Theme Session 4 on Future of Upstream: A techno-managerial challenge

The fourth theme session at PETROTECH-2016 was held on ‘Future of Upstream: A techno-managerial challenge’ at VigyanBhawan. Mr.Andrew James Banlgarnie, Adviser to CEO, Rosneft, chaired the session. The Knowledge Partner for the session was Dr.RahoolPanandiker, ‎Partner and Director, Boston Consulting Group. The eminent speakers for the session were Mr. Amar Nath, Joint Secretary (Exploration), Ministry of Petroleum and Natural Gas;Mr. Simon Flowers, Chairman, ‎Wood Mackenzie; and Mr.Utpal Bora, Chairman and MD, Oil India.

Dr.RahoolPanandiker set the context of the theme of the session. Setting the stage for the speakers of the session, he gave the high level prospect of the future of the upstream. ‘Upstream going forward is not just a technical challenge or only a management challenge, but it is a techno-managerial challenge’, says Dr.Panandiker. Highlighting the concerns of the producers who are spending more for very little return, he said that the industry has been facing inherent pressure from two distinct complexities which are ‘Resource Complexity’ and ‘Project Complexity’. Resource Complexity, here, means the exploration results which are not hitting the mark despite high E&P spending, but leading to increased production costs. Project Complexity was the‘Increased project complexity’ for Dr.Panandiker which led to cost and schedule overruns. Talking about austerity measures, he said that there has been a sharp drop in upstream spending with an aim to improve cash flows through CAPEX as well asOPEX Reduction, review of all non-essential costs as well as renegotiation with suppliers. He discussed the four emerging trends, namely, Project efficiency, Industry collaboration, Portfolio driven mindset, and Re-negotiating government take. He made it clear that growth in the new world will require upstream players to shift to a fundamentally new model which includes Focus on Value, Cautionary approach, Frugal efficiency, and Seek out synergies. He identified the five levels of new growth model for upstream companies. Culture Revolution, Supplier Collaboration, Operating Model Transformation, Portfolio Revolution, and Re-thinking Government Take were the five aspects accordingly toDr.Panandiker on which the new growth model for upstream companies rested.

Mr. Simon Flowers, in his opening remarks, spoke about the risks and rewards of going digital in upstream sector. In the backdrop of oil prices remaining lower for longer, he underlined the need of the hour to rethink how to run businesses in a profitable and sustainable manner. Emphasising on technology to play a key role in accessing expensive resources, he coined a new mantra to “manage margins-running business at lowest costs so as to increase the margins for the price taker” which also included focus on day-to-day management of costs. According to him, going digital was very important to increase margins. He identified the three interconnected parts of digital opportunity, namely, Big Data, Automation and Robotics & Visualization. ‘Upstream industry is data rich. Technology can be used to capture billions of data points, which can be further used in data analytics in predictive monitoring, ability to predict equipment failure even before it happens, manage logistics and supply chain’, said Mr. Flowers. Opportunities in robotics included unmanned platforms, drones and robotic submarines for monitoring in remote locations. ‘Reduction of data to simulations will help in predict risk, reveal stress points in process, and improve performance’ he added. He went on to say that India is very well positioned to play in the role of a leader. He concluded with special emphasis on ‘going digital’ which was the only way forward for him.

Reiterating the four pillars of future of energy from Hon’blePM’s inaugural address, Mr. Amar Nath said that the consumer base in India can be defined as India’s demographic profile, i.e., a large size population (mainly youth) moving to the urban areas in his opening remarks. He said, ‘the need of the hour is to create jobs for these consumers/ potential consumers in which manufacturing will play a key role’. Enumerating the 97% energy growth in emerging markets, he highlighted the need to focus on the impact of the consumption side and not just the supply side. Admitting that currently our consumption pattern is flawed in terms of urban design, inefficient mobility, inefficiency and wastage of cooking, and inefficient designs of homes, he said that current consumption pattern is leading to the increased pollution level. He also pointed out the policy of Govt.,such as odd-even scheme, BRT corridors, ban on diesel vehicles of more than 10 years to curb the pollution. Underlining the impact of technology solution which can be a game changer for both on producing and consuming efficiently, he highlighted the need to focus on demand side technological progress. Mr. Amar Nath also discussed the steps taken by Govt. in the last two years with policy initiatives such as - HELP, Discovered small field policy, Gas pricing reforms, national data repository, etc. He identified the four pillars of People, Connect, Mobile as People are more connected through technology, mobility has increased, for bright future of upstream in India in his closing remarks.

Lower oil prices led to slashing of outlay for upstream nations’ said Mr.Utpal Bora. He made it clear in his opening remarks that global demand will increase, and oil and gas will continue to remain the dominant fuels in the future. Talking in the Indian context as the net importer of energy, he pointed out that E&P initiatives needs to be taken up for energy security. Concentrating on challenges ahead, Mr. Bora said that as India is a net importer of oil and imports 80% oil and 40% of its gas, there is a need to reduce oil dependency on imports by 10% as set by the Hon’ble Prime Minister. Multi-pronged activities need to be undertaken such as enhanced oil recovery, unexplored and scantily explored areas, as only 10% of the basins are explored in India and huge opportunity exists in exploration area, and exploration of non-conventional hydrocarbons. He concluded his address by saying, “Exploration needs more policy and fiscal support”.

Mr.Andrew James Banlgarnie, the chair of the session, summed up the points made by speakers in the last. He also discussed about the huge opportunities in digital. But, he also seemed to be agreed on the point that oil and gas industry yet to reach the level of technological advancement as mentioned by Simon Flowers. Talking about the collaboration, he said that Rosneft wants to do business with the world, and is collaborating with other countries and companies around the world. ‘A strategic partnership between Rosneft/Russia and India with major oil companies taking ownership positions with huge investments’ added Mr.Banlgarnie. Answering the question of the recent production cut by OPEC, he said that Oil industry is marked by challenges and unpredictability. No-one has been able to predict oil prices correctly in the past. Going forward, market prices will be shaping oil prices in its own way, he added.