This week’s QuickHit, Tony Nash speaks with Geoffrey Cann, a digital transformation expert for oil & gas companies, about what he considers as “the worst downturn” for the industry. What should these companies do in a time like this to emerge as a winner?
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TN: Hi, everybody. This is Tony Nash with Complete Intelligence. This is one of our QuickHits, which is a quick 5-minute discussion about a very timely topic.
Today we’re sitting with Geoffrey Cann. Geoffrey Cann is a Canadian author and oil industry expert and talks about technology and the oil and gas sector.
So Geoffrey, thanks so much for being with us today. Do you mind just taking 30 seconds and letting us know a little bit more about you?
GC: Oh, sure. Thank you so much, Tony, and thank you for inviting me to join your QuickHit program.
So my background, I was a partner with Deloitte in the management consulting area for the better part of 20 years, 30 years altogether. I had an early career with Imperial Oil and I’ve spent most of my career helping oil and gas companies when they face critical challenges.
These days, the challenge I was focusing on prior to the pandemic was the adoption of digital innovation into oil and gas because the industry does lag in this adoption curve and yet the technology offers tremendous potential to the sector. I see my mission, and it still doesn’t change just because of the pandemic, as the adoption of digital innovations to assist the industry and to resolve some of its most intractable problems. That’s what I do.
TN: Wow. Sounds impressive. I’m looking at the downturn in oil and gas and the downturn in prices. There have been big layoffs and cost savings efforts and these sorts of things with oil and gas firms. And, typically, a pullback is an opportunity for the industry to re-evaluate itself and try to figure out the way ahead. Are we there with oil and gas? Do we expect major changes, and as we emerge from the current pullback, how do we expect oil and gas to emerge? We expect more technology to be there. Do we expect more efficiency in productivity? Are there other changes that we expect as we come out of this?
GC: I’m pessimistic about the prospects for oil and gas and it’s driven by this collapse and available capital and cash flow to the industry.
When the industry hits this kind of survival mode, there’s a standard playbook that you dust off. And that playbook includes trimming your capital, canceling projects, downsizing staff, closing facilities, squeezing the supply chain, trimming the dividend. Anything that is considered an investment in the future is put on hold until the industry can get back on its feet.
And this is the worst downturn. I’ve lived through six of these. This is the worst I’ve seen.
Certainly sharpest, fastest, and deepest and coupled it with the over excess production in the industry. When the industry comes out of the other end of the pandemic, what we’re going to see the industry do is devote its capital to putting its feet back on the ground and getting back into its normal rhythm. But what that means is all the changes that our potential out there are likely to have been set aside in the interim.
TN: If you were to have your way, and if you were running all the oil companies, and they were to make some changes in this time, what would those changes be? What would some of those key changes be?
GC: There is a gap between what other industries have discovered, learned, and are adopting, and where oil and gas is at. That gap is, first, needs to be addressed by raising the understanding and the capability and the capacity in oil and gas to deal with the possibilities presented by these technologies. And so there’s task number one that oil and gas companies can absolutely do even during a downturn. Just train people and get them across the newer concepts or newer ideas.
A second possibility is to embrace the foundational elements that have proven to be the key success factor for so many other industries. One of those would be cloud computing. The adoption of cloud-based infrastructure, moving data into the cloud, is not costly, it generates an immediate payback because cloud infrastructure is so cheap, and it puts the company into a solid position for when the normal day-to-day running of it gets back in gear, the investments it may have been making an in digital innovation can all now be brought back into stride because this foundational technology will be in place.
So those are the two things that I would do: Get people ready for the journey ahead and put one of these foundational steps in place to get ready.
TN: Those are really enabling technologies, right? They’re not substitutional. They still need people, they still need engineering skills. It’s really just enabling them to do more, right?
GC: Correct, yeah. And covering off that gap incapacity is the key thing. Somewhere down the road, there will be the adoption of artificial intelligence and machine learning tools to improve the performance of the business. Those are coming and they’re coming very quickly. We’re not there yet. The job is where the industry needs to move forward, and as I see those are the two steps.
TN: Do you see this as kind of a generational thing? Is this five-ten years away? Or is it an iterative thing where you see it changing bit by bit for each year? How do you see this on the technology side for them?
GC: Well, in my book, I actually sketched out a way to think about this problem. And I call it the fuse in the bang. The fuses, if you think about Bugs Bunny cartoons. Bugs Bunny and it would be a comically large keg of gunpowder. It’ll be jammed into the back of your Yosemite Sam. As they go racing off, they leave a trail of gunpowder and Bugs would just drop a match in it. It always ended in a comically large but not very terminal explosion. So imagine that the length of fuse, that trail of gunpowder is how much time we’ve got and the size of the keg of gunpowder is how big the impact is going to be. In my book, I could actually go through some ways to think about this.
But you have to think about it in these terms, oil and gas is principally a brownfield operations business. In other words, most of the assets predate the Internet Age and they’re continuing to run and they run 24/7, they’re extremely hard to change, and so as a result, the idea that we can quickly jam innovation into these plants is just nonsense. It’s not going to work. So it’s going to take quite a long time.
The generation is on two fronts. One is the technology is legacy and therefore it has generational barriers to adoption of change. We also have a workforce, which is tightly coupled to that infrastructure and it also has struggles to cope with change. So we have to come across these two generational shifts that have to happen and they basically have to happen at the same time.
TN: Very interesting. Geoffrey, I wish we could go on for another hour. There’s so many directions we can take from here. So, thanks much for your time. It’s been really great talking to you and I hope we can revisit this maybe in a couple of months to see where the industry is, how far we’ve come along, just with the downturn of first and second quarter, look later in the year just to see where things are and if we’re in a bit of a better place.
GC: It’d be great fun because this is, you know, as I’d like to tell people, this is not the time to actually leave or ignore the industry. It’s when it goes through these great troughs like this, this is where exciting things happen, so pay attention.