Guest Editorial: What Big Oil Can Learn From Big Blue

Abstract

Let's face it: everyone likes to feel special. It is therefore somewhat understandable that decision makers in the energy industry often believe that trends and patterns that have emerged elsewhere in the business world do not apply to the oil patch. "The oil business is different!" they proclaim. "That could never happen to us!" But sometimes we are not exempt from the immutable forces that shape the rest of the business community. Decidedly unoriginal concepts such as supply and demand do tend to be reliable predictors of oil and gas prices, and prospective investors scrutinize energy companies' profit and loss statements as closely as those from any other industry. It therefore follows that we might be able to learn from other sectors from time to time. The evolutionary history of IBM—frequently referred to as "Big Blue" in the business press—may offer just such an opportunity. The oil and gas sector historically has been very slow to develop and adopt new technologies, and relative investment in R&D by Big Oil traditionally has been only a fraction of that spent in other industries. But the industry is being forced to change. Future hydrocarbon resources—particularly in non-OPEC countries—will tend to be deeper, harder to find, and in environments that are significantly more difficult to access. There can, therefore, be little doubt that technology will play a pivotal role in the success or failure of tomorrow's oil and gas firms. This sharper focus on technology is shaking up the strategic fundamentals of our industry. Many years ago, when innovation was less critical, much of the oil and gas sector's technology came in the form of know-how and experience that was often uncoded, nonverbalized, and embedded in organizational routines. A country with hydrocarbon reserves usually enlisted the assistance of international oil companies (IOCs) to gain access to engineers who collectively held the knowledge required to turn the country's energy resources into revenue. The know-how required to achieve this end was both difficult to reproduce and hard to get from any source other than a handful of firms. A Shift to Science As the industry has been forced to reach for more technically ambitious reserves, however, this uncoded knowledge is giving way to technologies that are based less on experience and more on hard science. While decisions might have been made a generation ago with rules of thumb and gut instinct, data now reign supreme. Reservoirs are modeled in three or four dimensions with high-end computers not unlike those used by NASA, and the entire production system can be monitored by "smart" sensors that allow engineers to observe various aspects of its performance. Rules of thumb will probably always be handy for engineers, but today's oil and gas technologies are frequently too complex for unaided human judgment.