Navigating A Rapidly Shifting Risk Landscape In The O&G Sector

How Technology, Analytics And Innovation Can Help Firms Meet Evolving Risk Challenges

The Oil and Gas industry is arguably more familiar with managing an array of changing risk factors than almost any other sector in the United States. 

The industry is used to facing strong headwinds and has proven itself adept at adjusting to often rapidly shifting business conditions, whether that is regulatory change, big fluctuations in supply and demand, or evolving security supply chain concerns.

Navigating these risks is crucial to remaining competitive in such a challenging space as we move into 2020 and beyond with a number of wider macroeconomic as well as business environmental risks posing significant medium- and long-term challenges. 

Even prior to current global challenges, the pace of oil growth was expected to slow and global demand (excluding China, India, and the Middle East) was set to diminish significantly by 2024.

While the United States is projected to lead oil supply growth through 2026, and its move to become a major exporter is changing the dynamics of the industry in this regard, a number of risk factors could weigh on future market growth.  

Some of the biggest risk factors currently facing the sector as a whole include:

  • Political and geographical risks
  • Price volatility and demand 
  • Costs and capacity management 
  • Health, safety and compliance risks 
  • Environmental risks  

Each of these overarching risks has numerous implications for how the sector approaches strategic planning and risk management over the short, medium, and longer-term. 

So how can companies within the sector best navigate both known risks and unknown variables to improve operational efficiency, ensure continued growth, and drive shareholder value? It should be pointed out that there are differences between risks and uncertainties. The nature of oil and gas has inherent risks in drilling for oil and gas reserves, however shedding a light to better evaluate uncertainties can assist in improving processes and profitability. This requires a formal and orderly process to effectively identify, analyze, and respond to events throughout the (exploration to production) process.

In this blog, we’ll look at a more granular level at some of the current risks affecting the industry as well as how some of the players within the space are responding to challenges and what they need in order to effectively plan ahead. 

We’ll also review how businesses can embrace technology, big data, AI and the flexibility of the Cloud to drive risk management strategies that more effectively identify, isolate, and pre-empt significant risks.    

Current State Of Play: How Are O&G Firms Meeting Risk Factors 

Big players within the Oil and Gas space in the United States are currently dealing with a number of risk factors across upstream, midstream, and downstream sections of their business that have the potential to significantly disrupt plans in the short- to medium term.

Within a political context, continuing uncertainty in the Middle East, particularly ongoing friction between Washington and Tehran, has been compounded by a price war between Saudi Arabia and Russia. 

Further complicating the risk picture are the potential economic and regulatory changes facing the industry as a result of Brexit negotiations. Domestically, every firm in the industry will be looking ahead to November’s presidential election and how this may impact the sector. 

Businesses within the industry must be able to monitor, measure and forecast the potential impact of changes like these as accurately as possible, sharing data and insights across the wider business for increased clarity in decision making. Modeling scenarios and a variety of possible outcomes in this regard can significantly improve responses.  

Price volatility is baked in from an O&G perspective when it comes to strategic planning though this year has already shown how rapidly volatility can alter the best-laid plans. 

The fast-moving, real-world impact of the Covid-19 pandemic on prices has not yet become completely apparent, but there is a consensus among analysts that there will be a significant downturn in demand. Some experts are forecasting a potential drop of 55% in gasoline consumption in the US in the coming months.  

Firms will need to rely heavily on operational efficiency and planning to ensure optimum performance and greater security of supply lines in uncertain times. 

Health, safety, and environmental changes are a rapidly growing part of the risk landscape too with the safety of field, rig, and offshore workers paramount. The ability to share and access in-depth data on employee safety as well as standards and varying conditions of rigs and assets is crucial in meeting these challenges. 

Regulatory changes, including those introduced by the International Maritime Organization (IMO) regulating sulfur levels from 2020 onwards, will also require innovative thinking and smart, data-based testing and planning to ensure regulations are met consistently. 

So what exactly does meeting these real-world risk factors look like for Big Oil and Gas companies as we move further into the decade?

New Technology Offers Greater Business Agility In The Face Of Risks 

Traditionally, the Oil and Gas sector has often been reactionary in navigating risks, sharing information relatively slowly, and lacking the critical data required to make decisions in real-time which could help mitigate negative outcomes. 

A good example of this is in rig safety and asset maintenance. In protecting both key workers on oil rigs and ensuring assets perform to maximum capacity, planning is crucial, as is the ability to make real-time decisions based on variable conditions. 

The additional context provided by high-quality data and insights, which can be shared in real-time, helps decision-makers and managers better evaluate risks, and plan safer operational processes. 

Time series data from every rig in the field can help provide deeper, more nuanced awareness of specific conditions, helping support critical real-time decisions if deviating from the current drilling plan is necessary. 

Data like this helps bring together insights from geologists and operations into everything from drilling information, direction, and depth to precise geology information and surface expert analysis. 

In the past, this process would have experienced measurable delays needing to coordinate input from multiple departments. Firms can now streamline decision-making by using a central data lake to create detailed maps that highlight areas of high volumes, higher yield sites, and areas that could be potentially dangerous or unsafe. 

Smart sensors can also continually feed data on the status of field and rig assets, identifying potential safety issues before they become critical. This data can be used to develop a more predictive maintenance strategy, reducing repair costs, and avoiding expensive downtime due to equipment failure. Combining legacy data with smart sensor technology data, well assets can perform self-diagnosis and not only notify of a problem, but identify and suggest a remedy, including resources needed to address the issue(s).    

The ability to analyze data like this quickly is essential in helping implement data-driven outcomes at scale and while the technology is readily available within the sector, many businesses lack the resource to properly analyze the sheer volume of data they receive from the field and connected assets. 

AI and Multi-function analytics can help model different potential outcomes and provide insights that guide and support decision making across the business.

Ideally, C-suite and major decision-makers have clear visibility into data and insights from every aspect of operations, from geosciences and reservoir to land, drilling, and ops meaning there is greater collaboration across lines of the business. 

The cultural value of having widely available pertinent data to support decision-making brings relevant leaders into conversations too, ensuring a holistic approach to helping identify areas of potential risk and encouraging new solutions and approaches to existing issues. 

Cloudera Helps Make Data Insights And Multi-Function Analytics More Readily Available 

At Cloudera, we understand risk and believe that greater insights and better access to high-value data can help drive more productive decisions that can significantly offset risk exposure. 

Companies that run our Cloudera Data Platform (CDP) on Microsoft Azure can better gather, share and analyze data on-premises, or in multi- or hybrid-cloud environments to provide decision-makers and analysts with high visibility on real-time data from across the entire business.

This helps them evaluate, understand, and respond to risk factors faster while managing responses and directing resources with enhanced data portability.  

Running seamlessly with Azure, CDP lets businesses in the O&G sector add powerful analytics and monitoring capabilities to production-grade workloads. This means that they can more efficiently leverage Azure Data Lake and Microsoft Power BI to offer a holistic overview of operations, the status of assets in the field, and production environments for greater visibility and accountability. 

CDP leverages machine learning and advanced analytics too so that businesses can model different scenarios and compare a variety of potential outcomes to risk-based issues across a broad range of operations in the company. 

Our platform is built on Apache Impala so that critical teams across the business, from the furthest field to the head office have fast access to high-performance SQL analytics, no matter the size of data required.  

With stream processing and real-time analytics on changing data, we help provide the additional context required to make decisions even when conditions are shifting rapidly. 

Find out how we can help your business leverage the power of Microsoft’s Azure, to support a more holistic approach to risk management that puts the power of big data at the heart of strategic planning.  

Click here for more information about CDP on Microsoft Azure.

Mark Ferman
Mark Ferman

Sr. Oil & Gas Analytics Advisor

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