Skip to content Skip to footer

Loading Results

COVID-19 and the oil price collapse: Now may be the best time for energy companies to up their digital game

Start adding items to your reading lists:
Save this item to:
This item has been saved to your reading list.

Since March 2020, the twin shocks of COVID-19 and volatility in crude prices have ratcheted up pressure for oil and gas (O&G) companies to cut costs anywhere they can — from increasing productivity and efficiencies to furloughing workers and divesting non-core and underperforming assets. 

For some, a big part of this intense effort to help preserve short-term cash flow means an aggressive push to invest in and deploy digital technologies throughout operations and the supply chain. Doing so during the pandemic and recession may seem challenging but could potentially produce quick wins and better protect energy companies against future economic downturns and other disruptions.

While cash will remain tight for oil and gas companies over the next 12 to 18 months, it is time to begin — or accelerate — digital strategies to reduce costs, grow revenue and build needed operational flexibility. The longer companies wait to engage, the more they may be at a disadvantage against competitors with more robust digital capabilities and scale. Those on the fence should consider the competitive disadvantage not investing may pose.

Digital tech can mitigate effects of downturns and disruptions

The benefits of adopting digital technologies have not been lost on leaders in the industry. One survey estimates that over two-thirds of oil and gas companies believe digital innovations can drive efficiency and productivity gains of 25% or more and reduce costs by at least 25%.1  These gains can add up fast. Upstream revenue growth through digitally enabled production and efficiency gains are estimated to add $376 billion annually based on volumes of 100 million barrels per day.1 Energy executives view upstream as potentially the most likely beneficiary of digital investment.

The sector, considered a relative laggard in the adoption of fourth industrial revolution (4IR) tech, ought to take a page out of other sectors’ playbooks. A recent PwC survey found that of more than 200 oil and gas companies, only 7% identified themselves as “digital champions,” while more than 70% of respondents considered themselves to be in the early stages of digital maturity.

The majority of global companies across all sectors are aware of 4IR’s potential to safeguard against low-growth periods. In a recent PwC survey, 63% of global senior executives across industries agreed that 4IR provides protection against an economic downturn.

1 Gradually, then suddenly: making a case for technology to disrupt the oil patch, Evercore ISI, June 1, 2020.

Which parts of the energy value chain would benefit most from digital adoption?

Midstream / Infrastructure
Downstream / Marketing

Source: Evercore ISI: April 2020

4IR has come of age at the right time

As oil and gas companies grapple with the economic turbulence triggered by COVID-19, they have technologies at their disposal they didn't have during the Great Recession of 2008: 4IR. Indeed, 4IR technologies — particularly the industrial internet of things (IIoT), robotics automation, artificial intelligence (AI) blockchain, virtual and augmented reality — have made enormous advances and are less expensive and easier to deploy than they were a decade ago. They can be applied on numerous fronts in the energy sector: to create an operational digital twin, to train workers in dangerous environments with virtual reality systems or to provide field workers with augmented reality to assist operations, maintenance and repair, for instance.

As energy companies continue to carry out return-to-the-workplace strategies, they may find that some stick for the long-term, thus requiring fewer employees on-site, either as a result of social distancing and remote operations or from workforce reductions. For instance, 54% of cross-industry CFOs surveyed by PwC expect to make remote work a permanent option for roles that allow for it; energy companies may well follow the lead of other sectors in doing so.

How likely are you to increase your usage / transition to mobile or remote operations?

Very unlikely
Hard to say
Very likely

Source: Evercore ISI: April 2020

For some, investing in digital tech is easier said than done

However, many energy companies — especially small and medium sized enterprises — may well find it challenging to earmark capital spending for any investments. Most companies in other sectors are preserving planned digital spending. According to recent PwC survey of CFOs, while the COVID-19 crisis has led 70% of companies to cut back or defer planned investments, just 22% said their companies are curbing investments in digital transformation. To be fair, in the current environment, it may be easier said than done. On top of CapEX shortfalls, the O&G sector experiences other barriers to digital tech entry, including legacy asset bases, data deluge and scalability.

What is the key challenge to embracing digital for oil and gas companies?

Legacy asset bases
Data deluge,
Scalability, sunk costs
Company wide skills gap

Source: Evercore ISI, April 2020 proprietary survey of more than 160 energy executives

A few things to consider when upping your digital game

The current crisis can provide an opportunity to revisit digital strategies and pivot as needed to plan for changing market conditions and regulatory environments, both for immediate needs and sustainable growth. However, for adoption to increase at scale, tangible return on investment is required. Incorporating wholesale operating model changes enabled by cloud-based ERP solutions and key performance and financial indicators as part of a digital strategy can help quantify the bottom-line impact and drive further adoption.

Indeed, energy companies are at different points along the digital adoption maturity curve. Many companies, for example, may lack the in-house skills that digital adoption requires, including investment prioritization and implementation strategies, cross-functional coordination and integration, data risk mitigation or the ability to optimize data opportunities. Other important considerations include upskilling — key to the digital transformation — as well as demonstrating both cost efficiencies and the potential stakeholder value of a company's long-term digital strategies.

Failure to meaningfully develop and deploy digital strategies now may widen the gap between the digital haves and have nots, making it increasingly difficult to compete in the transitioning energy environment and capture needed capital for growth.

Contact us

Kevin Heard

Principal, PwC US

Robert Stephens

Principal, PwC US

Follow us