experts proved time consuming and costly. This is because data scientists and analysts can spend only 20 percent of their time on data analysis and the rest on the tedious mechanics of data integration such as accessing, parsing, and managing data. Fortunately for this oil producer, it didn’t have to be this way. They were able to get away with none of the specialized coding required to scale performance on distributed computing platforms like Hadoop. Additionally, they were able “Map Once, Deploy Anywhere,” knowing that even as technologies change they can run data integration jobs without having to rebuild data processing flows.
It seems clear that we live in an era where data is at the center of just about every business. Data-ready enterprises are able to adapt and win regardless of changing market conditions. These businesses invested in building their enterprise analytics capability before market conditions change. In this case, these oil producers will be able to produce oil at lower costs than others within their industry. Analytics provides three benefits to oil refiners.
- Better margins and lower costs from operations
- Lowers risk of environmental impact
- Lower time to build a successful well
In essence, those that build analytics as a core enterprise capability will continue to have a right to win within a dynamic oil pricing environment.
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