Back to top

Image: Shutterstock

Digital Adoption: The Key to Oil Service Firms' New Approach

Read MoreHide Full Article

For the energy sector, the year 2020 turned out to be one of pain, intense volatility and unprecedented turmoil caused by the COVID-19 pandemic. The coronavirus pandemic wreaked havoc on the energy industry by driving down demand and engineering the worst-ever crude crash. At the same time, the crisis has fast-tracked the sector’s remote transformation to ensure business continuity.

While the adoption of digital technologies in energy had started to show significant growth even before the outbreak of the contagion, clearly, the pandemic has acted as a catalyst in shifting from the traditional drilling and fracking system and changing the way of exploring for oil and gas.  

The oilfield service providers, for example, have been at the forefront of this technological revolution.

Increasing Spectrum of Digital Offerings

Let’s start with Halliburton (HAL - Free Report) , which is undergoing a rapid digital transformation. It has signed a five-year strategic agreement with Microsoft (MSFT - Free Report) and Accenture (ACN - Free Report) to boost its digital prowess in the Microsoft Azure cloud platform. The pact will help Halliburton improve its client services by strengthening real-time monitoring of operations, augmenting AI-driven analytics capability, and speeding up the deployment of new technology and applications.

Halliburton has also collaborated with fellow operator TechnipFMC (FTI - Free Report) to launch Odassea, the first distributed acoustic sensing solution for subsea wells. This technology is believed to improve seismic imaging and reservoir diagnostics, while reducing costs and improving the data gathered for oil and natural reservoirs below the sea floor. One of its latest offerings, the SmartFleet intelligent fracturing system, lets operators control fracture outcomes while pumping. Halliburton has also tasted success with its DecisionSpace 365, with more and more upstream operators availing the cloud-based subscription service to automate the working method. As it is, the company’s Halliburton 4.0 framework continues to accelerate digital deployment and integration across the value chain.

Smaller rival Baker Hughes (BKR - Free Report) is also executing on its digital solutions. The company now supports most of its drilling activity by remote work compared to roughly 50% in 2019. As part of its digital capabilities, Baker Hughes successfully implemented the remote operations model to support Equinor’s (EQNR - Free Report) drilling and well construction activities in the Norwegian Continental shelf. More recently, the company got a gig from Petrobras (PBR - Free Report) per which it will supply a suite of digital solutions across the Brazilian oil major’s sites.

Meanwhile, the world's largest oilfield services company, Schlumberger (SLB - Free Report) has experienced a solid increase in drilling remote operations since last year. Currently, more than two-thirds of Schlumberger’s drilling operations utilize remote capabilities. Last year, when oilfield demand collapsed due to the COVID-19 pandemic, the company’s digital business held up well and is now on growth track. In fact, the company is looking to double the quantum of its digital business in the foreseeable future with the primary focus on remote operations and digital inspections.

Expanded Use of Remote Operations Minimize Cost, Drive Margins

The successful and expanded use of digital technologies has helped the companies to enhance performance and lower operational risk — especially amid the COVID-19 pandemic. Simply put, it allows them to remove equipment and/or crew from site, substituting with software solutions. With fewer personnel on location, jobs being monitored offsite using remote data center management tools, and the replacement of expensive hardware by software solutions, the operators are able to reduce costs and capital investment. In other words, the increasing cloud-based data flow between site and the back office translates into expanded margins for oilfield service providers.

Wrap-Up

Last year’s slump in oil prices and the coronavirus-induced demand shock have pushed drilling activity lower by introducing tremendous uncertainty around the exploration and production spending outlook. Obviously, this translates into lesser work for the companies that make it possible for upstream players to drill for oil and gas. To survive, their cash outflows as capital expenditure continue to fall as the oil service firms reign in their spending levels. They are also pushing for a reduction in overhead and other costs in an effort to become smaller but at the same time striving to improve efficiency and profitability. Most firms claim that the digital push has helped them get more with less.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>