'Netflix for oil' setting stage for $1 trillion data battle
A battle for big data is brewing in the oil patch.
The service companies that map underground pockets of oil, drill the wells and lift crude from miles below are generating vast new amounts of data they never before realized could be valuable. But their exploration customers are essentially saying hands off to anything coming out of their wells, including the streams of zeros and 1s.
"There's no doubt to me, we are producing two resources: the oil and gas, and the data," said Philippe Herve, a Schlumberger Ltd. veteran who now helps oil companies use artificial intelligence at SparkCognition. "The oil and gas is very clear: it belongs to the operator. But who owns the data?"
Answering that question will mean real money for a global industry climbing out of the worst crude crash in a generation. An industry that only uses about 1 percent of the data it generates, according to Baker Hughes, is trying to harness it to see where to pump more oil faster for less money. Transforming to a digital oil field could add almost $1 trillion to the world's economy by 2025, according to a 2015 study by Oxford Economics and Cisco Consulting Services.
To the service companies specifically, owning the data -- enough to fill 20 million file cabinets since 2010 alone -- would mean a whole new revenue stream, perhaps as they sell subscriptions to huge data libraries.
"It's like Netflix for oil and gas," said John Gibson, an advisor at Tudor Pickering Holt & Co. who previously ran the oil-services business for Halliburton Co. "Imagine that all data is like a movie that many different people want to watch, but they want to watch it at different times."
To the producers, though, owning that data means one less check they'd have to write. And it would ensure competing producers couldn't see their data while stealthily moving into a new field. EOG Resources Inc., dubbed by one of its analysts as the Apple of the oilfield, is widely considered a leader among explorers for bypassing oilfield service companies to generate its own in-house innovations.
"Data is king and one of our most valuable resources," Sandeep Bhakhri, chief information and technology officer at EOG told investors on a conference call last year. "You have to own the data. You cannot outsource its collection, analysis or delivery."
Oil companies have for years bought relatively straight-forward data such as seismic files or drilling logs that contractors gather for their customers. The newer, larger batch yet to be harnessed is coming straight off the oilfield equipment itself -- the rigs, pipes, pumps and vales.
"They also have value because they're revealing properties of the reservoir that before you didn't think about," said Barry Zhang, CEO of the artificial-intelligence provider Quantico Energy Solutions.
Estimated spending on digital technology amounts to less than 10 percent of the $8 million average cost of an onshore well in the U.S., said James West, an analyst at Evercore ISI. But that's expected to climb. More than 7 out of 10 industry executives surveyed by Accenture and Microsoft said they plan to spend more or significantly more on digital over the next three to five years. Nearly 40 percent said they're worried about falling behind peers if they don't continue to invest in digital.
Service contracts today are already being drafted with the data-ownership question in mind. And while there's always been a section addressing data, it's far more important now, Brian Richards, a managing director at Accenture, said in a phone interview.
"It went from a thing in a contract -- 'We'd like to do this; if we can't, we can't' -- to a strategic imperative, like a real sticking point -- 'We have to have this and here's why,'" Richards said.
Devon Energy Corp. has been dealing this over the past year as it's embarked upon rewriting all of its service contracts during the downturn. The older contracts had maybe a line or two addressing data ownership, said Garrett Jackson, vice president of drilling and completions for the Oklahoma City driller.
"It was always pretty straightforward, and there was never really a lot of conversation about it," he said in an interview. "Now the clauses are getting to be a page, page and a half long, trying to parse out what parts are the contractor, what parts are the operator, when there's overlap, how that's divided up."
Halliburton, which announced an alliance with Microsoft in August to offer a digital platform for customers to collaborate, was asked on an earnings conference call last year how much explorers were willing to share.
"Customers are taking a closer and closer look at their own data and who owns and controls that data," CEO Jeff Miller said on the call. "I suspect they will control it more so. I mean, it's just very competitive for our customers."
Building out a more robust digital business is just as important to the world's biggest service providers, including Schlumberger, Halliburton and Baker Hughes, who are leading the charge, Evercore's West said. While digital represents less than about 2 percent of total sales for the servicers, it can be as much as 4 percent of their operating income, he said.
"It's very profitable," West said. "There's a bridge that needs to be made here between, 'What is mine and what is yours?' because we're going to make a better well with better data."
Story by David Wethe