Today’s U.S. oil producers have to not just survive another boom and bust cycle but adjust to the new reality of lower prices and shrinking profits. How? Typically by driving capital and operating efficiency to preserve margins and maintain reinvestment rates.
However, that “solution” is conventional wisdom that contractors have been using for years — cut people and costs during downturns, then increase the same during boom. Is it time for a paradigm shift in the business model itself to separate from the normal boom and bust cycles? Probably yes. But what is that model?
Drawing a parallel from other industries, some capital intensive players such as GE — instead of focusing on efficiency gains only — shifted the business model from renting engines to guaranteeing uptime. This shift was achieved by combining people, sensor data and processes. That’s exactly where a cloud-based decision platform continues making a positive impact for drilling contractors.
The New Reality
Thinking along GE’s strategy, drilling contractors are renting rigs today, versus aircraft engines in the above analogy. What matters most to operators is rig uptime. Therefore, how can a drilling contractor change its business model to satisfy customers? Maybe the answer lies not just in efficiency gain (old reality) to survive in bust times, but in applying radical thinking to shift the business model itself.
How is this possible? More decision-makers are looking to the Internet of Things (IoT), which combines sensor data with process and people to deliver value that matters to customers. If drilling contractors can own the data, mine the data and have staff personnel acting on it, they can transform the traditional model to an innovative business model just as GE did. What a concept. How to achieve this:
- Own the sensor data: In many instances contractors want to enhance efficiencies but do not have any framework in place to own, manage, quality assure and quality control data, let alone store it.
- Mine and apply the data: The key is not simply focusing on traditional efficiency plays of applying the data to, for example, extend rig hours (predictive maintenance) or dynamic scheduling of rigs, but applying data science to predict trends tied to metrics, which matter most to operators, like rig uptime.
- People: This involves connecting data and process to performance engineers on staff who can provide suggestions and recommendations to ensure higher rig uptime proactively.
This new innovative business model approach can be charged based on usage or uptime guarantees.
The immediate reaction of drilling contractors may be, “Hold it right there. What you’re recommending is a huge investment.” What If they knew it actually was not. Why? More and more drilling contractors are not going it alone, but can financially partner to transform into this new innovative business model.
Comparable Business Improvement
The key to positive change for drilling contractors is to recognize that newness is not always simply trendy, it can actually improve business. A good comparable example is a recent technology developed by Houston-based Moblize, which is funded in part by Chevron Technology Ventures, and making a significant difference in saving time and money for operators. Field-proven on more than 7,000 wells in North America, this new drilling solution is an all-in-one software platform. Using any Web-enabled device, drilling engineers can now dramatically reduce their total unconventional well planning, construction and performance analysis process from weeks to days — and all done electronically at one location.
With operators’ sharper eye on operational efficiencies since 2014, users of this technology quickly recognized key attributes. It greatly reduces time required for engineers to aggregate and prepare data in a format that it can actually be used for decision-making. In other words, they trust the partner to help them manage data lakes, do predictive analytics and present a “ready to act” format in an intuitive display so they can focus on decisions. The all-in-one model does all that automatically so that instant drilling insights can be drawn — so quickly that engineers have commented that the insights derived from data in real-time with this technology actually are split-second real-time.
New Business Model is the Future
Back to drilling contractors. This dilemma brings up a related question for operators: “What do you want most from drilling contractors?” Their answer is, “Can you convince me that the rig will be up and running at least 95 percent of the time?” Because an operator wants to measure this key metric, a new business model has been created around this metric. An operator wants the lowest possible non-productive time (NPT). And now they get it.
Feedback from the field says it all: Predictive analytics and smart collaboration comprise the new business model and a revolutionary new software platform is making news, too.