Oil Majors Going Digital: Personality Test

Fast forward three months later, BP launch Pad has made its debut and is billing itself as a quote scale up factory, taking innovations made in BP, putting them in this incubator to become standalone businesses and or business units of BP. The first to come out of launch Pad is a business called LIT that's l y t t. Apparently LIT stands for listening Norwegian. They describe it as sort of a Shazam for boreholes, listening down the well

to identify conditions and potential problems. The strategy of going after technologies to optimize operations is not unique to b P. It's definitely not alone in this. Most, if not all, oil majors are going all in on digital technologies to optimize operations and keep costs down. Exactly where they focus their attention and strategy seems to be influenced by the personalities of the companies them else or at least the

exacts in the companies. What do I mean by that? Well, we brought in two BENF analysts to help us unpack that. We've got Claire Curry, who leads benfs coverage of all things digital, along with Hannah Davenroy, who wrote the report we're gonna talk about today, Digitalization Strategies of Oil Majors, published on June nineteen. BEANEF clients can find this report by a quick search on benf dot com, the BENF

Mobile app, or benf Go on terminal. Please note that BENF does not provide investment or strategy advice, and you can hear the full disclaimer at the end of the show. I'm Mark Taylor, head of product for BENF, and you're listening to switch down the BENF podcast. Claire, Hannah, Welcome, Hi, Hi Mark, thanks for coming in. Thanks so much for having us today. When I was reading this, I was thinking why, you know, like, why does an oil company

want to be a tech company? Should we just start there? Hannah? How about you sure we can start there? I think oil companies are seeing the value of digital technologies in spaces like consumer but there's a lot of disruption to their core business also, So you see oil companies diversifying into the power sector, and you see them wanting to shrink their cost of operating their core business. And one way that they're achieving this efficiency is by applying digital

technologies to track data across their business operations. So an oil company will see places for improvement in in their business and think that the collection of data through sensors, through comms networks, and through large aggregating platforms like cloud computing will actually enable them to make better business decisions about how to allocate their capital and how to better manage their their operating costs. Does it seem like it's working.

It's hard to say. I think oil companies are very much in the early stage of scaling digital projects from proof of concept or pilot projects to their operations across their enterprise um and I can't imagine it's a clean transition. No, especially since you have to remember that oil majors have hundreds of thousands of employees across many many countries, and so coordinating these efforts on a culture level as well as sort of a business organization level, it's quite difficult.

So we see a lot of oil companies that are actually setting up new departments and teams both within their core business but also in their venture capital arms to encourage collaboration on this on on these digital technology projects UM across different types of their their their employee groups. Is this more of a venture play for these oil companies now or is it part of their core strategy.

It's very much part of their core strategy. We check how oil companies make their their venture investments, and in a lot of cases, especially with the European oil majors like BP and Shell, a lot of their focus has

been on on diversifying into power assets. While they do make pretty substantial investments into digital startups, it seems like this is often to access the technology UM for for pilot projects and then how up these businesses have access to the domain knowledge, the oil assets, how the business operates UM in order to give them a better understanding of the industry. Innovation is really hard. You look at

Google right innovative tech company. They really struggle to spin out startups and spin out new technologies that really work. They've had a series of very public failures of just getting innovation and new tech right you think about like X on VP Shell they have hundreds of thousand employees are often lifers. Oil companies are very siloed, so you have the I T team does it T the guys on the oil rigs or on oil rig for a

month they don't speak. And what companies that Hannah has been writing about, like Equanore so in Um kind of the North Sea, have been trying to get those guys on the oil rig to become I people. And they're doing sprints, They're doing scrums, are things that like your product team knows well. They're beginning to spin out apps to put onto this cloud platform they've built, and it's the operations guys doing it, and I T is kind of beginning talk to them and support them. So it's

actually really cool. It sounds slow and it's hard to measure benefits, but these are companies that are the biggest in the world, often the slowest, most old fashioned, and they're actually doing some really interesting innovative things. It's got to be so hard. It's got to be so hard, because I find communication and getting adoption of new tech just in our small area of Bloomberg is hard. I can't imagine it could be any type of easy on oil, you know, with all these guys on the oil rig,

especially because they have legacy systems. Right some oil majors will leave unnamed, you know, have one or two partners they do everything with. And these traditional enterprise software companies are not innovating around digitalization IoT AI, and so if you're a big oil major, what do you do? You have this multimillion dollar contract with a big RP company that served you well, but they're not doing what you want to do? Do you rip them out? If you

do that, that's huge. I don't know how you do that. I don't know how a company really changes so significantly their partnerships, which is kind of what some of these guys are thinking about doing a slow breakup I know, yeah, and hiring to write I mean then they no one's doing this. How many companies are trying to hire a data scientists right now? If your data scientists you want to like a Google or Exon in Texas, well, that's

like different. Maybe that's an easy joy to make, but it means that it's hard to hire the right people, the right talent. I think that these oil majors struggle too, is making sure that they are retaining the technology and talent in house. So you hire people that that may eventually leave, but you want to make sure that the people who are working on these projects will be able

to sustain the scaling of the technology to completion. So, for example, BP, as Claire mentioned, has an interesting approach to this. They have set up an internal business group called BP launch Pad and BP Launch Pads entire goal is to hire small teams both externally and internally, to take promising technology and scale it across the company, as well as start to commercialize this technology and sell it

to its years. Which is an interesting approach because you see oil companies that are very protective of their intellectual property and of the data that they collect and what they end up doing with that data. Obviously, if you are able to achieve big efficiency games through these digital projects, that is very valuable to your business and you might not want to share that with your peers. But we also see that commercializing technology is a way to scale

it across across the business. So is their goal in sharing with their peers getting better data to make their themselves more efficient or is it just simply a revenue stream a lot of its um marketing incomes. I think maybe this is be being cynical. I think a lot of this stuff is if you're a big oil major, there's a lot of disruption. As Hannah said, you're dealing with that. He might go into power. You're dealing with it. Maybe the threat of electric vehicles with regulation emissions and

so forth. A lot of the really big companies. I think you're thinking about it like this is great pr We are doing something new, innovative. We're using AI. Every partnership we announced with Google gets tons of hits. We

love talking about this at conferences. Our CEO now can go and talk about this new thing we're doing, and it gives us a view of it just makes people feel like we're the reasonally new and even innovative, and if it helps to reduce safety concerns, right, which a lot of this stuff is about safety of the minimum and who work for them. A lot of it's about CEO two emissions and tracking that better. It's about completing wells faster, which is an environmental bonus. So that's my

cynical opinion. I think Hannah would probably a bit more positive about their views, but I think I mean, I guess you wrote about it. Well, it sounds to me like it's also definitely revenue streams, maybe marketing within paer groups in a way to engage more with customers who

are using your downstream products. So we see a lot of the outward facing technology that oil majors are developing in the form of mobile apps that allow them to communicate better with their customers, to track retail sales at their at their petrol stations, um and that type of data collection and point of communicytion with their customers is something that they see as as very valuable both consumers like you or I who would drive the drive our

cars to a gas station me neither actually, or they're they're larger commercial customers, like in like in maritime applications. So another example of this is Shell has recently spun out an application for its maritime customers called Acuport that forecasts lubricant needs for ships entering and exiting ports so that they can better better organize their supply chain to meet the needs of their customers. Where the customers are and when they need that lubricant, so'll be waiting for

them when they when they dock exactly pretty cool. So if the oil companies can become tech companies, why is this not spreading into other areas like utilities, which sort of put that out. I think my gut is utilities days themselves tech fans. I mean Portugaist the oil sector. The oil companies were technology companies in sort of about

a decade ago. Due to I am Gen oil press crashes and consolidation, a lot of them basically said, okay, we're not going to own a tech we just want Baker Hughes or Haliber not Smerdy to own this for us. So now a lot of them actually really they own the oil field and they have employees and they kind of have the name of whatever it is. But actually the technology of the exploration and the digging up of the commodity is actually on the oil field services companies.

So I think a lot of these big oil majors still see them all as tech firms because they were historically, and they're now not so much. They're more asset owners now and traders. I mean Shell. Most of Shell's business is now selling stuff. It's not exploring. It's not any technology. It's really transporting it to a gas station or selling to shipping companies, and so they see those tech firms. A lot of them I think have doted scientists anyway, because they still like the idea of doing kind of

geoscience are stuff. Utilities are small at businesses. If your utility that has twenty thousand employees, you're not gonna as opposed to a hundred thousand employees, You're probably not going to be thinking about this. Also, utilities outsourced so much. I mean, they really don't mean I don't want to diss them. They I don't think really like a grid owner necessarily knows as much as like a Schneider Electric might do about their grid. And I'll give a little

bit of a different perspective. I think oil companies also have experience working with multiple partners at the same time. So if you're doing an offshore project, you might have fifty to a hundred different companies that are working with you on the execution of that project, everything from food services to the technology firm that's providing your underwater vehicle services.

But I think organizing all of these companies to orchestrate a large project is something that oil companies have a big advantage here, and and utilities may catch up in this project organization and relationship organization, especially with lots of small startup vendors, but oil companies have had the advantage there for for a long time. At what point do oil companies by the startup that they're working with or how often does that happen, or do they leave them

as vendors or we haven't seen that. Match Shell has brought up a couple of like distribut entity companies on the power side, But with tech and oil, it's kind of interesting. I think a lot of oil startups are very specific, so they're not doing general AI. They're doing AI on this one thing that tends to fail on offshore rigs in the Gulf of Mexico. UM. So, as Hannah was saying, a lot of oil companies are very

a lot of oil service providers a very specialist. So if you are opening up a new well in West Texas, you know who to go to for each of the things. There's no one guy that's going to do everything for you. I think it seems to be similar with startups. So BP might work with Kelvin AI, for instance, on a particular field UM that's interesting for them to do AI. Put it to maintenance on they might never work with them again because a lot of the fields are somewhere else.

I know if there's a regional play to it too. I also don't think the vcs oil companies go for acquisition necessarily. But do you have a different view on the Hannah, No, I think you're right that that's not something we see a lot of companies have focused a lot on building out incubation centers for startups that they find promising, but often that's to access their technology, not um as a separate company, not to not to acquire them, I think is what we've seen. Let's go back to

the PR for a second. So abus, Microsoft is your Google cloud, right, they're building themselves as green you know, moving us into the future, powering their data centers with wind and solar. Yet they are helping on these oil

companies pump more oil. So is there is there cred intact? Yeah, this is a great question because we're actually been having some conversations with some some clients about this who want to know how much, Yeah, how much is what they're doing greenwash and ifs or Microsoft really wants to push into renewables force for powering their data centers. But they're using the data centers, which is that cloud computing to help find more oil, Like, what is what is going

on there? And how are they commune? Not in a PR way, they're not we actually, I mean kind I share with me an article a month or two ago. Now that kind of slamming aws because at their big conferences they say oil is our major target as an industry now moving away from consumer we kind of got consumering retail down. They're a huge market share owner. I want to move into industry. Oil makes sense for us.

This is what we're going to pursue. Their hiring in the head of Google Cloud for energy as an x BP guy. They're hiring people from industry, but yet you don't see that much in their coms and PR. You see a lot of the stuff around renewables procurement. Yes, they're they're also a many headed company who can believe a lot of things at the same time. And that's probably okay. Everyone's like that. Um, I don't know, what

do you think? King of Oil companies have had some of the largest supercomputers commercially in the world for years and years and years. So this is the compute power that they require, and the and the data storage if they require, especially for the seismic exploration data that they acquire, is the need to very large. So this is I think cloud computing will be the way that these companies fill that need eventually and are moving in that direction.

And quite frankly, if aws, Microsoft and Google don't serve these industries, someone else will. And because of the amount of data that they need and the compute powever they need, it's a very large opportunity for for these cloud computing companies. And actually they found power pretty hard. A lot of startups and a lot of big tech firms look at the utilities first, because power isn't a lot more strained from just general market circumstances renewables, etcetera. But regulation has

really been a stimy. I mean in the US, utilities can't pay for cloud computing and rate bas it. By that, I mean they can't make a return on the investment. If they buy their own data center and build it themselves, they can make your return on that super expensive to them to do and also why would they hire people to do that, It's just not their business. If they buy um computing capacity from Microsoft, they don't get any return on that. They can do it obviously, but for

their ahold is it's not a good investment. The same with working with some startups on software. They can't rebase any software and that's been they say, that's been a big barrier. There is some we actually wade about this last year. There are some states looking at trying to change that in the US, but oil companies aren't really

hindered by regulation in that sense, they completely. I would love to talk about policy because some of the stuff that Hannah's found out in a report is really interesting about how policy has been a driver for innovation in oil, not on the regulation side or actually on the regulation side, I guess at that Quanore, but but especially thinking about China, for instance, can you share a little bit about kind of what Cinepex doing and how Chinese policy has really

impacted their strategy. Sure, so in China the government is very interested in industrial technology and using some of the technologies like AI that it's developed in other domains and making sure that spreads to some of its valuable businesses.

So CINEPEC has act really partnered with Huawei in China to develop a manufacturing platform and in industrial Internet of things based manufacturing platform, and it hopes to sell that platform to other manufacturing industries, so like refining, which is cinepex main business, but other manufacturers as well in order

to spread that technology. So China actually identifies market leaders in specific industries and mandates that they developed this technology that that then they can disseminate to other other companies, including their competitors. Do you see that elsewhere? Is it just China? Well so, so I mentioned Equino earlier in a way that the government in Norway has also been pushing a little bit around environmental regulation, pushing UM Equino to begin to think about sharing and its data or

publishing its data. So I could not actually dumped basically on the Internet every single data point it has from its fields in a way that people can use UM and then and build this IoT platform. And I think regulation played a part there, and they are beginning well I don't know, I mean we think they will begin to try and push pays to share too and to maybe even use that platform. That's it's not entirely clear what their strategy is there, but it sounds like that

could be something that is regulation driven. And definitely the point on data sharing is really important because oil companies have kept their data very, very close to the core

of their business for a long time. UM as I mentioned, it's very valuable, but there's an increased awareness that actually sharing data across different different companies or uh different fields might actually illuminate more patterns and really enable more efficiency when you're doing something like drilling in the North Sea.

So if you have data from equanor and and Shell on their experience drilling and producing oil, there UM being able to integrate that and then UM use that data to build your own rolls of what the subsurface looks

like or what production conditions look like. That's very valuable and Equinoar definitely has been on the forefront of opening its its field data up to the public and to researchers and to its competitors, even UM and I think we expect that that will continue, that there will be data exchanges and more shared use of technology, both data and algorithms in the future future wind future, this year, next year, five years. First the oil companies need to

organize their data. Maybe maybe five years's it. There's an interesting trend that's a bit utilities and oil companies are similar in a way, and often they react to market conditions. And what we've seen in utilities is the most forward. The utilities around digitalization are your n ls n g s who are in Europe. They have a lot of solo, a lot of wind, a lot of customer chain, rooftop solar things and regulation and they're the ones that are really saying we have to do this tech because if

we don't kind of screwed. And with oil we've seen like the shale revolution in the US and a huge rush of small companies that are pretty interesting UM oil companies moving into Texas for instance, and being to think, how do we get shale out of the ground quicker. The amazing technology revolution in the last twenty odd years or fifteen years has been the shale revolution. And what we've seen is digital technologies be adopted by those companies

first excellent, slow moving big company. They're adopting cloud computing in Microsoft, but in their shale fields particularly. So there's some companies who are doing more revolutionary stuff around tech in the areas that need it most, which is shale

right now. UM And to Hannah's point there, I think we're going to see data sharing their first We're already beginning to see companies, small companies trying to get data shared across shale fields, trying to use me blockchain or some form of distributed ledger to help companies securely upload data, to sell data, to have this platform and this environment that for now may only be in Texas because that's where it's needed, because all these wells, they just need

to share so much data what's going on because it's confusing. Everyone is different. There's no conventional understanding geoscientist when we work there. And that's really interesting. So I think, yes, now, data sharing for maybe areas that need it, but areas where like where Equino is or in the Gulf Mexico, or and then somewhere else whereas one company owns the

entire mileage, maybe not so much. And and a key follow to that is that greenfield projects will inherently have more technology and the most updated sensors and communication gateways built in. And so we see that green field projects are often equipped with a lot more data gathering capability than you know, the cost of retrofitting an oil rig

with sensors and and communication networks, it's very expensive. So we definitely expect that the digital technology will follow the process and more hardware technology that Claire was mentioning, especially around shale. What is the one thing that you'd like

readers to take away from this report. I think for oil majors, digital is no longer a function that's just shoved away into the I T business groups, that it's become of a huge strategic priority for executives at these oil companies to make sure that technology is spreading from their upstream through their downstream operations, that they're able to integrate these pilot projects and proof of concept projects that they have developed over the last several years and able

to integrate that into a larger enterprise wide strategy. So we see a lot of companies that are partnering with cloud company or cloud computing companies in order to achieve that, But we also see a lot of internal reorganization around around the digital topic. Do you feel like this is defensive or offensive to keep up with the times already get ahead of the curve depends on the company that

you're talking about. There's certainly certainly companies like Equinoor and VP are using this as a way to um really get ahead of their peers UM and then you see other companies who are, although maybe a little bit more cautious with the technologies that they're adopting, not looking quite as far in the future and adopting more mature technologies. We see those companies as trying to keep up with their their peers and adopt what's available today instead of

thinking further down the line. What I would say is, please read this report. Whoever is listening to this, who has been a subscription, It's really cool. There's an amazing UM. But with something we're trying out as a team is to think about how you UM judge company strategy. The key takeaway from me if this report is every oil company is different. Personality of the oil company matters massively.

They're very top down managed, so personality of the CEO for instances as small a thing as that could truly direct the way a company goes. You've seen that with BP and x ON through the years. This report quantifies and in a way the strategy of every company and shows that every oil company could go about things entirely differently and it's still not be the wrong way. They could entirely outsource everything and it could be great or

they could insource everything. How a ton of dy to scientists build out entire new apps and technologies and actually lose their way, or that all could be great. I mean, so the way we've tried to build this is a strategy mapper tool kind of helps readers see where each of these majors are and where they could go. And we we stopped short of giving advice, but I think it's a really nice way of trying to illustrate how personality makes a difference. Anna Claire, thanks for joining us.

That was really fun. Thanks for having us fun. Thanks. Bloomberg is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor it should it be construed as investment advice, investment recommend dations, or a recommendation as to an investment or other strategy. Bloomberginny F should not be considered as information sufficient upon which

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