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Oil and gas sector to invest in technology for cost savings

The Business Times by TAY PECK GEK

Singapore

THERE is increasing recognition across the global oil and gas industry that cost-cutting is not the way to go. Rather, digital investment is the strategy to improve efficiency that in turn will lead to cost savings, a study found.

According to an EY report, 89 per cent of the 100 global oil and gas executives across the value chain surveyed (15 per cent of respondents were from Asia-Pacific) in the second half of 2018 expected to accelerate their investment in digital technologies over the next two years.

Forty-two per cent of respondents cited efficiency as their primary motivation for digital investment, while 23 per cent were more ambitious in that they intended digital investments to help add their capabilities.

Sanjeev Gupta, EY Asia-Pacific oil and gas leader, said: "A focus on operational efficiency has been an industry-wide mantra since the price of oil started to decline in 2014. In response, companies are subjecting their investments to far more intensive scrutiny, and they are looking for solutions to slim down the cost-per-barrel, aid recovery rates and reduce non-productive time."

He added that there is now broad recognition across the industry that temporary cost-cutting is not the answer, and that digitalisation has the potential to significantly improve efficiency instead.

Mr Gupta also noted that a number of Asia-Pacific companies across the value chain, including international oil companies, national oil companies as well as pure-play downstream operators have already started embracing digital technologies, while all the oil majors are actively developing their digital road maps.

The report revealed that both robotic process automation (RPA) and advanced analytics are expected to have the most significant impact on the industry over the next five years, as cited by 25 per cent of executives.

In fact, 75 per cent of respondents said they were already implementing RPA, and 87 per cent indicated that they were using advanced analytics as they looked to use data to boost productivity. It is noteworthy that respondents devoted an average of just 17 per cent of their digital technology investment to building in-house capabilities. By contrast, 48 per cent of their digital technology investment were spent on outsourcing. Reasons for not doing it in-house were long timelines to deliver results, prohibitive cost of investment and personnel issues.

Andy Brogan, EY oil and gas transactions global leader, when addressing the media on Wednesday, briefly touched on cost pressure in the supply chain.

He said: "Although companies are spending again and they are approving projects, they are much more careful in sanctioning these projects in terms of how durable they are through a price cycle, and how they can get them down to the lowest possible construction price. Oil companies still generate a lot of cash, but they have a lot of demands on that cash. So they are extraordinarily focused on cost management and that feeds its way through into the supply chain. Although the demand top line has come back, there is still the issue of margin pressure. And margin pressure gets worse the higher cost asset that the supply chain is supporting."