Refined 36

May 2014

Digital disruptionin energy

This is an internal publication for the Accenture Energy Community and is not intended for external (client) distribution.

Regular features:

Energy results: Q4 2013

Page 19:

The ‘field worker of the future’ – are wearable technologies such as Google Glass™ the future of mobility in the energy industry?

Page 14:

Here come the drones – can unmaned aerial vehicles radically change how the energy industry operates?

Page 23:

Digital’s role in plugging the ‘missing middle’ in upstream

Page 8:

3D printing in upstream energy – an industrial evolution

Page 30:

Turning data into oil - how to use advanced analytics to increase production in declining fields

Page 39:

Fuel retailing and the digital consumer

Page 35:

Opportunities for advanced analytics in shale gas production

Page 42:

Book Review:Untapped - The Scramble For Africa’s Oil

Digital disruptionin energy

Page 4:

Page 46:

Your Research, News and Reviews for the Energy Community2

Note from the Editor

Hello Refined readers, and welcome to Refined 36. As those who dialled into Energy24 recorded from Accenture’s

Sophia Antipolis Technology Lab a few weeks ago heard our Industry Managing Director describe, the digital era represents a ‘new step forward’ for energy, bringing about a new ecosystem, new players, new opportuni-ties – and new challenges for the sector.

In this edition of Refined, we are taking a step forward into this digital world, by ex-

ploring a number of digital disruptions and what they mean for en-ergy, through the lens of the industry chokepoints. As introduced in the cover article by our new Technology Editor, Brian Richards, en-ergy companies have as much - or more - to gain as any other indus-try by harnessing this digital disruption. And so the race is on for energy firms to understand how to best leverage these to help solve their pressing challenges and continue to deliver value.

At the industry level, we start by looking at 3D printing in the oil and gas supply chain, before moving to unmaned aerial vehicles (UAVs), and Google Glass. In the upstream, Myles Kirby shares his perspective on how to approach plugging the ‘missing middle’ whilst Lance Dexter and David Morse review how companies can success-

fully ‘turn data into oil’, and Toby Lomax explores the potential for advanced analytics in unconventional production more specifically. Finally, Rich Kho, a Refined alumni and past Editor-in-Chief, pro-poses a new way forward for fuel retailers in the context of the digi-tal revolution. As ever, this edition also includes the latest quarterly results for you, as well as a book review by Michael Stratton as part of our ongoing collaboration with the UKI Energy Book Club.

Congratulations to Michael Lamb who brings the iPad home this quarter for his brilliant perspective on 3D printing as an industrial evolution in the upstream supply chain. Rinat Matsukov and Shane McIntyre come in as runners up. We will also reward all Refined writers in this edition with a stamp in their Energy Passports, in rec-ognition of their contributions to the global Energy Community of Practice.

In the next edition, we will be exploring the new frontiers of ener-gy. If you have an idea for an article related to this theme, or indeed any topic, then please do get in touch with myself or another mem-ber of the Editorial Team (see more on our newly launched Refined page on the Energy Source), or by posting your ideas on the Stream (using the #Refined hashtag). Otherwise enjoy this issue!

Tessa [email protected]

Digital disruption in energy


This is an internal publication for the Accenture Energy Community and is not intended for external (client) distribution.This is an internal publication for the Accenture Energy Community and is not intended for external (client) distribution.

mailto:[email protected]

Digital disruptionin energy ‘The last decade of change and opportunity was driven by digital start-ups. The coming decade will see traditional companies become the next set of digital giants’ – Accenture Technology Vision 2014.

In 2005, text messages were sent peer-to-peer and blogs were typically long essays. Twitter, founded the next year, bucked tra-

ditional blogging and let users broadcast mi-croblog posts (tweets) to the world. Today, after less than ten years, only eight years after the company’s founding, Twitter has nearly 650

million users, hosts 58 million tweets a day, a $30 billion valuation, and gross margins above 50%.

Over the last decade, technology companies such as Twitter, Google, and Amazon have found tremendous and rapid success not just by understanding the technology of digital dis-

ruption including analytics, mobility, cloud computing, and social media, but by making them part of their core business strategy and creating a significant competitive advantage. These companies quickly realised that the po-tential of digital hinges on how information is gathered, converged, analysed and then made



Digital disruption in energycontinued

available in real-time to make decisions and meet objectives.

The last decade of change and opportunity was driven by these digital start-ups, but the coming decade will see traditional companies become the next set of digital giants. Some would argue that the rate of adoption of a new technology hinges on its constraints – and the energy industry, faced with a number of ever complex challenges including declining pro-duction rates, the need to increase capital and operational efficiency and an ageing workforce (to name but a few of the industry chokepoints highlighted in this year’s Q1 edition of Re-fined) has as much or more to gain as any other industry by harnessing this digital disruption and technical innovation. The race is on for en-ergy firms to understand how to leverage the concepts of digital disruption to help solve these pressing challenges and continue to de-liver shareholder value.

The ‘digital-physical blur’One key element behind the success of today’s digital giants was the push of digital technolo-gies into the everyday activities of their con-sumers. These technologies have changed how

travel is managed, cabs are booked, friend-ships are established, and more. In short, they no longer sit at the periphery of life but rather are intrinsically related to its very core. This

‘digital-physical blur’ offers energy compa-nies a model for how to use digital technolo-gies not just to augment or modify existing processes, but also how to radically change them to deliver increasing value. A number of key innovations explored in this edition are introduced below.

Wearable computingWearable computing devices such as Google Glass can allow workers in remote or distant locations to receive over-the-shoulder coach-ing from workers across the world. By enabling a remote worker to see what the on-site field worker sees and hear what the field worker hears, he or she can provide the on-site field worker with assistance with maintenance, one-on-one training, as well as support during safety issues. It’s not just glasses either. The consumerisation of smart watches, fitness de-vices, and other wearable technology will like-ly drive the cost down and capability up to a point where energy companies can finally achieve the vision of a fully networked and ‘smart’ worker. See ‘The field worker of the future’ article in this edition.

Unmanned aerial vehicles (‘drones’)Another example of this ‘digital-physical blur’ is made evident by unmanned aerial vehicles (UAVs). UAVs have numerous industry-specif-ic use cases, including pipeline surveys, flare stack inspections, inspecting offshore plat-forms, ensuring wildlife safety, and monitor-ing flare emissions. Outfitted with a range of

“The race is on for energy firms to understand how to

leverage the concepts of digital disruption to help

solve these pressing challenges and continue to deliver shareholder value.”




video and sensor technology, these aerial ro-bots will extend the reach of workers to loca-tions that are either too remote or dangerous for workers. BP for example plans to deploy unmanned aerial vehicles to inspect pipelines in remote areas of Alaska at a fraction of the cost of a piloted helicopter within the next three years.1 See the article on ‘Here come the drones’ in this edition.

3D printingLike drones, the maturation of 3D printing also suggests increasing relevance for the in-dustry. 3D printers are moving down the cost curve and increasingly able to develop more complex products, making them a more com-petitive alternative to shipping and storing assets. This new ‘digital supply chain’ could enable the manufacturing of parts that are no longer in production, the development of highly specialised tools, and the production of parts where and when they are needed in remote locations such as the Arctic or far off-shore. This is likely to become a hotly contest-ed area for Oil Field Services (OFS) companies - GE is already planning to begin 3D printing fuel nozzles for gas turbines later this year.2

See the article on ‘3D printing in upstream energy’ in this edition.

Advanced analyticsAlthough the energy industry has had no shortage of investment in data over the past decade, this data continues to be of poor qual-ity, and despite growing exponentially, it has so far failed to deliver on promised benefits. Many companies may be forgiven for thinking that a significant return on their data is out of reach. However, visionary leadership and de-termination certainly pay off. As an example, a

large oil and gas producer with annual reve-nues in excess of $5 billion used its data supply chain to feed advanced analytical models that optimise beam pumps and better understand producer failures. Those two use cases alone could be worth more than $100 million per year in additional production and cost savings - and that is only the beginning of opportunities that lie ahead. See the articles on ‘Turning data into oil’, ‘Opportunities for advanced analytics in shale gas production’ and ‘Fuel retailing and the digital consumer’ in this edition.

The technologies highlighted in this edition of Refined just begin to scratch the surface of the possibilities that lie ahead over the next decade. When one thinks about other possibili-ties such as combining big data in combination with machine learning or artificial intelligence, or the rise of the industrial internet and ma-chine-to-machine (M2M) technologies to drive greater production, efficiency, and asset integ-rity, the possibilities of digital disruption ap-pear to be endless. However, as this edition of Refined shows, the real value and disruption will require bringing digital capabilities such as these together and integrating them directly into individual business strategies.

“The technologies highlighted in this edition of

Refined just begin to scratch the surface of the possibilities that lie ahead

over the next decade.”




From periphery to the coreThe global energy sector is being reshaped by a confluence of diverse forces. As a result, exist-ing operational approaches and legacy busi-ness models are being tested like never before. Against this backdrop, digital technologies provide organisations with an opportunity to achieve significant improvements in perfor-mance. Forward-thinking players that success-fully transform into digital businesses by em-bracing new ways of working will become the industry’s disruptors of tomorrow. The time has come for business leaders to define their organisation’s place in this brave new digital world. Each player has the opportunity to be a digital disrupter—recreating and redefining its business to create competitive advantage. The potential for growth is limited only by the crea-tivity of the enterprise itself.

Article submitted by Brian Richards

Sources:1. Alaska uses drones to inspect oil and gas pipelines

at a fraction of the cost, Reuters, Jun 7, 2013 [http://www.rawstory.com/rs/2013/06/07/alaska-uses-drones-to-inspect-oil-and-gas-pipelines-at-a-frac-tion-of-the-cost/], accessed Feb 18, 2014.

2. http://www.gereports.com/post/74545205358/super-size-me-ge-takes-3d-printing-to-massive-gas

• The Economist, ‘The third industrial revolution’, 21 April 2012. Available online at: http://www.econo-mist.com/node/21553017

• Nick Butler, Energy’s Digital Revolution. Available online at: http://blogs.ft.com/nick-butler/2012/11/20/energys-digital-revolution/

• The Economist, ‘The rise of the sharing economy’, 9 March 2013. Available online at: http://www.economist.com/news/leaders/21573104-internet-everything-hire-rise-sharing-economy

• Eric Schmidt and Jared Cohen, The New Digital Age: Reshaping the Future of People, Nations and Business (2013).

Brian Richards

Brian Richards is a Senior Manager and the Innovation Lead for the NA Energy practice with responsibility for bringing Accenture’s Energy clients the latest technology and innovation from both inside and outside of Accenture and helping them craft differentiating strategies. Prior to this role, Brian was a Manager for the Accenture Technology Labs in Chicago for six years.



http://www.economist.com/node/21553017


http://blogs.ft.com/nick-butler/2012/11/20/energys-digital-revolution/

http://blogs.ft.com/nick-butler/2012/11/20/energys-digital-revolution/

http://www.economist.com/news/leaders/21573104-internet-everything-hire-rise-sharing-economy



3D printing: the ‘Third Industrial Revolution’?‘3D printing the human body’;1 ‘3D printed food is a lesson in how not to feed the world’;2 a technology that ‘has the potential to change everything‘;3 that will ‘creatively destroy how we do business‘;4 an engineering feat which

‘hail(s) the next industrial revolution as the concept of mass-production is rendered obso-lete‘.5 A lot of lyric has been waxed over three-dimensional (3D) printing these past few years. The mere mention of the topic to some people can induce glee-widened eyes and frenzied mutterings of ‘Star Trek replicators’.

Rhetoric aside, what actually is 3D print-ing? 3D printing is an additive manufacturing process that takes computer-aided design (CAD) blueprints of a 3D image and converts them into solid items (see Figure 1). The tech-nology itself is now more than 30 years old, during which time it has primarily been em-

3D printing in upstream energy – an industrial evolution



http://www.forbes.com/sites/gcaptain/2012/03/06/will-3d-printing-change-the-world/2/

http://www.forbes.com/sites/gcaptain/2012/03/06/will-3d-printing-change-the-world/2/

http://www.businessinsider.com/the-3-d-printing-market-will-be-huge-2013-9

http://www.businessinsider.com/the-3-d-printing-market-will-be-huge-2013-9

http://www.bbc.co.uk/news/technology-22093072



3D printing in upstream energy – an industrial evolutioncontinued

ployed in prototyping. Today it is edging its way into mainstream manufacturing, driven by the convergence of technical and social advances such as the diversification of 3D printable materials, improvements in design software, and the general decrease in hard-ware costs.

The Economist has compared 3D printing to ‘the Third Industrial Revolution’.6 Demand for it is projected to rise more than 20 per cent per year to over $8 billion globally by 2020 (see Figure 2).7 It is already used in the automotive industry (BMW engineers use 3D printed tools), the aerospace industry (the BAE-constructed

UK Tornado fighter jet has flown with 3D print-ed parts in three of its systems), and in the min-ing industry to build scale models of shafts and prototype parts.8 This articles sets out to explore the value of this new technology for oil and gas companies, and how they can most effectively reap the maximum benefit from it.

The story in oil and gas so far…The integration of 3D printing into the oil and gas sector has already begun. The Oilfield Ser-vices (OFS) company Halliburton uses the technology on a small scale to create parts used in drilling, and General Electric’s (GE) Oil and Gas Division has launched an initia-

Extrusion of a filament of plastic resin, metal or other material though a heated nozzle that traces the parts layer by layer

Support Material FilamentBuild Material Filament

Extrusion head

Drive wheels

LiquifiersExtrusion nozzles

Foam base

Build platform

Support material spool

Build material spool

Part

Part supports

X-Y scanning mirror

Lenses

Laser

Leveling roller

Powder feed piston

Build chamber

Build piston

Powder Feed supply

Powder Feed supply

Powder Feed piston

Laser BeamSintered part

Powder bed

Fusing of small particles ofplastic, metal, ceramic, or glasspowders into a mass that has adesired 3-dimensional shape

Lenses

Laser

Elevator

X-Y scanning mirror

Sweeper

Layered part

Build platform

Laser beam

Vat

LiquidPhotopolymer

Curing and solidifying of aliquid resin by employing anultraviolet laser beam to build parts

Fused Filament Fabrication Laser Sintering Stereolithography

Figure 1: Types of 3D printing. Source: Accenture, ‘3D Printing - Basic concepts, application areas and challenges’, April 2013. Copyright © 2008 CustomPartNet

Figure 2: World 3D printing demand ($millions)Source: Freedonia Group

% Annual Growth

Item 2007 2012 2017 2007-2012 2017

2012-

3D Printing Demand 775North AmericaWestern EuropeAsia/PacificCentral & South AmericaEastern EuropeAfrica/Mideast

361194183

71317

1950900495445

253550

5000228512251170

75103142

20.320.020.619.429.021.924.1

20.720.519.921.324.624.123.2




tive to 3D print metal fuel nozzles for their gas turbines. In fact, a significant portion of the $100 million that GE’s oil and gas division are investing in technology over the next two years is going towards 3D printing.9 Oil and gas companies also use 3D printing to aid with prototyping – with significant benefits. At GE, the design loop for the creation of pipeline monitoring robots (known as ‘pigs’ – see Figure 3) has been reduced from 12 weeks to 12 hours thanks to an on-site 3D printer the size of a hotel minibar fridge.10

Drilling deeper into the benefits of 3D printingThe upstream energy sector operates in increas-ingly remote locations, with diminishing real reserves and an increased focus on cost reduc-tion. As such, the most obvious benefits of 3D printing relate to the optimisation and compres-sion of the supply chain. 3D printing has the potential to alter the point of manufacture, shrink delivery lead times, and allow on-de-mand, on-site production with a concurrent re-duction in costly downtime. Sounds impressive, but how will 3D printing achieve this?

A desktop supply chain: Due to the high, fixed, production costs of both equipment and labour, any downtime or production outages for oil and gas companies are extremely expensive and, in many cases, related to equipment parts failure. As a result, operations either hold excess inven-tory to guard against such incidents or incur extremely high transport costs to replace parts at short notice. A core feature of 3D printing is that it requires no tooling and no minimum batch size to order or manufacture. A single 3D printer loaded with designs for multiple prod-ucts makes it possible for these parts to be print-

ed on-site, thus averting the soaring costs related to downtime - an ‘insourcing’ manufacturing strategy for remote locations. Printing the parts in-situ also takes a substantial chunk out of transportation and warehousing costs, removes the risk of obsolescence of parts, and enables a material and energy-efficient approach through-out a product’s entire lifecycle.

These savings only relate to the benefits de-livered on a site-by-site basis. By combining these with the concept of a globally available digital ‘Service Parts Library’, a remote loca-tion with an advanced on-site 3D printing ca-pability could have instant 24/7 access to new designs and innovations at a company level (see Figure 4). ‘Imagine a global supply net-work where every supplier has a 3D printer that the designer can ‘print’ to at any time’, writes Gavin Davidson from NetSuite, a cloud-based software company.11 Diagnostic and de-sign capabilities are thus centralised, and costs associated with traditional supply chains - with the exception of the raw materials required for printing - become an anachronism.12

Innovation at pace: Time also matters in proto-typing. Design changes can be made more

Figure 3: A General Electric ‘pig’.Source: http://www.3ders.org/articles/20140124-3d-printing-drills-into-the-oil-industry.html




accurately in fewer steps by simply tweaking the CAD blueprint, which considerably short-ens the development and retooling process (as demonstrated by GE in the ‘pig’ design exam-ple given above). This is extremely useful for companies working in oil sands or deep sea locations. Engineers currently design and produce new parts using two-dimensional (2D) drawings. Using 3D representation engineers can more accurately validate the part in ques-

tion, eliminating lengthy design processes and costly miscalculations. This paves the way for fully customisable production set-ups, where the entire portfolio of equipment can be tai-lored to meet the conditions and requirements of a specific site.

Less waste, more revenue: In the long-term, the ‘additive’ nature of 3D printing (i.e. parts are built by adding materials in the precise

quantities required as opposed to traditional subtractive manufacturing techniques) ensures minimal waste, which helps address both environmental concerns and costs associated with disposal. The technology also provides energy companies with new prospective rev-enue streams, both in terms of the provision of the raw material (oil and gas companies are ideally placed to provide the chemical powders and plastics primarily used in 3D printing) and in the leasing of part designs and patents through a digital service parts market.

Several obstacles loom large…Despite the potential benefits, the road to full realisation is winding and pot-holed. Any ap-preciable integration of 3D printing into the up-stream supply chain hinges on the successful navigation of significant challenges - some in-ternal to an organisation, others inherent to the technology itself.

Technological limitations: A large proportion of the items used in upstream energy are preci-sion-engineered in order to be able to with-stand significant loads and challenging envi-ronments. While the production of items made

DemandAccenture’s Cloud forManufacturingEcosystem (ACME)

Retail storefront,Distribution center,On-site printer

ManufacturedProduct

Storefront &Customization

Digital Rights MgmtPrinter Sourcing

Figure 4: 3D printing business model. Source: Accenture ‘3D printing opportunities’, Dec 12 2013




of multiple materials (or composites) has become technically feasible, 3D printing re-mains relatively unproven for precision-engi-neered parts in large scale production. Furthermore, product safety and quality fea-tures must be certified. Finally, there are also limitations to the complexity of parts that can be produced as 3D printing still essentially builds parts in one piece. To create items con-sisting of more than one part a manufacturer would have to invest significantly to introduce some sort of assembly system, either human-driven or automated, such as is used in the automotive industry to assemble cars.13

Software barriers and Intellectual Property: 3D printing also poses significant computa-tional challenges. The fabrication of complex surfaces and intricate designs requires an extremely high-resolution model of the object, often amounting to petabytes (PB) of data, which current printing software has difficulty processing and storing. Software will need to be improved and user-friendly front-end applications developed before on-site, day-to-day use can become commonplace.Furthermore, to realise the full potential of the

technology, advances must be made in the systems used to manage digital libraries of 3D designs. Some, including Accenture’s own, are in production, but we are still quite a way off from a fully-realised ‘iTunes-type’ e-printing management system. This challenge in and of itself raises the quandary of Intellectual Property (IP) ownership. Who owns the rights to the CAD designs, and what happens if those designs are shared? Who is liable if an infring-ing object is 3D-printed? The global automotive aftermarket is predicted to see about $15 billion in 3D theft in 2016 and, while the technology is not nearly as mature within upstream energy, IP considerations need to be fully addressed before 3D printing is effectively integrated into the supply chain. 14

One size does not fit all: Any energy company looking to adopt 3D printing would need to refresh its internal supply chain strategies and inventory policies, requiring significant concept and process changes in the front and back-end. Detailed analysis must be carried out on a case-by-case basis to identify those parts with significant complexity or high customisability where 3D printers can enable faster and cheap-

er fabrication. Pending the development of an entirely automated supply chain, traditional factory-line fabrication may continue to be the best solution for many mass-produced parts due to speed and scalability.15

Looking forwardsTechnology observers expect 3D printing to be fully adopted and productive within the next decade.16 As 3D printing continues to evolve over the next few years, it has the potential to address key challenges within the energy indus-try: minimization of downtime, significant re-duction of costs related to transportation and warehousing, a leaner and greener approach throughout the entire product lifecycle, and the availability of new revenue streams.

Energy companies wishing to capitalise on this technology will need to walk a fine line be-tween overestimating changes over the next three years and underestimating changes over the next ten. Those companies that recognise these emerging trends and adapt to this more complex supply chain are those likely to soar. Control and visibility over the supply chain will be crucial in order to analyse options and make proactive decisions based on real data as to the




cases in which the myriad benefits this technol-ogy brings can be most effectively delivered. The key will be to engineer a position from which companies can smoothly transition to a digitalised supply chain without compromising or breaking the existing models. This will re-quire clear strategic roadmaps and digitally-en-abled operating models for supply chain man-agement over the next five years.

Many experts are beginning to predict that, given a long enough time-frame, ‘standard manufacturing will die’.17 Whether they view this prospect with excitement or dread, or likely a volatile concoction of the two, energy compa-nies must today begin to address the opportuni-ties and associated challenges that 3D printing, as a disruptive technology, brings. James Mat-thew Barrie, the Scottish author and dramatist, said of the printing press that it was ‘either the greatest blessing or the greatest curse of modern times, one sometimes forgets which’;18 it falls upon energy companies themselves to assert what 3D printing will be to them.

Article submitted by Michael Lamb

Sources:1. The next step: 3D printing the human body’,

Telegraph, Feb 11 2014, 2. 3D printed food is a lesson in how not to feed the

world’, The Guardian, Feb 11 20143. Why 3D Printing Will Change How Businesses

Deliver’, Natalie Burg, Sep 24 20134. ‘CREDIT SUISSE: 3D Printing Is Going To Be Way

Bigger Than What The 3D Printing Companies Are Saying’, Rob Wile, The Business Insider, Sep 17 2013

5. ‘Has 3D printing in the home been over-hyped?’, Jane Wakefield, BBC News, Apr 22 2013

6. ‘A third industrial revolution’, The Economist, Apr 21 2012

7. ‘3D printing: not yet a new industrial revolution, but its impact will be huge’, Jim Chalmers, The Guardian, Dec 10 2013

8. ‘3D printing: Can it transform the mining supply chain?’, Jean-Marc Ollagnier, Nov 06 2013

9. ‘GE’s 3D Printing Know-How Benefits Oil & Gas Division’, Michael Molitch-Hou, 3D Printing Industry, Jan 28 2014

10. ‘3D printing drills into the oil industry’, 3Ders.org, Jan 24 2014

11. ‘3D Printing and the Future of Manufacturing’, CSC, Autumn 2012

12. Accenture research envisages the following scenario; a particular part fails and the fault is logged, a central service centre locates a similar functioning part (on site or elsewhere) and, using a three dimensional scanning device, creates a digital replica of the re-quired part and sends the digital model with required raw material specifications to the location requiring the part for production on site. (‘A new landscape for mining’, Andrew Brimacombe & Henrik Axelsson, Accenture, Nov 06 2013)

13. ‘My 80 Year Prediction On 3D Printing And Robotics’, Alex Cho, Seeking Alpha, Oct 10 2013

14. ‘3D printing: not yet a new industrial revolution, but its impact will be huge’, Jim Chalmers, The Guardian, Dec 10 2013

15. ‘3D Printing: A technology that will disrupt your business’, Accenture Innovation Center and Accenture Technology Labs, Dec 08 2013

16. ‘3D printing: Can it transform the mining supply chain?’, Jean-Marc Ollagnier, Nov 06 2013

17. ‘My 80 Year Prediction On 3D Printing And Robotics’, Alex Cho, Seeking Alpha, Oct 10 2013

18. ‘Sentimental Tommy’, J. M. Barrie, 1896

Michael Lamb

Michael Lamb is a Resources ICP Consultant based in London. He has advised Energy and Utilities clients on organisational design, training, and stakeholder engagement. Michael’s industry interests run across Resources, with a particular focus on unconventionals and new energy.



Here come the drones – can unmaned aerial vehicles radically change how the energy industry operates?

For many, Unmanned Aerial Vehicles (UAVs) - more colloquially known as ‘drones’ - bring to mind images of global

conflict and controversial military operations. However, as their applications have started to evolve, so have these connotations. When Amazon CEO Jeff Bezos announced in December 2013 that his company was testing the idea of delivering packages via UAVs, the moment had arrived when commercial appli-

cations for UAV technology suddenly seemed a viable proposition.1 More and more indus-tries are now realising the commercial poten-tial of this technology and the numerous cost-saving applications that it offers – so what might these look like for the energy industry?

UAVs, or remotely operated aerial vehicles (ROAVs), are powered, aerial vehicles that do not carry a human operator, and can fly auton-omously, or be piloted remotely.2 The types of

UAVs vary significantly, but they can be broad-ly categorised into three distinct groups: gov-ernmental, commercial air transport, and gen-eral aviation.3 It is the latter that is of most interest to commercial businesses. While UAVs are unlikely to become a part of our daily lives in the immediate future, they will soon begin taking on much larger roles for individual con-sumers and businesses - from changing the way farmers manage their crops to revolution-



Here come the drones - can UAVs radically change how the energy industry operates?continued

ising private security, to delivering groceries and e-commerce orders — perhaps even aerial advertising.4 The Teal Group forecasts that ‘of the $89 billion in cumulative spending on UAVs globally over the next 10 years, some $8.2 billion of that amount will be spent on commercial and civilian drone uses’.5

UAV opportunities are also opening up for energy companies. UAVs can aid explora-tion, be used for pipeline leak detection pro-cesses, and support hydrocarbon release clean-up operations. Even wind and solar energy may be harnessed via UAV technology. Broad-ly, the opportunities presented by UAVs for oil

and gas companies can be considered across two categories; first, as tools to take informa-tion and data to a site and back; secondly, as tools to harness energy and turn it into a useful product. Both are considered below.

UAVs: the industry ‘worker bees’As the majority of the energy industry looks to streamline operations and reduce cost, UAVs offer an opportunity to help.

Energy companies already use ROAVs to monitor and manipulate wells at extreme underwater depths (e.g. VideoRay LLC6), yet the potential benefits of their airborne cousins (UAVs) is yet to be realised. BP and other com-panies currently use manned helicopters to survey their pipelines. Helicopters can run at several thousand dollars per hour, while rent-ing a lightweight drone can cost as little as $20 an hour.7 Already, ConocoPhillips, Shell and BP have expressed an interest in UAV technol-ogy and are already in the process of planning UAVs into their day-to-day operations. BP Pipelines plans to deploy its first UAVs in Alas-ka’s Northern Slope somewhere around 2016, and it’s been researching how UAVs can help it improve efficiency and cut costs.8

Greg Walker, a manager at the University of Alaska’s Unmanned Aircraft Programme, who has worked with companies to test the systems for monitoring pipelines, speculates that ‘cur-rent technology would allow flights over hun-dreds of kilometres of infrastructure to look for leaks or erosion. I could sit here in Fairbanks, which is in the middle of the 800-mile Alaskan pipeline and fly north to Prudhoe Bay or south to Valdez on an almost daily basis looking for hazards’.9

Savings are already being realised today. Ac-centure’s David Hill refers to an energy com-pany based out of Sarawak, Malaysia, that gen-

Expenditure forecast $bn

11 12 13 14 15Year

Speculative UCAV procurement not included

16 17 18 19 20

14

12

10

8

6

4

2

0

Rest of world R&DRest of world procurementUS R&DUS procurement

Figure 1: the world UAV market 2011–2020Source: Teal Group

Figure 2: view from micro-drone (flare inspection) Source: Microdrones UAV




erated $32 million in savings through the use of UAVs. Previously, the company had to shut down operations for maintenance on a regular basis, given dangerous conditions in the flar-ing area. Today, using Aeryon Scouts10 and Draganfly drones11, which weigh only 2.5 pounds, pictures of the flares can be taken while they are burning and then analysed. Avoiding refinery shutdowns in this way has the potential to save millions.

Additionally, there is also significant potential for UAVs to identify mineral deposits and dis-cover new oil and gas reserves, as researchers in Switzerland and Germany have demonstrated. The Centre for Integrated petroleum research (CIPR) and universities in Norway are using UAVs to map new oil reserves on inaccessible land.12 The UAVs help define the local geology by taking aerial shots of rocks, including rock type and thickness of sedimentation - a tech-nique called ‘virtual outcrop geology’. Similarly, Professor John Howell, a Geoscientist at the University of Aberdeen explains that SAFARI, a project supported by 24 oil companies, is hop-ing to develop a fully searchable database of relevant rock formations to support oil compa-nies build better models of the subsurface and improve recovery from oilfields.13

UAVs can also help mitigate environmental concerns. As an example, BP used UAVs to help detect sights for clean-up in the aftermath of the Deepwater Horizon oil spill in 2010.14 Shell, having begun research in 2005, has been using UAVs to assess environmental impact by tracking and monitoring marine animals and biodiversity in offshore drilling areas.15 Oper-ating from a research vessel in the Beaufort Sea, the team uses Scan Eagles, systems that weigh 18 kilogrammes (kg) (also deployed by the US Navy) to survey ice seals in areas of the Bering Sea that are difficult to access with piloted planes. There, the UAVs’ stealth has proved to be of significant advantage: “some flights were so quiet they brought back pictures of seals at rest”, said Robyn Angliss, deputy director of the US National Oceanic and Atmospheric Ad-ministration (NOAA)’s National Marine Mam-mal Laboratory. Utilising these multiple func-tionalities make UAVs a very attractive proposition for the oil and gas industry.

Using UAVs to harness energyUAVs can be also be used as a means to create energy. Makani Power, recently acquired by Google X, the search giant’s secretive research and investment arm,16 is a cleantech company

that for several years has pursued a unique goal – to float kite-like wind turbines higher into the air, where they can harness the more powerful, more consistent high-altitude winds. The interim CEO of Makani, Don Montague, believes that “there is a great opportunity here for [UAV] technology to revolutionise the en-ergy industry... [UAVs] are cheaper and lighter to build than conventional wind turbines and we are in development of a turbine that will that generate power for three cents per kilo-watt hour.”

Another company harvesting solar, wind, and heat energy from 50,000 feet above the surface of the planet is New Wave Energy UK, a new start-up based out of the US.17 By equip-

Source: Makani PowerFigure 3: Makani Power airborne kite-like wind turbines



http://www.uib.no/cipr/en/

http://www.newwaveenergyuk.com/


ping each drone with multiple wind turbines, four rotors and a flat base for generating solar power, each vehicle will be able to power it-self and generate an additional 50 Kilowatt (kW) that can be transmitted wirelessly to the ground.18 Michael Burdett, co-founder of New Wave Energy UK, argues that “through re-duced generation and transmission costs, this is a real viable source of renewable energy.” The company’ rhetoric has been endorsed – indeed University of California’s Mark Deluc-chi and Stanford University’s Mark Jacobson argue that wind could provide 50% of the world’s power supply in just 20 to 40 years19.

Both these companies are in their early stages of development - only time will tell if these new technologies will become a game changer for the industry.

It’s not all plain flyingWhat are the challenges to UAV deployment? The first is safety. A key concern around the use of UAVs is pilotless drones colliding with one another, other aircraft, buildings — and even people. As such, the US Federal Aviation Administration (FAA) is overseeing a gradual development of systems and rules to be im-

plemented by September 2015 that will guar-antee safety protocol, as well as privacy.20 For the latter, there are no easy answers. In the US, federal lawmakers and civil liberty advo-cates are calling for greater oversight of data collection by UAVs –and this is likely to be repeated across other geographies as UAV technology is adopted internationally.

A second major challenge is regulation. In the US, the only way an aerial drone or UAV can be cleared for flight in US airspace is to receive a special permit from the FAA. Since 2009, the FAA has issued 1,387 Certifications of Authorisation (COAs) for limited UAV flights, to research, educational, and govern-

ment entities – and as of December 2013, only 545 of these were active21. To facilitate access, the FAA wants to allow aerial commercial drones to fly without these special permits and has put together a plan to make this hap-pen. It estimates that around 7,500 commer-cial drones of the 25kgs variety will be in op-eration by 2020.22 This cautiousness is also found in the EU. Indeed the European Avia-tion Safety Agency (EASA) only grants such certification on a case-by-case basis, making it difficult for commercial businesses to imple-ment this technology.

The future of UAVsThese challenges considered, the UAV concept still has wings. Two areas that could be target-ed with UAVs are the Arctic and the Gulf of Mexico. The difficult-to-access and remote ter-rains of the Arctic will require a significant amount of unmanned power to help survey pipelines, track inevitable spills, and be used in the exploration of new areas. Likewise, the Gulf of Mexico is receiving renewed market in-terest due to new legislation on the US-Mexico trans-boundary agreement and the next lease auction in August 2014. Here, under less regu-

Source: ReutersFigure 4: Aeryon Scout (unmaned aircraft)




lated conditions, UAVs could be put to great use on deepwater rigs.

Enhanced refinery safety, cheaper operation-al costs and a new source of potential energy generation will likely catch the industry’s at-tention. Consequently, governments, commen-tators and industry players should start to real-ise and pursue the benefits that drones can bring, whilst mitigating some of the challenges that will undoubtedly arise. And with the land-scape of energy increasingly digitised, it seems likely that UAV technology will be a significant part of its future.

Article submitted by Shane McIntyre

Sources:1. New York Post, Jeff Bezos and the future of drone

delivery service. December 6 2013.2. Ozdemir, U. Design of a Commercial Hybrid VTOL

UAV System, Journal of Intelligent & Robotic Systems, 74, 371-393, Apr 2014

3. Marinho, C., de Souza, C. and Motomura, T. In-Service flares inspection by unmanned Aerial Vehicles (UAVs). 18th World Conference on Nondestructive Testing, 16-20 April 2012, Durban, South Africa

4. The Economist, Unmanned Aircraft – Game of Drones. December 2013.

5. Rubin, R. Drones: Quickly Navigating Toward Commercial Application, Starting With E-Commerce and Retail. Business Insider Jan 2014.

6. VideoRay - http://www.videoray.com/applications/offshore.html

7. Bayles, C. Energy Firms Eye Drones for Pipeline Management. Earth Imaging Journal. Industry insights and Trends. 2011

8. Business Insider. Drones: Quickly Navigating Toward Commercial Application, Starting With E-Commerce And Retail. Jan 2014.

9. Gao, J., Yan, Y., and Wang, C. Research on the Application of UAV Remote Sensing in Geologic Hazards Investigation for Oil and Gas Pipelines. ICPTT 2011: pp. 381-390

10. Aeryon Labs Inc - http://www.aeryon.com/prod-ucts/avs/aeryon-scout.html

11. DraganFly Innovations Inc - http://www.draganfly.com/our-customers/industrial.php

12. Andreassen, K. Multidisciplinary oil success. University Of Bergen. July 2013

13. Enterprising Energy. Unmanned flying drones to help identify oil reserves. January 2014

14. Oil & Energy Daily. From the Battlefield to the Oilfield: Drones Appear on the Alaskan Horizon. October 2013

15. Muttin, F., 2011 Umbilical deployment modelling for tethered UAV detecting oil pollution from ship. Applied Ocean Research. 33, 4, 332-343.

16. Motherboard, Google Thinks Autonomous Flying Drones Are the Future of Clean Energy. May 2013

17. Oil Price, Drones will Generate Energy at 50,000 Feet then Beam it Back to Earth. Nov 2013

18. Oil Price, Drones will Generate Energy at 50,000 Feet then Beam it Back to Earth. Nov 2013

19. Stanford Report, The world can be powered by alternative energy, using today’s technology, in 20-40 years, says Stanford researcher Mark Z. Jacobson, Jan 2011

20. Petroleum News, FAA clears way for use of drones by oil industry off Alaska, Aug 2013

21. Business Insider. Drones: Quickly Navigating Toward Commercial Application, Starting With E-Commerce And Retail. Jan 2014

22. Business Insider. Drones: Quickly Navigating Toward Commercial Application, Starting With E-Commerce And Retail. Jan 2014

Shane McIntyre

Shane is a Strategy Analyst based in London. He has worked with a number of Energy and Utilities clients, most recently within an IOC’s Upstream Finance organisation and as part of a smart meter rollout project.

Shane’s industry interests lie in upstream oil and gas, unconventionals, mining and new energy.



http://www.videoray.com/applications/offshore.html

http://www.videoray.com/applications/offshore.html

http://www.aeryon.com/products/avs/aeryon-scout.html

http://www.aeryon.com/products/avs/aeryon-scout.html

http://www.draganfly.com/our-customers/industrial.php

http://www.draganfly.com/our-customers/industrial.php

Wearable technology: a new dress code for the energy industry?The oil and gas industry is under increasing pressure to deliver more with less: less time, less people, less investment. As part of this

drive towards efficiency, companies are in-creasingly turning to new technology solu-tions for help. Traditionally, this has involved implementing large Enterprise Resource Plan-ning (ERP) solutions to optimise core business

processes; however, this can be of limited value to field workers on the front line with such solutions unlikely to significantly in-crease efficiency in daily tasks such as pump repair. However, with recent advances in

The field worker of the future are wearable technologies such as Google Glass™ the future of mobility in the energy industry?



The field worker of the futurecontinued

wearable technology, energy companies may be on the brink of enabling the ‘field worker of the future’.

Before assessing how wearable technology could be used across the oil and gas industry in the future, it is important to define what wearable technology is. If asked for a defini-tion, the modern consumer will quickly name Google Glass, smart watches or GPS (Global Positioning System) wristbands. While devic-es such as these are seen as relatively modern developments, it is worth noting that weara-ble devices have been around for more than two decades. Some might remember an elec-tronic watch with an incorporated calculator feature that was launched back in the 1990s, or the head-mounted displays that allowed users to play video games with a pseudo-3D image in front of their eyes. However it is only in the last year or two that wearable devices have become ‘smart’ enough to establish a market that the oil and gas industry may soon be able to leverage to assist in their ever-in-creasing appetite for efficiency.

Probably the most intriguing of all the up-coming wearable devices is Google Glass - a small computer in the form of glasses, which

projects information on the lens in front of the user’s eye. As of now, the technology is still under development, with the first public re-lease expected in late 2014. Currently the

functionality of the device is limited – it can run simple applications like searching infor-mation on the web and sending text messages. But recently a number of researchers began to explore the potential application of the device in healthcare for remote consultation during operative procedures.1 Such developments have interesting implications for other indus-tries, for example in oil and gas.

A server, a hammer – and the GlassToday’s major energy companies are continu-ally investing to keep up with the develop-ment of new technology, machinery and infor-mation systems.2 For example, to support real time decision-making, major energy compa-nies have implemented complex information systems that analyse vast amounts of data from field sensors and meters. However, as oil and gas companies still largely depend on a field-based workforce there are limits on how quickly and effectively this valuable information and insight can be transformed into action.

Let’s first consider the specific value that Google Glass could bring to the energy indus-try. A worker would be presented with a task in front of her/his eyes, along with the route to the next object. By the time the worker ap-proaches the destination point, the device would have downloaded detailed text, audio or video instructions related to the task, which will have been prepared by an expert in the dispatcher’s room. During task execution, the worker would have the ability to stream live video from the in-built camera to this remote expert and adjust her/ his course of actions

“Before assessing how wearable technology could be used across the oil and

gas industry in the future, it is important to define what

wearable technology is.”




according to the expert’s guidance and to the particular circumstances. So, along with tradi-tional tools like hammers and wrenches, Google Glass could potentially become an es-sential piece of equipment for a field worker.

The advantages of such technology being applied in the oil and gas industry are very apparent. First, the device’s ability to render relevant information to the users in real time will support tasks being executed faster, lead-ing to reduced equipment downtimes, de-creased operational risk and, ultimately, in-creased efficiency. Secondly, the device’s extensive communication abilities would en-sure that field workers would never deal with complex problems alone and would instead be supported by a group of remote experts who can assist with all global front-line opera-tions. Furthermore, such use of wearable tech-nology would decrease the manpower re-quired at regional sites. Currently, the oil and gas industry is faced with the risk that knowledge may be lost given that many of the workforce are of retiring age. However with the use of Google Glass, this knowledge could be captured and used to support new, less ex-perience workers in the field.

New technology – old problemsSeveral challenges remain to be overcome be-fore the full value of wearable technology can be realised by the energy industry. First, there is still a major issue with battery life. Google

Glass, for example, has a battery life of up to 30 minutes. With many field workers working long shifts without access to electricity, reliance on this technology is therefore likely to be im-practical. Until the long-awaited successor to the lithium-ion battery emerges, this problem could be managed by field workers carrying external power sources or using in-car or solar power charging.

Another challenge for almost any wearable device is that it strongly depends on a ‘bigger brother’, most typically a smartphone. Wheth-er it is a smart watch, smart glasses or any other wearable technology, these devices are rendered near useless without being paired to a smartphone, which provides the connectivity requirements. Consequently, the worker would have to possess an additional battery (or a charger) for the smartphone. These issues do not stop here. Not only is wearable technology reliant on a smartphone, it is also dependent on that smartphone being connected to a net-work that will allow large amounts of data to be transferred in real time - an issue that is un-likely to be resolved in sparsely populated, oil-rich regions such as Alaska.

The Glass is half fullIn its Technology Vision 2014, Accenture out-lined expectations that devices such as Google Glass will help companies save $1 billion by 2017 by enabling field service technicians to ‘diagnose and fix problems more quickly and without needing to bring additional experts to remote sites’.3 Indeed there is little doubt that wearable devices will be ‘the next big thing’ in

“Currently, the oil and gas industry is faced with

the risk that knowledge may be lost given that many

of the workforce are of retiring age.”




the ever-evolving technology market. Moreo-ver, in time, advancement of these technologies will likely revolutionise the way in which the energy field worker operates.

Some prototypes of such application are be-ing built and tested in labs right now,4 but as it has been mentioned earlier, several issues re-main to be overcome before we see a global roll-out of the wearable-device empowered fieldworker. Nevertheless, this does not mean that companies should wait until these tech-nologies gain a global footprint before they start to trial and implement this exciting new technology. Quite the contrary – energy com-panies, especially those with a large field force, should drive the piloting of this technology in their business, establish themselves as ‘early adopters’, and ensure that they have the knowl-edge and experience to deploy these across all global locations if and when this technology has resolved some of its biggest hurdles.

Article submitted by Rinat Maksutov

Sources:1. http://www.forbes.com/sites/johnnosta/2013/06/21/

google-glass-in-the-operating-room/2. IT Key Metrics Data 2014: Key Industry Measures:

Energy Analysis: Multiyear3. Accenture Technology Vision 20144. http://fuelfix.com/blog/2014/02/14/first-video-of-

google-glass-application-for-oil-gas/

Rinat Maksutov

Rinat is a Consultant within Accenture Digital based in Moscow, Russia. Rinat is part of the mobility stream within Accenture Digital. His main focus is on developing mobility strategies and solutions for different clients across industries.



Continuing industry challenges, marked by declining access opportunities across the energy sector, are fundmentally al-

tering the status quo of how International Oil Companies (IOCs) operate in upstream. Increased capital expenditure, for fewer bar-

rels, and at a higher risk, has led to a renewed focus on value over volume. In practice, this equates to enhanced ambitions for active port-folio management, stringent capital allocation and efficient execution. For over 15 years, the ‘Digital Oil Field’ (DOF) has been thought to be

the answer to optimising value from produc-tion in increasingly difficult climates.1 The Digital Oil Field is a suite of complementary technologies that combine data and knowledge management, using enhanced analytical tools, to develop more efficient process and make

Digital’s role in plugging the ‘missing middle’ in upstream



Digital’s role in plugging the ‘missing middle’ in upstreamcontinued

timely decisions.2 However, for a number of structural, cultural and technical reasons, the DOF has failed to fully deliver on its promise.

To date, digital technologies have largely been used on an ad-hoc basis in upstream oil and gas operations, largely applied in silos at the asset level. An integration gap between the asset and executive levels is evident, with a clear ’missing middle’ in capabilities.3 With this gap, energy companies struggle for a com-plete and timely assessment of the impact of operational decisions on segment performance. Likewise, the segment is unable to factor in day-to-day field operations in their objectives setting, planning, and strategic resource alloca-tion decisions.4

In order to deliver a strategy of value over volume and generate greater return on capital from their asset base, IOCs must make a transi-tion from a digital oil field to a digital business. A key requirement of this shift is the integra-tion and digital enablement of end-to-end ca-pabilities in strategic planning and perfor-mance management, above the asset level, thus providing a common data flow and visibility to operations through which strategy can be in-formed and delivered.

Changing dynamics in upstream – higher cost for fewer barrelsWith changing industry and market pressures, IOCs’ upstream operations are fundamentally changing. Indeed, complexity has increased with higher quality reserve opportunities be-coming harder to capture, in large part follow-ing the rise of National Oil Companies (NOCs), who now control 90% of the world’s reserves.5 In response, IOCs have shifted their focus to frontier, unconventional and mature fields. This portfolio shift has brought with it increas-

ing execution challenges and costs. In fact, re-serves replacement cost is expected in 2014 to have risen by almost 50% compared to 2011 levels and IOCs are struggling to maintain pro-duction volumes (see Figure 1). Furthermore, CAPEX spending is increasing significantly. Indeed CAPEX spending has risen by nearly 180% since 2000, whilst global oil supply (ad-justed for energy content) increased by just 14%.6 This trend clearly indicates significant diminishing returns.

The result has been declining return on aver-age capital employed (ROACE) across the in-dustry. Analysis shows that post-2010 ROACE has fallen across IOCs from highs of 30% to below 10% (see Figure 2). Furthermore, with capital spending increasing as prices remain stagnant, analysts are calling for capital con-straint. Shell has been the latest example to cave into pressure to rein-in spending follow-ing their recent profit warning and the news that ROACE had more than halved to 9% last year.7

Given this industry context, the growing re-sponse by IOCs has been a renewed focus on value over volume, with increased active port-folio management, and a growing realisation

2009 2013

Eni

ExxonMobil

Chevron

11

10

Total

Shell

BP

ConocoPhillips

-12%

Source: Company dataFigure 1: IOC Production decline




of the importance of strategic capital allocation and plan delivery.

The ‘missing middle’ Planning, forecasting and performance man-agement capabilities underpin the successful

delivery of value over volume. These capabili-ties help realise future potential value and guide the proper strategic investment decisions required to be successful in the long run, whilst maintaining profitable operations today. How-ever, current capabilities are inadequate. In

many companies, a ‘missing middle’ is evident across multiple dimensions: between the data available and disparate systems used; from the lack of end-to-end integration across processes or workflows; and between corporate strate-gies and analytics efforts at functional and de-partmental levels.8

Difficulties in the quality and integration of data forms one of the largest challenges for oil and gas companies’ planning and performance management capabilities. Data ecosystems are complex and littered with data silos, limiting the value that organisations can get out of their own data by making it difficult to access and in-terpret. Indeed, 63% of energy respondents cited data integration as the greatest challenge rela-tive to quality and their ability to analyse data.9

This gap in capabilities has resulted in plan-ning and performance management processes delivering:– Ineffective capital stewardship: planning

processes are not fully informed nor linked to performance management and therefore fail to deliver effective capital stewardship

– Short-term view: planning processes are unintegrated and are limited in their

23,605

17,627

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

20

10

0

2

4

6

8

12

14

16

18

22

24

26

28 CAPEX ($mm)ROACE (%)

2012

30,444

201120102009

14,794

Industry leader ROACE

Median ROACE

Median CAPEX

Source: IHS HeroldFigure 2: IOC Capital spend vs return




ability to strike the appropriate balance between short-term profitability and long-term value creation in the context of higher uncertainty

– Lack of agility: planning processes are not

aligned to the relevant business environ-ment and the key drivers of business value, nor do they have the built in agility based on multiple scenarios to enable course corrections

A digital plug for the ‘missing middle’The upstream segments’ ‘missing middle’ can be plugged through integrating and digitally enabling the entire planning and performance management landscape. Success will be deter-mined by an organisation’s ability to integrate data across the entire upstream value chain, perform rigorous analytics to generate and dis-tribute insight across the whole business to those who need it in real time.

The first step for energy companies is to visualise an end-to-end approach to data and create an ‘integrated data supply chain’, which breaks down silos and enables data to flow throughout the ecosystem for the benefit of the whole organisation.10 For the upstream segment, the data supply chain could start with production and operational data gener-ated at the asset level, combined with eco-nomic, planning and other relevant data above the asset level, before feeding into Field Development Plans (FDPs) and strategies at the executive level. Too much data however can do as much to paralyse decision making as liberate it.11 Moreover, many major oil com-panies have no standard financial data struc-ture, which has led to un-comparable data

Strategic prioritisation

Business Planning, Integration &Resource Allocation

Plan Execution & Perf. Mgt.

Strategic Planning Activity Planning

Production and operational data

Outcomes of Field

Development Plans

Activity schedules and

Functional Plans

Dig

ital

inte

grat

ion

Dat

a su

pply

ch

ain

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s

Data input into strategy

Common Data Model

CAPEX

Figure 3: Digitally enabled integrated planning




between different regions and fields. There-fore, fundamental calculated decisions are re-quired to determine the exact data require-ments necessary to inform decision-making from the asset to the segment level. These data

requirements should then be mapped into a ‘common data model’ which sets standard pa-rameters for capturing and reporting capital and costs spend across the business. This, ulti-mately, enables properly informed decision-

making across the business, by allowing for clear monitoring and comparisons.

Once the data is collated, analytics can be embedded into commercial and operational processes across the upstream value chain. For example, in planning processes, analytics based on production and operational data, combined with economic forecasts and risks, could feed enhanced scenario modelling on strategic resource allocation decisions at the executive level. This mechanism allows the ex-ecutive team to see multiple scenarios on how changing CAPEX decisions in the portfolio could impact long-term cash flows and pro-duction volumes. Decisions on FDPs can then be fed back down through the business, with analytics breaking them down into actionable, appropriately resourced, and aligned activity and operational plans at the asset level. Figure 3 depicts this optimised end-to-end integrated planning process.

Several energy companies are already start-ing to implement capabilities to bridge the ’missing middle’. One of the major IOCs has already started to develop a common data model to provide one source of data to manage the business. This will give the executive team

Key Performance Metrics Last Year

Production By Well

66%

WO-612

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Cost to Plan

82%Cost to Plan

88%Cost to Plan

10%Cost to Plan

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4Month

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20000

10000

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Last Year

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L

Year Month Week Last 24 Hours

Delta: 95%BOPD: 8K

Delta: 95%BOPD: 8K

Delta: 95%BOPD: 1.45M

Delta: 95%BOPD: 12K

Figure 4: Microsoft iLink Dashboard Source: Microsoft




line of sight, through multiple lenses (time ho-rizon, functional, cost etc.), to plan delivery and business outcomes. This capability allows the optimisation and integration of end-to-end upstream commercial processes and links strat-egy captured in development plans to detailed planning execution and performance manage-ment. The programme is expected to deliver significant performance improvements (ap-proximately 2% increase in ROACE) by ena-bling insight-driven decision-making and inte-grated, robust management and execution of the plan. Another company based in Queens-land Australia is in the process of installing technologies (Enersight and WellSpring) to model end-to-end physical flows of commodi-ties, costs and cash flows in addition to per-forming full field economics and forecast pro-duction on both short term and life of field basis.12 This capability will enable robust exe-cution planning and production forecasting as well as providing a simulation environment to optimise strategic resource allocation decisions in development plans.

Nevertheless, unless there is a timely and ef-fective channel to communicate intelligence back out to those who need it, the advantages

of analytics are reduced. Mobile and visualisa-tion technologies are central to its success, given how disparate energy workforces can be, and how complex the relevant data is. Example technologies include Microsoft’s ‘iLink Up-

stream Oil and Gas framework’ application. The app offers enterprises a 360-degree real-time ‘mobile’ view of their entire operations, empowering users to track performance met-rics, make better decisions based on informa-tive dashboards, and identify scope for resource optimisation across business units (see Figure 4).13 Technologies such as this, linked to the data supply chain, generate vast potential improve-

ments in performance management capabilities by enabling a real-time, mobile view, of plan at-tainment, from the field worker to the executive team. Indeed, implementation has the potential to significantly increase the pace and effective-ness of review cycles, work schedules and other processes across the business

Finally, embedded analytics now have the potential to capture the implicit knowledge of many tasks performed in planning processes, often based on experience held in an aging workforce. Advances in artificial intelligence and machine learning are making it possible to automate many knowledge worker tasks, pre-viously thought impossible. Sophisticated ana-lytics tools can be used to augment the talents of highly skilled employees, and as more worker tasks can be done by machine, it is also possible that some jobs could become fully au-tomated.14 The backend capabilities required to crunch the vast quantities of data, for multiple requests in real time, is now also within reach through the use of analytics platforms such as SAP Hana (High Performance Analytic Appli-ance), an application that uses in-memory da-tabase technology that allows the processing of huge amounts of real time data in a short time.15

“Mobile and visualisation technologies are central to

its success, given how disparate energy workforces

can be, and how complex the relevant data is.”




The road aheadSignificant challenges remain to create a digital plug for the missing middle. Cultural resistance to change is the most significant hurdle and can be explained by several factors. Firstly, many executives are yet to progress to a long-term value focus, as opposed to short-term profita-bility, and thus view digital technologies as solely a way to generate business metrics, rath-er than as a mechanism for optimising the end-to-end value chain. Secondly, the integration of data is likely to prove challenging as it is typi-cally stored in silos across the business with varying functional owners, many of which op-erate independently. As such, both a techno-logical and directional shift will have to occur to ensure the business works collaboratively within one common data supply chain. Finally, a talent gap, exemplified by an aging popula-tion, is present in IOCs and is likely to cause challenges for adoption and efficient operation of digital technologies across the business.

Nevertheless, the benefits of overcoming these challenges are immense. By digitally plugging the missing middle between activity and strategy, IOCs will be able to deliver value over volume and increase ROACE through dy-

namic data driven decision-making across the business. Looking to the future, exponential value can be generated if these same concepts are extended to integrated oil companies as a whole, thus closing the gap between Upstream operations and Refining and Marketing, and ultimately creating an optimised end-to-end digital energy business.

Article submitted by Myles Kirby

Sources:1. Accenture, Digitizing Energy: Analytics-Powered

Performance, 20132. ibid3. Accenture, 10 EQS Study, March 29th 20134. Accenture, Digitizing Energy: Analytics-Powered

Performance, 20135. The Economist, Supermajordammerung, Aug 3rd 20136. IEA, World Energy Outlook 2013, 12th November7. FT, Oil Groups Pressed to Restrain Spending, Jan 26th 8. Accenture, Digitizing Energy: Analytics-Powered

Performance, 2013 9. Accenture, Analytics Adoption Study, March 201310. Accenture, Technology Vision 2014, 201411. Offshore-Tehcnology.com, Making the most of the digital

oil field, 10th June 12. Accenture research13. Microsoft, Oil & Gas Business Intelligence Framework,

last accessed 13/02/14 14. McKinsey Global Institute, Disruptive technologies:

Advances that will transform life, business and the global economy, May 2013

15. Accenture, Experience SAP HANA with Accenture and SAP, 2012

Myles Kirby

Myles is a Strategy Analyst based in London. His most recent work has included defining the high-level principles behind the upstream strategic resource allocation and integrated business planning process at one of the major IOCs.

Myles is part of the Editorial Team of Refined; he previously authored an award-winning article on Shale Gas and Chinese Energy Security published in Refined 35.



http://www.offshore-technology.com/features/featuremaking-the-most-of-the-digital-oil-field/

http://www.offshore-technology.com/features/featuremaking-the-most-of-the-digital-oil-field/

http://apps.microsoft.com/windows/en-gb/app/oil-gas-business-intelligence/09e1e379-e753-4439-8329-9a4a5400a95e

http://www.mckinsey.com/insights/business_technology/disruptive_technologies



The study of analytics - or the uncovering of meaningful patterns in data - has cre-ated tremendous value for consumer-

facing, digitally-focused businesses such as Amazon and Google. Inside oil and gas com-

panies, visionary leaders with strong manage-ment teams are beginning to determine how to leverage analytics in the context of asset-inten-sive business-to-business (B2B) industries. Complexities in unconventional production

and declining production in existing conven-tional fields, coupled with data proliferation and decreasing data storage costs are leading to an exploration of analytics, with the ultimate goal of creating more shareholder value.

Turning data into oil how to use advanced analytics to increase production in declining fields



Turning data into oil - how to use advanced analytics to increase production in declining fieldscontinued

The case for analytics in oil and gas production

Overall production is declining across exist-ing fieldsWhen markets demand stable cash flows as much as growth, production forecasters and managers in exploration and production (E&P) companies have to stimulate declining wells and improve forecasting for new wells. One California-based upstream producer operating in heavy oil fields is only producing half the daily number of barrels today as it did two decades ago. Other producers have seen simi-lar production declines. This is causing E&P companies to look at exploration and reservoir modeling as they take the next step in the in-dustry’s technological revolution.

Unconventional production is difficult to estimateThe boom in oil and gas production driven by new technologies and fields has led some to predict a ‘golden age’ for E&P companies. However the bubbly local realities in places like North Dakota, Alberta or even the North Sea don’t reflect industry profits and stock val-

uations. Many E&P organisations are plagued by unpredictable and rapidly declining well production across their portfolios. Shell pro-vides a compelling illustration of this. Indeed its portfolio of assets was fundamentally re-

valued when their incoming Chief Executive Officer, Ben van Beurden, announced a move away from pegging market expectations to un-conventional production targets. As a result, the International Oil Company (IOC) took a write-down rather than try to operate a portfo-lio of unconventional wells with unpredictable production estimates.1

At the heart of this issue is the uncertainty that comes at the front edge of a technology

revolution. Horizontal drilling technologies and processes are relatively well established. E&P companies are rapidly improving well economics and focusing on capital efficiency by re-shaping portfolios and industrializing unconventional drilling and operations. But relatively little is known about the production behavior of shale, super-deep water and other unconventional formations.2

New meets old – how analytics is increasing production The last several years have led to a fundamen-tal shift in technologies and organisational capabilities that have enabled a range of high value use cases for analytics in exploration and production. Investments in areas such as the ‘Industrial Internet’, automation, and business data warehouses have made unprec-edented amounts of data available to manag-ers.3 Furthermore, analytics platforms – essen-tially the engines where data is stored and where complex data manipulation models are created – like SAP HANA (High Performance Analytic Appliance), Apache Hadoop and SAS are now widely available. Of course, there are concerns, with some pointing to data

“Many E&P organisations are plagued by

unpredictable and rapidly declining well production across their portfolios.”




quality as a barrier to the successful use of analytics. For example, data that is often re-dundant or obsolete can cause some manag-ers to have trouble trusting analytic outputs.4 And yet, as we will show below, those willing to take the plunge into advanced analytics are starting to see results in the form of increased oil production. In these cases, companies with strong leadership who view analytics as a strategic investment rather than an Informa-tion Technology (IT) investment are the ones creating value from analytics.

As technologies and capabilities have caught up to analytics use cases, we see oil and gas companies driving hundreds of millions of dollars of value from applying analytics to is-sues around well production. For example, analytics enabled by equipment instrumenta-tion currently allows a huge degree of preci-sion in determining when a beam pump should remain idle and when it should stroke to squeeze fractions of a barrel of incremental production. In another case, well operators re-ceive near real-time alerts to their mobile phones on potential maintenance issues allow-ing early interventions that reduce downtime. With help from advanced analytics platforms,

companies are building the ability to correlate key reservoir characteristics across entire fields. Isolating the variables that contribute to reservoir variability is allowing them to im-prove production models and target water in-

jection stimulation across the reservoir, thus leading to an increase in oil produced. One company has estimated the incremental value of this reservoir optimisation at close to $100 million annually. And this kind of return is generating real excitement amongst oil and gas executive teams.

Success factors and the ‘analytics mindset’Whilst many executive teams see the potential for analytics to stabilise or increase production and cash flows, the question rightly arises whether analytics will be another technology chimaera or provide a meaningful competitive advantage for E&P companies. We see man-agement leadership as key to the successful use of analytics. In the first instance, the busi-ness needs to define the right questions for an-alytics to answer, for example ‘how can we bet-ter understand pressure dynamics in sub-surface wells to optimise production?’ Then, visionary leaders should create partner-ships across the entire organisation, involving different business units and the IT function, to agree on use cases and execute an analytics strategy. This combination of vision, entrepre-neurship and know-how demonstrates what we see as a critical competency for the success of analytics – managers possessing an ‘analyt-ics mindset’.5

An ‘analytics mindset’ describes the ability for managers deeply connected to business is-sues to see how they can ‘get more’ from their existing data. These managers don’t need to understand analytics technologies or method-

“An ‘analytics mindset’ describes the ability for

managers deeply connected to business issues to see how they can ‘get more’

from their existing data.”




ologies in any real depth – however, they do need to have a vision for the value they can drive by answering a new set of questions. The key is to understand the data at hand and the power of correlation in very large data-sets. Prediction becomes easier and more ac-curate in a world where sampling may no longer be necessary. Managers who grasp this can begin to look at optimisation and predic-tion in new ways. Thus, instead of simply ‘stumbling into analytics’, organisations that intentionally build a cadre of managers with an analytics mindset will gain real advantage over the long run.

Once the business questions have been de-fined, managers should work with the IT func-tion to shape a solution, including framing variables and finding out whether relevant data is already in-house. In terms of data that enables production-related use cases, compa-nies with strong Industrial Internet and auto-mation capabilities are better positioned to answer key questions related to production. Monitoring the drilling site or the well head in near-real time will enable a range of use cases. Managers must also ensure that their vision and key questions drive IT investments related

to analytics. In oil and gas, IT departments are not necessarily familiar with the technologies that enable analytics use cases. In some cases, major investments might be needed; in other cases no new technology will be needed to en-

able valuable analytics use cases - this hinges closely on the maturity of the organisation’s existing data collection and storage. Overall, managers should engage IT departments in up-front conversations about total cost of own-ership and ensure that use cases are thorough-ly understood before technology investments are made.

Once the appropriate technology and data are in place, managers are not required to be

data scientists to successfully execute analyt-ics, nor should data scientists be expected to act as champions for analytics within a specific organisation. The best approach is likely to be partnering deep analytics experts with experi-enced managers who are close to the business.

What happens when increasing production simply means asking the right question?E&P companies face classic management chal-lenges in generating real value out of analyt-ics. To achieve a focused outcome, four key factors need to be in place. First, a visionary leadership that sees analytics as a strategic play is required to generate the necessary mo-mentum to build the business case for analyt-ics. Once this vision is established, the man-agement team should be mobilised to create use cases that address real business issues – thus developing the analytics mindset within the organisation. Third, business functions, together with IT, need to communicate closely to ensure the right mix of technology capabili-ties exist to take full advantage of modern ad-vanced analytics platforms. Finally, managers who understand the business challenges should partner with deeply skilled data scien-

“Prediction becomes easier and more accurate

in a world where sampling may no longer

be necessary.”




tists who know how to execute advanced ana-lytics models. When it comes to the challenges E&P companies face around industrialising production and better defining reservoirs, there is no doubt that analytics will provide real competitive advantage to those who find the right approach.

Article submitted by Lance Dexter and David Morse

Lance Dexter

Lance Dexter is a Strategy Manager based in Vancouver, Canada. He has advised mining and oil and gas clients on a range of operational and strategic issues including operating models, business transformation, and joint ventures and alliances.

In the energy space, Lance is particularly inter-ested in the role innovation can play in transform-ing a traditional industry.

David Morse

Dave Morse is a Strategy Manager aligned to Accenture’s Energy Practice, and based in San Francisco. His client work has focused on business transformation, operating model and technology innovation projects for super-majors and uncon-ventional E&P companies.

Dave’s previous Accenture research and publica-tions have focused on innovation in alternative transportation fuels and super-major operating models.

Sources:1. Financial Times, ‘Shell writedown is bad news for US shale’. Guy Chazan, August 1, 20132. Accenture, ‘Digitizing Energy: Analytics-Powered Performance – Opportunities for oil and gas companies to

improve business outcomes’ (2013)3. See glossary for definition of ‘Industrial Internet’4. The Economist – A Different Game, February 2010. Available here: http://www.economist.com/node/15557465 5. This is based on work by Viktor Mayer-Schonberg and Kenneth Cukier in their book ‘Big Data: A Revolution That

Will Transform How We Live, Work and Think’ (2013)




Opportunities for advanced analytics in shale gas production

Shale gas is changing the world’s energy landscape. In a reversal of fortunes un-foreseen just five years ago, the US is

now progressing rapidly towards self-suffi-ciency in hydrocarbons. International Energy Agency (IEA) projections show that the US is

set to becoming the world’s largest gas pro-ducer by 2015 and the largest oil producer by 2017, becoming almost entirely self-sufficient in energy by 2035.1 Already, shale oil and gas accounts for almost 50% of US oil and gas pro-duction, set to increase to 65% by 2030.2

However, despite this success story, shale gas is not without its challenges. Shale gas has large infrastructure costs. Typically, 200 to 250 wells are required to produce one trillion cu-bic feet (TCF) of gas,3 and each well can cost in the region of $0.3 to $20 million to drill.4 Shale



Opportunities for advanced analytics in shale gas productioncontinued

gas resource developers also have significant expenditure on contingent labour and servic-es. This labour presents a challenge to manage efficiently, particularly since well labour de-mand is high for short periods only, with a range of providers and types of labour re-quired at different points in the operations.5 Moreover, water is needed in large quantities at specific times during the shale gas extrac-tion process – particularly during fracking. In total, approximately five million gallons of water are required per well – and making sure these quantities of water are available on site requires approximately 1,000 truck move-ments.6

In addition, the shale gas production pro-cess poses some significant environmental risks, including the risk of water contamina-tion. Solid waste and methane gas emissions from wells can also present an environmental hazard. Shale gas operations can also trigger increased seismicity, and fractures may prop-agate (though the risk of propagation reach-ing aquifers is unlikely if shale gas extraction takes place at a suitable depth). Finally, in rare circumstances, wells may leak gas into sur-rounding rock formations or as blowout onto

the surface.7 These environmental concerns have resulted in strong local opposition to the development of wells in some locations and jurisdictions.

Analytics has been defined in different ways – in a nutshell, it describes ‘the extensive use of data, statistical and quantitative analysis, explanatory and predictive models, and fact-

based management to drive decisions and ac-tions’.8 Analytics can be descriptive (“What happened?”), diagnostic (“Why did it hap-pen?”), or more advanced, such as predictive (“What will happen?”) or prescriptive (“What should happen?”).9 Advanced analytics pre-sents a significant opportunity to mitigate these risks and reduce costs in shale gas pro-duction. In practice, with the large number of wells required in a shale gas field, there is a series of similar and repeatable processes in well drilling and production comparable to manufacturing. Large volumes of data on pressure, temperature and the speed at which the drill breaks the rock are generated through-out these processes – and this data lends itself to measurement and analysis of various met-rics. For example, a comparison can be made between different wells to identify cost saving measures to demonstrate how to realise the same outcome with fewer inputs.

Advanced analytics can also bring about ef-ficiencies to wider shale gas operations. Through recording, analysing and controlling the transportation of water and other inputs to the well, guesswork is taken out of shale gas logistics. Global Positioning System (GPS)

“Large volumes of data on pressure, temperature and the speed at which the drill

breaks the rock are generated throughout these

processes – and this data lends itself to

measurement and analysis of various metrics.”




sensors can enable routes to be analysed and revised to avoid congestion. Costs can be fur-ther reduced through efficient usage of each truck, and monitors can report on water levels in the truck. More efficient water usage is par-ticularly important in developing shale gas where water supplies are scarce – and in many parts of the world with significant shale gas reserves, water is limited. Precise logistics op-timisation will be critical if shale gas develop-ment under existing technology is to be suc-cessful in countries such as China.10

A similar approach can bring about efficien-cies related to labour costs. Advanced analyt-ics can consider the optimal level of labour required for a schedule of tasks. The perfor-mance and safety of personnel should be inte-grated into the solution; for example monitors can be used to detect personnel position on site (and importantly, if someone has fallen). Escaped gas can also be detected through dig-ital monitoring and appropriate action taken to ensure the safety of resources.

Monitoring and planning as part of ad-vanced analytics can also be used to mitigate environmental risks. Even before a site is cho-sen, analytics can provide insight into sites

which are both suitable for extraction of shale gas and with the least likelihood of delay caused by local opposition. Logistics optimi-sation should result in reduced impact of trucks carrying water and other inputs to the

well head. Fewer inputs not only save on cost, but also on environmental footprint. As well as improving safety, monitoring for escaped gas serves to reduce the impact of the well. Advanced analytics should assist with early

issue detection of other potential issues, for example through measurement of seismicity and water pollution.

Advanced analytics methods can be used not only to bring about cost and environmen-tal savings but also to improve well produc-tivity. ‘Geo-steering’ relies on real-time data from the drilling rig to direct the drill accu-rately towards the area of the rock formation in which the oil or gas is trapped. Through the use of data from the drill, as well as geological information, the drill can be steered from down to horizontal, precisely towards the tar-get.11 With improved data of this kind, geo-steering can result in increased hydrocarbons per dollar – a particularly interesting value proposition for shale gas production which relies heavily on horizontal drilling.

The exact impact of advanced analytics on the shale gas industry is yet to be fully deter-mined. Nevertheless, there is no doubt that the first operators to start analysing the avail-able data and act to reduce costs and increase production will be placed at a significant com-petitive advantage – and deliver a greater re-turn on investment. The long-term success of shale gas is likely to depend heavily upon the

“The performance and safety of personnel should

be integrated into the solution; for example

monitors can be used to detect personnel position on site (and importantly, if

someone has fallen).”




use of advanced analytics – and the impact will be particularly marked if analytics can help reduce the risks of negative impacts on the environment.

Article submitted by Toby Lomax

Sources:1. IEA, Reuters, FT 2. EIA (US Energy Information Administration), The

Economist, Accenture Analysis3. Accenture Analysis4. http://www.eia.gov/analysis/studies/usshalegas/

pdf/usshaleplays.pdf 5. Digital Unconventional offering pack v1 2 6. Accenture presentation - Water and shale gas-

Middle East7. Shale gas extraction in the UK: a review of hydrau-

lic fracturing (royalsociety.org/policy/projects/shale-gas-extraction)

8. Davenport & Harris, Competing on Analytics: The New Science of Winning, 2007

9. Kart, Linden, & Schulte, Extend Your Portfolio of Analytics Capabilities, 2013

10. Accenture, Water and Shale Gas Development, 2012

11. News release “Accenture and MIT to Use Analytics to Help Shell Improve Cost-Effectiveness and Productivity of Unconventional Drilling Operations“

Toby Lomax

Toby is a Resources Technology Consultant based in London. He has over five years’ experience working with oil and gas clients on SAP implemen-tation.

Toby is an active member of the UKI Energy Book Club.



http://www.eia.gov/analysis/studies/usshalegas/pdf/usshaleplays.pdf

http://www.eia.gov/analysis/studies/usshalegas/pdf/usshaleplays.pdf

In almost all Organisation for Economic Cooperation and Development (OECD) markets, demand for petrol and diesel is in

decline as the industry adjusts to new legisla-tion and more efficient engine technologies come onto the market. This already challenging market context is further compounded by the

continued and aggressive push into fuel retail-ing by the leading hypermarkets. Indeed, mas-sive discounts on fuel have become the norm and are used as a loss-leader to drive footfall into supermarket stores. Unfortunately, the tra-ditional fuel retail offer from the International Oil Companies (IOCs) has, for the most part,

seen little revolution - or even evolution - over the last ten years and there has been minimal investment in the forecourt.

There is, however, light at the end of this rath-er gloomy tunnel. The emergence of the digital consumer presents perhaps the biggest oppor-tunity - and equally, potentially the greatest

Fuel retailing and the digital consumer



Fuel retailing and the digital consumercontinued

threat - to the future of fuel retailing. Today we have an entire generation which has grown up in a digital world and the so-called ‘digital na-tive’ is now more prevalent than ever before. These digital natives interact with brands and organisations in fundamentally different ways and through multiple digital channels. They are tech-savy and on-the-go consumers who like and tweet about the experiences they have with products and services. And organisations that have embraced this digital consumer and have created more meaningful and relevant customer experiences have experienced step changes in their performance. The dilemma faced by many of our energy clients is to what extent should they embrace this digital consumer?

Top-line performance for a fuel retailer is driven by the frequency with which a customer visits their retail site, and by the amount they purchase during their visit. Therefore getting a consumer to visit more often and spend more than they normally do is nirvana for any fuel retail manager - and the digital consumer pre-sents the most significant opportunity in a gen-eration to achieve this.

Oil companies have a wealth of customer data at their fingertips. This typically includes

customer loyalty data gained from loyalty cards, point of sales transaction data, credit card data and for some progressive companies, data gathered from social listening (social me-dia monitoring). All of this data presents a

huge opportunity for oil companies to get re-ally smart about their consumers. Indeed, by consolidating this data into a single view of each customer and running sophisticated ana-lytics on it, oil companies can develop unparal-leled insights into an individual consumer’s buying behaviour – enough to get any market-

ing team excited. Offers that previously were made as one-to-many with limited impact and the risk of cannibalisation can now be made on a one-to-one basis with a fact-based under-standing of how the offer will drive visit fre-quency, basket size - or in some instances both.

But this is only part of the equation. Digital technologies now present fundamentally new channels to target consumers. Oil companies are increasingly exploring how mobile pay-ment can be introduced into the forecourt so it’s not difficult to see how this thinking can be extended to use mobile as a channel to target consumers with relevant offers. The ‘connected car’ presents another channel and new control point that can be exploited. Original Equip-ment Manufacturers (OEMs) such as BMW and Toyota have cars in the market today that are connected to the internet and offer consum-ers very different experiences. Oil companies which can tie into the connected car with a ‘killer’ dashboard app that targets consumers with real-time location-based (and relevant) of-fers will destroy the competition.

The exciting thing is that this is happening now. What is even more exciting is that we, Ac-centure, are at the very heart of many of these

“Today we have an entire generation which has

grown up in a digital world and the so-called ‘digital

native’ is now more prevalent than ever before.”



Fuel retailing and the digital consumercontinued

discussions with our clients. Through Accen-ture Interactive (AI) we have a wealth of capa-bility, tools and assets that we are bringing to our energy clients to help integrate current and future sources of data, draw insight from ana-lytics to develop targeted offers, and execute these offers through new digital channels. Our capability is ‘end-to-end’ in that we are one of the only organisations in the world that can de-liver on both the technical and creative sides of new fuel retailing customer experiences.

The dilemma for our energy clients now is to what extent they should embrace the digital consumer. Clearly, to get this right will require investment; and investment in downstream has been a low priority across many of our oil and gas clients for many years. Nevertheless, the oil company that gets this right has the po-tential to create a step change in customer loy-alty – ultimately driving higher sales and rev-enue. For this to happen, these companies have to act now.

Article submitted by Rich Kho

Rich Kho

Rich Kho is a Resources Strategy Senior Manager based in London. He has worked with clients across the energy value chain with a focus on business and operating model transformation.

His current interests and focus on the BP account are on digital marketing and the digital consumer, and specifically the impact on BP’s fuel business and operating model.

As a past Editor-in-Chief of Refined, Rich sits on the Refined Editorial Board and is a Refined alumni.



BOOk REVIEW:Untapped - The Scramble For Africa’s Oil – by John GhazvinianIn Untapped – The Scramble for Africa’s Oil,

John Ghazvinian takes off on a whirlwind journey – and adventure - around the oil-

producing regions of Sub-Saharan Africa. Throughout the book, he attempts to answer what the future of oil will bring to Africa, and whether it will constitute a blessing or a curse for this continent. Beginning in Nigeria,

Ghazvinian then turns to uncover what the state of affairs is across the rest of the continent. The book has a less academic tone than other books on the subject, and Ghazvinian embeds himself into the realities of each local situation in a voyage that takes him to some of the most dangerous places on earth - including the Niger Delta, Cabinda, and South Sudan.

Starting the book at the World Petroleum Conference in South Africa, Ghazvinian hits on many of the themes he continues to build on throughout the story: the move from the tradi-tional oil-producing countries in Sub-Saharan Africa to other areas in the region and to off-shore exploration; the challenges associated with Africa’s unpredictable contractual envi-



http://www.amazon.com/gp/product/0156033720/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=0156033720&linkCode=as2&tag=graandwebdesl-20






Book Review: Untapped - The Scramble for Africa’s Oil – by John Ghazviniancontinued

ronment; the small portion of total investment that is ploughed into local content; and the in-creasing tensions between the traditional West-ern powers and rising Asian countries in their activities on the continent.

Starting in Lagos, Ghazvinian promptly be-gins making his way to the Niger Delta – trav-elling over land (against the advice of locals). During this time, he visits villages along the Delta, speaking with locals and warlords seek-ing to understand the impact that the oil indus-try has had on the region. He recounts how sophisticated Exploration and Production (E&P) technology has allowed oil companies to extract huge profits from the swamp; yet this is taking place against the backdrop of people living in stone age-like conditions. While the Delta region is where most of Nigeria’s oil has come from, its people have seen little benefits, with 70% of the population still living on less than one dollar a day. This has been a leading cause of industrialised oil theft amounting to over 200,000 barrels per day, with various ac-tors involved - from politicians to local tribes. Following his foray into the Delta, Ghazvinian heads back to Lagos to meet Chris Finlayson, the CEO of Shell Nigeria. The oil executive

stresses that Shell can help fund some develop-ment and attempt to influence the direction of the country; however, it must be careful not the tread toes with a sovereign nation.

Ghazvinian then turns to look at the rest of the continent. He makes the case that oil still remains a curse for many economies, even with deepwater production. Gabon is cited as a prime example of the ‘resource curse’ (or ‘Dutch Disease’) that has afflicted many oil-

rich countries across Africa. On the surface, the capital Libreville is reminiscent of the French Riviera. However, the Gabonese economy has become entirely centered on oil, side-stepping vital parts of the economy, such as agriculture. The majority of the government budget comes from economic rents as opposed to taxes – as a result, this divorces the government from the need to manage the effectiveness of the econo-my. The government has little incentive to pre-pare the economy for the après petrole (post pet-rol) era. Ghazvinian continues to investigate this rentier mentality as he travels to Congo and finds that only 2% of the arable land in the country is used as people are all seeking jobs in the oil sector. Congo also marks the author’s first use of the term ‘oil field trash’, a blunt term denoting the disparity between the be-haviors of expats and locals. In many ways, his descriptions of this gulf reminded me of my own experience of working in Africa.

As he moves along the coast, the author’s next stop is in Angola, where a multi-decade civil war came to an end in 2002. Angola has since experienced a huge economic boom fueled by a huge growth in offshore oil produc-tion. However, as Ghazvinian points out, while

“While the Delta region is where most of Nigeria’s oil has come from, its people have seen little benefits,

with 70% of the population still living on less than one

dollar a day.”




Luanda is one of the most expensive cities in the world, almost all the wealth resides in ‘100 families’ and over two thirds of the population still lives in extreme poverty. Of course, no dis-cussion on Angola can end without bringing up Cabinda - the enclave situated between the Democratic Republic of Congo (DRC) and the Republic of the Congo – a region that homes 2% of Angola’s population but produces 60% of its oil.

Travelling across Equatorial Guinea, Ghaz-vinian discusses how oil has turned some of the smaller African states into instant emirates. He reviews the country’s bloodied history of coups, and his experience at an authentic oil-field ‘barbecue’. 15 years ago, no one cared about this tiny country owning only one hotel - in stark contrast to today, where it is touted as the ‘Kuwait of the Tropics’ and is run by a klep-tocracy. His foray into this small island nation comes to a screeching halt as he gets caught without press credentials and is kicked out of the country.

Moving away from the Gulf of Guinea, Ghazvinian arrives in Chad, which was once touted as a model for sustainable oil develop-ment in Africa through its cooperation with the

World Bank. However, our intrepid author quickly discovers the inconsistencies inherent to this country. He also begins a frank discus-sion on the importance of Africa to China’s fu-

ture. His perspective is that much of China’s aid to Africa comes in the form of cash pay-ments that have few strings attached. This is more favorable to local governments than the aid that comes from Western countries because it places few restrictions on the government. Chinese oil companies are state-owned and thus don’t have to answer to shareholders and

thus have the ability to ‘wait out’ the problems such as instability. The major question here is whether this sort of ‘checkbook diplomacy’ is sustainable and what it will mean for the aver-age citizen. The book ends by noting that Africa oil and gas development still has a long way to go and leaves the reader with the question ‘is there a happy medium for sustainable devel-opment in Africa?’

Overall I found the book to be an enthralling and informative read which complemented well my experiences of oil and gas in Africa. Everything from the barbecues of the oil field trash, the street hawkers, and the huge dispari-ties between rich and poor was spot on. I only wish I could have read this book prior to start-ing my own adventure of working in Africa! While the book does a good job describing many of the situations I experienced, I still wouldn’t trade in my first-hand experience. While reading the book was a great comple-ment to the experience, I would strongly urge anyone interested in the global energy indus-try to experience these realities firsthand.

This book also sparked a wide-ranging de-bate amongst the London energy book club group. Readers liked that the author set him-

“Travelling across Equatorial Guinea,

Ghazvinian discusses how oil has turned some of the smaller African states into

instant emirates.”




self apart from others by choosing to get down in the weeds of the issue. His travel experi-ences were interesting, and on occasion even put him at significant risk. Ghazvinian is not afraid to voice his opinion and take a side on issues. This allowed readers to see history through a different lens and develop a more comprehensive understanding of situations that had been touched on in Private Empire and The Quest. Overall, I highly recommend read-ing Untapped. It is as relevant as ever today, es-pecially given the increased interest in East Africa, and exploration taking place in new re-gions with no historical oil and gas activity.

Review submitted by Michael Stratton

Michael Stratton

Michael is an Analyst based in North America. He joined Accenture after as a Field Engineer for Schlumberger.

Whilst working for Schlumberger, he had the opportunity to work on a wide array of projects spanning wildcat exploration, appraisal, to field development. He also worked on projects in the shallow water offshore environment as well as the deepwater environment.



Energy Industry Quarterly Results: Q4 2013 Overview and Trends

The supermajors continued to struggle in Q4 2013 as increased Exploration & Development costs, stagnating oil prices and weak refining margins again ushered in disappointing re-sults across the board

The big five IOCs all reported Y-o-Y losses for Q4. Shell grabbed the headlines, releasing their first profit warning since 2004 as earnings slumped 70% for the second quarter in a year.

The story for the full year was no different as annual earnings were universally down on 2012’s results – Shell again posting the biggest drop at 38%.

Production Output DeclineThe majors again saw falling production dur-ing Q4, with BP’s output falling 1.9% to 2.25 million barrels of oil equivalent per day in the

period, while Chevron’s slumped 3.4% to 2.58. The story was the same for the full annual re-sults and can be attributed not only to the in-creasing difficulty in getting oil out of the ground but also to major disruptions across the globe such as oil theft in Nigeria (Shell, Total), political issues in Egypt (BG), shutdowns at Kashagan (Shell, Total, BG, BP, Statoil) and various project overruns globally.

Results Summary



Project Prices SoarIn a global market where it is increasingly dif-ficult to extract value at any stage of the value chain, IOCs have often turned to ‘superpro-jects’ in a bid to ultimately boost their bottom lines. However, spiralling costs and project overruns have meant just the opposite. This is no better exemplified than at Chevron’s Gorgon LNG project, where forecast costs rose from $37 to $54 billion in Q4.

Marginal Gains? Continuing a trend regularly seen in recent years, refining margins were hit by low oil prices and precipitated poor downstream re-

sults for the majors. Total said weakened de-mand in Europe made it a particularly difficult quarter for refineries in the region and the re-cently announced capacity cuts at Stanlow, the UK’s second largest refinery, are testament to that phenomenon.

Macro TrendsPoor results, falling output and stagnant oil prices are forcing the supermajors to reassess portfolios and priorities, with the emphasis firmly on consolidation and capital efficiency.

Steady Road AheadDespite a late uptick in the oil price during Q4, the Brent average was 78 cents lower than it was for the last three months of 2012. Looking at the year as a whole, the Brent price was more or less stable, down just 0.3% and a recent study from Shell’s Scenarios team suggested that this is the way of things to come. The study concluded that oil prices would likely remain steady for the next two decades – slowly increasing during tight market scenarios but potentially dipping to $70 a barrel in times of volatility.

Exploration Budgets SlashedIn the wake of what some are calling the worst year for exploration in two decades, with high profile failures in areas such as the West Coast of Africa and massive asset write-offs being made by companies such as Tullow Oil, explo-ration budgets are set to be slashed in 2014. With companies being pushed out to more complex and more remote exploration fron-tiers all the time, costs are rising without al-ways achieving the desired results. Industry insiders suggest that campaigns will now like-ly focus more on established provinces such as the GoM and Brazil rather than the more risky

Energy Industry Quarterly Results: Q4 2013 Overview and Trendscontinued

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WTI Spot Price Brent Spot Price

Q4

Jan-1

1Apr-1

1Ju

l-11

Apr-12

Jan-1

2

Oct-11

Jul-1

2Oct-

12Ja

n-13

Apr-13

Jul-1

3Oct-

13

Replacement Cost Profit ($ billions)

$-

$2

$4

$6

$8

$10

$12

4Q 2012 1Q 2013 2Q 2013 3Q 2013 4Q 2013

BP Shell Exxon Chevron Total




areas such as the Arctic or Africa. IOCs, with the largest asset bases, are suffering the most and may continue to steer away from pursu-ing elusive conventional oil fields in favor of natural gas – which would, in turn, impact oil prices.

Capital Efficiency keyWith shareholders clamouring for improved results and a better ROI, the focus for the su-permajors has moved to capital efficiency and

getting the most out of their assets. Shell’s new CEO Ben Van Beurden, in particular, has iden-tified capital efficiency as a key tenet to the company’s strategy during his tenure. Consequently the industry can expect to wit-ness busy market activity, with supermajor as-set divestment being the key theme. Shell has already initiated sales in Australia, Nigeria and the North Sea; shifting their core focus to the GoM, Middle East and Brazil.

IOCs

bp

Despite the group’s divestment programme, BP’s Q4 and full year results were hit by weaker refining margins, high depreciation and exploration write-offs Earnings/ Profit: Full-year underlying replacement cost profit was down by 22% to $13.4 billion for 2013, compared with $17.1 billion for 2012Earnings narrative: The reported post-tax result of $2.8 billion for the quarter was down 27% when compared to the last quarter.Production: Total reported production of oil and gas for 4Q 2013, including Russia, was 3.23 mboe/dDownstream Sales: Total sales volumes of refined products was 5.5 mboe/d, a decrease of 3% compared to Q3Analyst commentary: Lucas Hermann of Deutsche Bank – ‘In the upstream division, numbers were around $200m shy of our expectations at $3.9bn. The company forecasts a production decline in 2014. ‘Share price impact: The quarterly update did not affect the share price much, being 0.1% higher in London trading on 05/02/2014




IOCs

Chevron

Chevron reports net income of $4.9 billion in Q4 and $21.4 billion for the full yearEarnings/Profit: Net income was down 31.9% Y-o-Y.Earnings narrative: Q4 saw a Y-o-Y decline in output and Chevron will not meet its full-year output target of 2.65 mboe/d, as announced in March 2013. Despite this, Chevron has maintained an industry-leading position in upstream earnings per barrel for the past four years.Production: Chevron produced 2.56 mboe/d during October and November. This is 4% lower than the full-quarter average of 2.67 mboe/d from the year-earlier period.Downstream Sales: 20% decrease in U.S. downstream operations of $265m in Q4 2013 vs $331m in Q4 2012.Analyst commentary: “Chevron really struggled on production last year but it looks like they’re going to turn that around in 2014,” Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis who rates Chevron shares a buy. Share price impact: Chevron is expected to report a per share profit of $2.87.

ExxonMobil

ExxonMobil saw lower-than-expected quarterly profit due to continually declining production coupled with heavy spending to find fresh reserves.Earnings/Profit: Net income was down 16% Y-o-Y.Earnings narrative: The main reasons behind Exxon’s drop in fourth-quarter profits are lower oil prices and continued weak refining margins. The effects of missed opportunities in shale investment and declining natural gas production are likewise mak-ing themselves felt.Production: Exxon’s total oil and natural gas production fell 1.8% from the year-ago period to 4.2 mboe/d. As a result, quarterly earnings decreased $976 million, while year-end earnings dropped $3 billionSales: Refinery throughput averaged 4.5 mboe/d, down 8%. Downstream earnings increased $324 million from the previous quarter but were down $852 million from the past year. Chemical earnings dropped $48 million Y-o-Y and $115 million from Q3. Analyst commentary: “They’ve lost momentum already, reverting back to declining production and stagnant earnings.” – Brian Youngberg, Edward Jones. Share price impact: Earnings per share decreased 24% to $7.37.




IOCs

Shell

Shell reports fourth quarter earnings of $2.2 Billion and 2013 Earnings of $16.7 Billion down 70%, due to low shale gas prices, problems in Nigeria and overcapacity in Asian refining Earnings / Profit: Net income was down 70% Y-o-Y.Earnings narrative: Shell’s 4Q, and full year results were particularly poor with the company raising its first profit warning for 10 years due to major issues with overcapacity in European and Asian refining and continued production issues in Nigeria. Despite the large earnings miss investors maintained Shell’s strong share price due in part to a dividend increase and a strategy based around long-term capital efficiency.Production: Q4 global upstream produced 1.54 mboe/d in the Q4 2013, down from 1.64 mboe/d in Q4 2012.Downstream Sales: 5% decrease in downstream sales from 6.4 mboe/d to 6.0 mboe/d.Analyst commentary: Shell’s reduced spend and capital efficiency is “encouraging for investors”, as they start to “focus on Return-on-Capital” Oswald Clint, Sanford C. Bernstein.Share Price Impact: Shell’s share price remained stable at £21.24 at the close.

Total

The group reported 2013 adjusted net income of €14.3 bn, a slight decrease from 2012 with both Upstream and Downstream remaining stable .Earnings / Profit: Adjusted net operating income was $15.8 billion compared to $17.2 billion in 2012, a decrease of 8%. Earnings narrative: Lower income was due to poor results from the Upstream segment and, to a lesser extent, from the Refining & Chemicals and Marketing & Services segments.Production: Total hydrocarbon production was stable at 2.3 mboe/d in 2012.Downstream Sales: Total refined product sales were up 3% to 1.8 mboe/d.Analyst commentary: TOTAL is expected to take advantage of the increased demand for natural gas by leveraging existing assets and adding more to its portfolio. Recently TOTAL acquired more offshore exploration permits and also increased its quarterly dividend to €0.61/share. We expect a higher dividend once recent investments begin to pay-off. (Zacks, Rank #4, Sell).Share Price Impact: The share price traded to $60.57 at market open in NYSE on the day of the announcement.




Independents

BG Group

BG Group reports fourth quarter revenue and other operating income up 14% to $5.43 billionEarnings / Profit: Net income was up 11% Y-o-Y Earnings narrative: The results for the quarter included a $1.29 billion post-tax impairment of certain assets in Egypt and a $1.11 billion post-tax impairment of certain assets associated with the shale gas business in the USA. Production: Production volumes decreased by 1% primarily as a result of the effects of reservoir decline in Egypt and lower activity in the USA.Downstream Sales: LNG Shipping & Marketing total operating profit increased 18% to $778 million in 4QAnalyst commentary: “Spot LNG prices strengthened during the quarter, which may have had a modest impact on LNG earn-ings. With first gas landed on Curtis Island (Australia), BG has delivered all major milestones set for 2013” Morgan Stanley analysts.Share price impact: Shares increased 1.6%, however, the stock price has yet to regain the level it traded at before the first output downgrade knocked a fifth off its value in one day last October.

Conoco Phillips

ConocoPhillips outshone larger competitors with a quarterly profit that beat expectations as it moved to overcome the problems of high costs and lack of fresh reservesEarnings/ Profit: Net income of $2.5 billion was up from $1.4 billion a year earlier Earnings narrative: Q4 adjusted earnings were essentially flat Y-o-Y, primarily due to lower realized prices, lower volumes and higher depreciation and operating costs associated with new production, offset by lower overall taxes.Production: Production from continuing operations for Q4 was 1.5 mboe/d, a decrease of 93 mboe/d compared with Q4 2012.Analyst commentary: In a note to clients, Ed Westlake of Credit Suisse dubbed Conoco the best performing large oil company, citing 7% growth in cash flow despite asset sales, a reduced share count and more cash on the balance sheet.Share price impact: The shares fell 0.1% to $65.75 at the close in New York. The stock is down 6.9% this year




Independents

Occidental

Occidental reports fourth quarter net income of $1.6 billion and 2013 Earnings of $5.9 billionEarnings / Profit: Net income was up 389% Y-o-Y. Earnings narrative: Occidental’s huge Y-o-Y profit rise can largely be attributed to one-off items, such as the part sale of an investment in General Partner of Plains All American Pipeline, L.P, rather than an improved performance. Both upstream and chemicals income figures were down while Midstream, Marketing and Other earnings were marginally up. Production: For Q4 of 2013, daily oil and gas production volumes averaged 0.75 mboe/d, compared with 0.78 mboe/d in Q4 of 2012.Downstream Sales: 2% decrease in net sales volumes per day 0.77 mboe/d in Q4 2013 vs 0.78 mboe/d in Q4 2012.Analyst commentary: “Occidental sold more than it produced, “said Raymond James analyst Pavel Molchanov. “It took vol-umes out of inventory, and that’s why it beat estimates.Share price impact: Occidental dropped 0.6% to $87.82 in New York (29th Jan).

Talisman

Talisman Energy reports unexpected billion-dollar loss in fourth quarter due to decreased production, along with lower liquids price realizationsEarnings/ Profit: A net loss of $1 billion compared to a net profit of $376 million in Q4. Earnings narrative: Loss reflective the reduced value of its North Sea operations, which have been a long-running headache for the Calgary-based oil and gas producer.Production: Total hydrocarbon production was down 1.3% to 0.39 mboe/d.Analyst commentary: “Talisman Energy posted an unexpected US$1-billion net loss in the fourth quarter, reflecting the re-duced value of its North Sea operations…” (THE CANADIAN PRESS).Share price impact: The share price increased 2% to CAD11.72 at market close in Toronto Stock Exchange on the day of the announcement.

Article submitted by Simon Turner and Rue Howland-Jackson



GlossaryTERM DEFINITION

Digital (adj.) The increasing information intensity and connectedness of business resources.

Digitise (verb) Applying technology to make resources digital (a mobile sales force in an example of incremental digital improvement).

Digitalise (verb) The process for turning digitised resources into new sources of revenue, growth and operational results that generate a premium to a business.

Digital Business An organisation that incorporates digital technology into their business to create revenue and results via innovative strategies, products, processes and experiences.

Analytics Simply put, Analytics is using data to drive business actions.

Analytics can be:• Descriptive (“What happened?”)• Diagnostic (“Why did it happen?”)• Predictive (“What will happen?”)• Prescriptive (“What should happen?”)

Big Data Big Data describes the exponential growth, availability and use of information, which is diverse in type and not necessarily structured.

Drones Unmanned Aerial Vehicles (UAVs) – or drones - are aircrafts with no pilot on board. UAVs can be remote-controlled (e.g. flown by a pilot at a ground control station) or fly autonomously based on pre-programmed flight plans or more complex dynamic automation systems.

Google Glass Google Glass is a wearable device developed by Google with an optical head-mounted display, which is positioned to become the first mass-market ubiquitous computer.

Internet of Things (IoT) A world where physical objects are seamlessly integrated into information networks, and where physical objects can become active participants in business processes. Services are available to interact with these ‘smart objects’ over the Internet, query and change their state and any information associated with them, considering security and privacy.

Machine-to-Machine (M2M) M2M refers to a system whereby a device can communicate through a network with an application to capture information, typically without the need for human intervention. Simply put, it refers to technologies that allow both wireless and wired systems to communicate with other devices of the same type.

Glossary put together by Krystal Ismail



Energy Information Administration

Energy pages on Accenture.com

WEF Energy

International Energy Agency

Oxford Institute for Energy Studies

Petroleum Economist

Nick Butler’s blog on the FT

UK PIA

Platts

BP’s Chief Economist’s blog

Handy linksEXTERNAL LINkS INTERNAL LINkS

The Energy Source - our centralised energy industry portal where you can access the latest news and updates on energy, information about our segments, services, and our fiscal 2014 strategy. What’s more you can collaborate with your global Energy colleagues, access reusable assets and view Energy 24 webcasts.

The Energy Source includes:o A dedicated Refined page, with more information Refined, and

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http://www.eia.gov/

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http://www.weforum.org/issues/energy

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https://sites.accenture.com/publishing/Naturally-Resources/Energy/PeopleAndDevelopment/ContinuousLearning/Pages/default.aspx


http://sites.accenture.com/publishing/Naturally-Resources/Energy/MarketingSales/choke_points/Pages/default.aspx

https://sites.accenture.com/publishing/Naturally-Resources/Energy/PeopleAndDevelopment/EnergyGetSmartVideos/Pages/default.aspx

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