Digital disruption is breaking news across all sectors of the economy, and cannot be ignored. This disruption and the obsolescence it creates is the main reason that half of the companies on the Fortune 500 list in 2000 are no longer part of that list today. The oil and gas industry, however, has been slow to take advantage of emerging technologies such as machine learning, artificial intelligence (AI) and augmented reality (AR).

A limited number of companies are beginning to set an example for how digital technology can affect the value chain, and the measurable benefit they are finding is starting to attract widespread interest. These companies are showing that they can operate more safely and effectively in discrete areas such as oil well management, worker mobility, and asset identification. However, the end-to-end value chain across the oil and gas business has yet to come close to its full digital potential. The existence of the Offshore Technology Conference in Houston is one indication that this trend is starting to change.

Unique Challenges Facing the Oil & Gas Industry

One reason for the slow pace of digital transformation among energy companies is that the industry has weathered a tough few years characterized by weak demand and low prices. This price collapse triggered a wave of cost reduction among upstream businesses. Even though energy prices appear to be recovering, companies must weigh operational costs against R&D investments, and the decision to dive into digital has become complicated. There are additional economic challenges, enumerated by Archana Deskus, VP and CIO at Baker Hughes. Deskus points out that the oil and gas industry is facing intense competition from alternative energy producers, as well as volatile commodity prices, shifts in political trade policies, environmental rules, and customer preference.

Digital Inaction Carries the Biggest Risk

“For upstream, midstream, downstream and machinery manufacturers, the risk of digital inaction is greater than the risk of digital failure. Internet of things (IoT) and AI are the future and it is coming,” said ,Archie W. Dunham, retired chairman of ConocoPhillips. The nature of that risk is that the challenges listed above can’t be effectively addressed without the power of digital insight. Dunham’s comments relate to the activities of JAG Resources, a group that mentors startup companies seeking to bring “innovation, disruptive, and transformative technologies” to the energy sector. The group currently has a partnership in the works with decision sciences startup Flutura. Flutura’s Cerebra Industrial Internet of Things platform is designed to detect health episodes and other anomalies generated by a broad range of equipment. Sophisticated sensors can now be put down into drilled wells and drilling rigs, with intelligent analytics integrating feedback from those sensors to operate in the most efficient possible way. One example of this new efficiency is how Cerebra automatically generates spare-parts requests from sensor events at a large Houston oil and gas OEM.

Potential Savings from IoT Efficiencies

Currently, the margin of profitability for the oil and gas industry is thin, partly due to the rise in alternative energy, which will “cap oil in the $45 to $60 range and gas in the $2.50 to $3.50 BTU range,” according to a joint report by The Kellogg Innovation Network and Clareo. Globally, there are 1.5 trillion barrels of proven oil and gas reserves; less than 30 percent of these resources are utilized on average across all types of operating environments. That means there is a tremendous amount of valuable energy left untapped. Furthermore, only three to five percent of those assets are currently connected digitally, and only about three percent of that available data is actually being used. These unused digital capabilities offer a potential solution to rising expenses, making exploration, development, and production safer and less expensive.

Where Digital Can Bring Value to the Oil and Gas Industry

Fuelfix states that “Digital technologies can help us extract more energy, more efficiently, with less impact on the environment and less threat to human life.”With the growth of the Internet of things (IoT) as well as the growing number of smart sensors, exploration and production (E&P) companies are beginning to consider applying artificial intelligence and machine learning. As they incorporate augmented reality and virtual reality in their technology, they are revamping their business models to create value around intelligence rather than focusing on more equipment. New positions such as “innovation manager” are being developed, and one international oil company is piloting digital technology with Silicon Valley data analytics company Palantir. This nimbleness, derived from digital insights, is driving “staggering efficiency improvements and cost reductions” in many basins, according to Fuelfix. The impact of augmented and virtual reality in the energy industry is far reaching. To keep open as many options as possible in a rapidly changing landscape, industry players must be able to clearly envision the future. The following areas are high points where the value chain in this sector can realize substantial impact through digital transformation.

Clearer Imaging

Augmented reality brings new value through remote imaging technology. As AR development company Augnite points out, this technology means that highly-paid engineers can control several assets in real time from where they sit onshore, through a head-mounted display such as the Microsoft Hololens. Augmented reality also superimposes information about wellhead operation on screens viewed by personnel on the ground, and the platform also captures the workers’ actions for purposes of future audits. The increased power of AR imaging technology is giving oil companies greater visibility across underground and undersea conditions when carrying out seismic surveys, and artificial intelligence provides the computing power needed to yield actionable insights from the masses of visual data.

Reducing Costs Through Spill Detection

Augmented reality and machine learning are saving money for oil and gas companies on a variety of fronts, both direct and indirect. Detecting spills is one of the primary focuses for this cost-saving. Southwest Research Institute (SwRI) is helping companies “fuse automation with machinery” by using machine learning for detecting anomalies and leaks, and for monitoring the integrity of all connected systems. Sensors and processing hardware are combined in SwRI’s Smart Leak Detection System, which scans oil pipeline infrastructure and finds small leaks before they grow large enough to create a serious problem. The technology and algorithms used to discover individual leaks at the local level are also being used on satellites to seek out potential leaks (and potential assets) by spotting oil on the ocean surface.

Facilitating Accurate Decision-Making

A properly integrated augmented reality solution allows individuals at all levels of an organization to maintain better control of business operations. Senior oil company managers can use the information provided by digital monitoring systems to make decisions in a timely way. Analytic software is now able to connect thousands of wells simultaneously across an entire asset base. This high-resolution information enables operators and service companies to take a proactive approach to management and vastly decreases the amount of time needed for information gathering.

Remote Seismic Surveying

Advanced computer capability and cloud computing are integrating seismic information with the surveying process. Remote imaging from satellites is useful for developing exploration leads because sophisticated radar sensing can detect small oil seeps that rise to the surface of the ocean. Once the presence of underwater oil is detected, ancillary data are brought into the equation regarding biological and chemical ocean processes. The combined insights offered by machine learning allow clearer assessment of potential targets for exploration. Seismic surveys are expensive to produce, and so when real-time integrated data offers better information there are fewer instances of plans that have to be redesigned due to unexpected conditions in the field. Furthermore, better planning and surveys result in fewer injuries and less environmental damage, making the entire effort more cost-effective.

What the Oil & Gas Future Looks Like

With new geodata companies like NEOS joining the energy production picture, the future for oil and gas is strong. NEOS uses new iterations of virtual reality and augmented reality to “transform data into knowledge” and provide unprecedented access to resources in the natural world. Predictive analytics is an important element in the NEOS platform, one which plays a key role in lowering the high cost of oil and gas exploration. One NEOS case study in Colorado was able to target specific sweet spots for drilling in a 3,000-square-mile portion of the basin there. Airborne geophysical data was analyzed, taking into account historical production data in the region and creating new algorithms via machine learning. The outcome is a map that indicates the “sweet spots” for drilling with the geophysical attributes taken into account.

Digital technology could add more than $1 trillion USD in value to oil and gas companies in the next 10 years according to the World Economic Forum. Condition-based maintenance, artificial intelligence, and the internet of things (IoT) are improving equipment performance and protecting vulnerable areas of the environment. These digital capabilities lay the groundwork for keeping the oil and gas industry technologically competitive for the visible future.