A Digital Solution to a Problem of Demographics

05/21/08

The current shortage of skilled labor in the oil industry has already led to some unusual detours.

In one case, a major Canadian oil and gas company decided to pass up a significant acquisition with attractive opportunities for exploration and production. This happened, in part, because the company was uncertain that it could find the necessary people to manage it.

Such stories may soon be the norm. With demand for oil on the rise and prices at record highs, oil companies have reason to invest in oil fields that once seemed too expensive and too difficult to access. But to run these vast, remote operations, the industry may need 500,000 more employees than it currently has, a deficit that could reach 1.7 million by 2030.

Closing this labor gap will be almost impossible. Fewer people want to work in boom-and-bust businesses, and the average oil worker is older than 50, suggesting that companies will face huge challenges simply replacing retirees let alone filling new positions. Faced with this dilemma, oil companies are beginning to choose a radically different strategy: transforming traditionally labor-intensive, down-and-dirty oil operations into modern, technology-driven “digital oil fields,” in which a handful of skilled people can accomplish what required a few hundred in the past.

The digital oil field is a suite of interactive and complementary technologies that let companies gather and analyze data throughout the job site. It includes “intelligent wells,” which have fiber-optic sensors buried in the drilling apparatus, controlled manually by operators on the surface or automatically through closed-loop information systems. These sensors transmit a constant stream of data about the well and its environment, enabling operators to respond to shifting circumstances in real time. For instance, they can adjust fluid pressure or valve settings as the drilling surface becomes more or less permeable. Digital oil fields also have “advance alarming” systems, which predict performance levels and warn of potential equipment failure.

Oversight of these systems requires a new breed of engineer and technician, one who has not only significant operational experience, but also the analytical skills to compare data coming from multiple sources and discern the relationships among these pieces of information quickly and accurately. Many of these workers are located in distant facilities, perhaps miles from the oil wells themselves; they use video equipment to synchronize collaboration with on-site operations.

Every major private-sector oil company has a digital oil field initiative in place. The industry is projected to spend more than US$1 billion over the next five years on digital oil field investments, including hardware, software, and services. In fact, before 2013, one large oil company plans to spend approximately $100 million on its digital oil field program in just a single geographic area before expanding elements of the program to four more regions.

The digital oil field can also bring direct benefits to the bottom line. One oil and gas company has completely integrated its production operations with its daily gas marketing and trading organization, allowing it to take advantage of intraday price changes. The company calculates that it has saved more than $10 million in labor costs under this system. In addition, its net performance from overall portfolio production has improved by 10 percent, representing an annual return of more than 30 percent on its investment in the technology.

This new level of automation and insight into the plant operation yields enormous benefits, but such a change is not without challenges. Getting employees to embrace a new operating method is one of the biggest hurdles in implementing the digital oil field or any similar system. As companies revamp their processes to make the best use of new technology, the technical and analytical responsibilities of managers only increase.

The digital oil field is a needed catalyst for the industry. Without these advances, oil and gas companies will find themselves caught between the conflicting pressures of a shrinking labor force and a growing demand for oil. The new system is not a panacea, but it can be an avenue to new areas of innovation, helping companies reach previously off-limits reserves, inexpensively and safely, to meet the global need for carbon resources.