European Oil and Gas Companies Reinventing IT Strategies to Drive Digital Innovation and Build Resilient Business

16 Jul

European Oil and Gas Companies Reinventing IT Strategies to Drive Digital Innovation and Build Resilient Business

 

 

 

 

 

Gaurav Verma
Research Manager, IDC Energy Insights
Read full bio  @Gaurav_IDCEnrgy

2018 has come as a breath of fresh air for the petroleum industry. Looking back at the dark days of the global oil market between 2014 and 2016, when crude oil prices plunged from $112 to $28 a barrel, oil company executives left no stone unturned in pursuit of survival.

The market eventually started to recover, thanks to an upturn in market sentiment, futures contract speculation around the changing dynamics of oil supply gluts against global demand economics, and last but not least OPEC’s quota cut. As soon as crude rose above $60-a-barrel in December 2017, many extraction projects became economically viable and the oil industry came to life again.

Amid this upturn, there is a new trend emerging across the oil and gas (O&G) industry — the creation of the full-time dedicated executive position of chief digital officer (CDO). Though not an alien concept in the sector, the role of the CDO is now starting to gain popularity. This is a clear demonstration that even O&G companies, which have been less than excited about adopting digital solutions in their business processes, are now keen to strengthen their IT infrastructures to boost adoption of digital solutions. Unlike in previous years, O&G companies across Europe that took part in IDC Energy Insights‘ annual survey (2017) seemed fairly optimistic about their business prospects for the coming year, and are very concerned about their enterprisewide IT infrastructure, software/IT applications in use, as well as business-related digital service developments to drive digital transformation.

IT budget and digital strategies are becoming a crucial topic of discussion in board meetings and are seen as a game-changer. In recent years, this has become a key discussion area even in companies’ investor meetings. For example, when Eni CEO Claudio Descalzi addressed investors in New York a few months ago, the highlight of his speech was predominantly about the group’s digital innovation road map. A similar trend emerged when talking to respondents to IDC Energy Insights‘ annual survey — around 41% of O&G firms said they are looking to increase their external IT spending, more than 50% said they are going to keep their IT-related spending at the same level as the previous year, and only 5% said they would cut their IT budget. O&G companies in the U.K. are at the forefront of this change in the market, and it is little wonder given that it is largely fueled by U.K. companies, now that exploration and production (E&P) activities in the once-dwindling North Sea oil field are ramping up.

Until recently, O&G companies across the board were focused mainly on organizational restructuring and cost cutting. The oil majors, mainly in Europe, divested parts of their downstream business portfolios to improve financial flexibility and focus more on core upstream business. Another popular management choice during crunch time was rigorous cost cutting, mainly among independent companies. These strategies are now a thing of the past. O&G companies are launching initiatives to improve technology and revise their IT/OT strategies to make greater use of digital solutions.

From a recent IDC Energy Insights survey in which European O&G respondents were asked about their business priorities for the year ahead, astonishingly around 30% of companies said that innovation was their top priority in 2018, compared to just 20% the previous year. What could have been a better choice for IT budget allocation in 2018, when oil markets are doing great? The need of the hour is clearly to transform conventional, inefficient business processes into the best, most efficient process by means of innovation-accelerating technologies which will ultimately make them more resilient so that they do not have to fall back on more cost-cutting measures when the market goes into another downturn.

The likelihood of a growing IT services footprint in the near future, driven by the prioritization and adoption of digital technologies, albeit slowly, in day-to-day O&G operations, certainly draws the attention of CIOs and CTOs towards enterprisewide information security. Organizations are seeking to establish a safe and secure code of conduct to prevent data leakage or loss. In Europe, more than half of O&G organizations want to strengthen their existing data loss or leakage prevention tools. Data security, as usual, will remain one of the top priorities for users. In addition to security, other key areas over the next 12–18 months, as indicated by respondents, include — “IT outsourcing services, enterprise applications, industry-specific software, and system infrastructure software.” These will be the growth areas that will see greater investments than in the previous year.

For a detailed geographical market share overview of this, please refer to IDC Energy Insights’ oil and gas survey report, European Oil and Gas Companies: Business Initiatives and IT Investment Priorities, 2018. The report is published as part of the IDC Energy Insights: Europe and Central Asia Oil and Gas Digital Transformation Strategies program.

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