Capital spending increase will expose digital platform needs

Capital spending has increased in 2018 for the oil & gas industry exposing digital platform needs.

By Kevin Parker July 31, 2018

Capital spending in 2018 in the U.S. oil & gas industry will increase as much as 15%, according to a range of industry sources. For the upstream, the focus is on lower-cost, short-cycle shale plays. Pipeline construction is gaining momentum. Petrochemical industry gains are driven by pent-up demand. And refiners are developing growth projects integrated with existing assets.

In this emerging era, capital spending increase will be combined with capital discipline, industry sources emphasize. Oil & Gas Engineering, at the behest of Aveva, the supplier of engineering software to the oil & gas industry, recently surveyed our engineering readership about the processes and technologies involved in project design, procurement, and construction.

Nearly 60% of the survey respondents acknowledged experiencing substantial cost or scheduling overruns when executing capital projects. While a variety of reasons are cited for the challenge, these distortions are endemic and say something about the lengths companies will go to in winning the business.

"Something doesn’t add up here," said Joe McMullen, an Aveva marketing director. "Are these owner-operators really satisfied by ‘lowballing’ of projects? Everyone has a system for delivering projects, but is it adequate to its purposes in today’s world?"

In control

Here are the survey facts. In executing projects, slightly more than half the respondents said they successfully integrate with design partners at project inception. Again, at critical project handovers, about 50% of respondents say their companies do a good job, while the other 50% say they do not. On average, survey respondents said that on a scale from 1 to 10, they are at about "7" when it comes to readiness to execute at handover.

Answers to other questions, regarding systems or platforms, suggest some possible reasons behind these 50-50 results.

While only 6% of respondents say that project handovers are accomplished by means of a digital model, 37% say use of simulation and modeling are among the technologies that will most contribute to more stringent capital management. In addition, fully 36% look forward to a digital asset approach that combines CAPEX and OPEX into a common framework.

Yet about 15% of respondents said they still use email as their primary collaboration platform. For about 20% of respondents the answer was an enterprise resources planning (ERP) transactional system. And about 15% said they looked to a document management system.

Only about 22% of respondents say they work with design systems integrated with engineering, that allow concurrent engineering, or for product lifecycle management (PLM).

"What you don’t see with many of these companies are the productivity results that follow from digital transformation," McMullen said. "You do see recognition of the need for the transformation and that the means exist for a better way of doing things."

Other matters

The engineers surveyed believe in local control of projects, despite globalization and increasing complexity. They feel each project must be judged individually, and that business unit flexibility is key.

"The desire for local control doesn’t surprise me, and it is in fact laudable," McMullen said. "However, if you see differences in sites a problem is indicated. If a project management team consistently misses targets that they themselves have set, then central standards should be used to get conformity across the sites."

Kevin Parker, senior contributing editor, Oil & Gas Engineering, CFE Media,

Original content can be found at Oil and Gas Engineering.

Author Bio: Senior contributing editor, CFE Media