Building a beyond-the-barrel business
Three digital keys to capitalizing on opportunities in the post-commodity energy marketplace
Big Oil - branching out
Total’s €1.4 billion acquisition of Direct Énergie came close on the heels of Shell Petroleum Company completing a similar acquisition of First Utility, a UK-based electric provider, part of a flurry of maneuvers by members of Big Oil’s old guard to reinvent themselves by broadening and extending the reach of their product and service portfolios into multiple consumer markets.
As prosperous as their traditional oil and gas operations may still be, Shell and Total are part of a growing contingent of companies that are aggressively pursuing opportunities beyond the barrel. Their goal in doing so is clear: reach a wider range of consumers via an integrated electricity supply chain that stretches from generation station on down to the household thermostat and even the retail electric vehicle charging outlet, much like they have done with the drilling rig-to-fueling station model for petroleum-based fuels.
It's all about the experience
In a 2017 white paper, the World Economic Forum (WEF) offers a glimpse of the post-commodity energy landscape. “In the future,” it says, “customers may not refuel at the pump, but charge their electric car while doing their grocery shopping. Those who do continue to purchase fuel for their vehicles may prefer petrol stations that provide services and experiences that go beyond the norm. This shift in customer expectations provides an opportunity for Oil and Gas companies to develop innovative business models that extend beyond the barrel. These new models eschew a business-as-usual approach to find ways of engaging customers more effectively.”
And as the WEF points out in the report, digitalization can be a powerful enabler to all this. Digitalization is a nebulous term, however. Specifically what types of digital infrastructure, systems, and processes should a company have in place to successfully evaluate, develop and sustain beyond-the-barrel business opportunities? The following three areas represent a good starting point:
1: A digital core
With a digital core, a company can digitize its entire value chain. Powered by tools such as predictive analytics, blockchain and machine learning, that core becomes the platform for managing and optimizing systems and processes, suppliers and networks, workforce, the customer experience and all the data an enterprise collects via sensors and other connected Internet of Things assets. Housed partially or wholly in the cloud, a strong digital core is critical to an energy company’s ability to efficiently and nimbly create new revenue centers, develop new business models and build relationships with consumers.
See also: Introduction to the oil and gas industry.
In cases like Total’s acquisition of Direct Énergie, a strong, scalable digital core could give a company the ability to seamlessly integrate new assets that it adds to its portfolio via merger or acquisition. It can connect previously disparate ecosystems while also extending and enforcing end-to-end business processes so data, learning and best practices flow freely and securely across the enterprise.
A digital core provides the framework to extend the asset-optimisation approaches used at the wellhead to renewable energy production as well as electricity generation and distribution operations. What’s more, with a total workforce management solution as part of the digital core, a company like Total would have tools for integrating two sizeable workforces, including core employees and the contractors on which energy companies tend to heavily rely. This frees the company and its human resources department to focus on other pressing post-M&A issues, such as blending the cultures of two large entities.
See also: Oil & Gas IQ's M&A page.
By liberating and integrating previously siloed processes and data, a company is better positioned to pursue opportunities in new markets and to deliver additional value in markets where it already is entrenched via energy-as-a-service business models that go beyond just delivery of an energy commodity. A company can use data and analytics around consumer behavior and preference to develop services that deliver an outcome, whether it’s combining electric vehicle charging with grocery shopping or offering an on-demand mobile/at-home vehicle fueling or charging service.
2: Embracing market standards
Why reinvent the wheel at every turn? Energy companies have learned they can operate and innovate more effectively using market-standard digital approaches instead of complex, siloed and often costlier IT solutions and processes customized to their specific needs. As part of its digital strategy, Shell is following an 85/15 rule with its digital strategy, whereby 85% of the IT solutions on which it relies are market-standard and the remaining 15% are proprietary solutions.
That 15% is the special sauce that Shell leverages to distinguish its brand, products, and services out in the marketplace.
From an IT perspective, integrating two large and complex organisations from distinct sectors of the energy business —as Shell and Total are doing following their respective utility acquisitions — becomes eminently more manageable when the two companies already share an industry-standard approach to digital infrastructure.
3: Moving to the public cloud
Cloud is going the way of mobility - in that it is now assumed. As more energy companies are discovering, shifting key business processes to a public cloud environment provides them with digital scalability and agility, qualities that are crucial to the beyond-the-barrel evolution. BP, Devon Energy, Apache, ConocoPhillips, Chevron, Equinor (formerly Statoil) and Shell are cooperating with developers SAP and Accenture as part of a cloud consortium to develop parameters for market-standard upstream digital solutions, creating a pathway for others to follow.
Ultimately, digital approaches such as these become a catalyst for oil and gas companies to transform themselves into consumer-focused, broad-spectrum energy providers.
Brent Potts is Senior Director of Global Marketing, Oil and Gas, at SAP.