Field Telecoms: Who will enable the Digital Oil Field?

Field Telecoms: Who will enable the Digital Oil Field? Insert image behind transparent area Oil & Gas Communications Europe Aberdeen, May 2014

Arthur D. Little Introduction Arthur D. Little is the world's first Management Consultancy firm we support the world s leading firms address their most pressing strategic and operational challenges Premier management consulting firm Premier management consulting firm Innovating business since 1886 Linking strategy, technology and innovation Working uniquely, different Source: Arthur D. Little 2

Arthur D. Little - Today s Presenters Arthur D. Little have been asked to provide an insight into the latest technological trends and supplier landscape in Field Telecoms in the Digital Oil Field domain Richard Swinford Head of Telecoms and Media practice, UK Partner Russell Pell Head of Operations Management, Global Energy & Utility Practice Principal Over 15 years of experience - comprehensive understanding of modern communications businesses, particularly mobile and satellite, from strategic, financial and regulatory standpoints Experience of working in developing countries, including extensive casework in the Middle East and other experience in Eastern-Europe, Africa and China MEng, Engineering from Imperial College London 23 years in the energy sector, predominantly in Oil and Gas, in both upstream and downstream including nearly 10 years in ExxonMobil Experience in operations, supply chain, and the development of sourcing strategies including for technology services Experience in working across various locations in Europe, Asia Pacific and South America B.Eng (Hons) Biochemical Engineering, University College, London Source: Arthur D. Little 3

1 Field Telecom in Oil and Gas - Oil and Gas Challenges for Field Telecoms Highly complex operations data requirements, coupled with highly collaborative work processes between onshore and offshore locations, rely on robust telecommunications Digital Oil Fields Improve Operational Efficiency Supporting Field Telecom Technologies Remote Operations Management 4-D Seismic Virtual Collaboration Realtime Data Transactional Processing Immersion Technologies Unified Technical to Business Models Remote Wells Wi-Fi Portable Satellite (BGAN, Thuraya) Subsea Technologies Operational/Financial Reporting Knowledge Management Visualization elearning Smart Wells Real-time Reservoir Information Fully Integrated Supply Chains Rig FPSO Offshore Production Fibre Microwave tower Industrial Plant LTE Data Centre Onshore Better on-offshore communication, multi-disciplinary collaboration, decision making and de-manning, through the integration of real time data, technology and operational work processes Source: Arthur D. Little analysis, Halliburton 4

1 Field Telecom in Oil and Gas - Business Requirements Digitalisation of upstream energy is ongoing - technological advances will increase real-time information sharing improving the working environment and driving up operational efficiencies Business Objectives 1. Better informed decision making between remote offshore operations and onshore control centres High volumes of visualisation and monitoring information Cost reduction through more effective operations, drilling programmes, process plant optimisation, optimising platform activity levels 2. Keep crew happy and engaged Crew well-being is increasingly tied to connectivity so employees can stay in touch with families, use telemedicine services etc. Bring Your Own Device (BYOD) is becoming the norm 3. Keep the rig running 24 x 7 x 365 with as minimal downtime as possible Critical Telecom Technical Requirements High availability and reliability of real time data on a 24x7 basis Durability even in the most extreme environments High degree of control and access to mission critical applications and data between onshore and offshore locations Ability to manage extremely high capacity, as data demand has grown exponentially Ability to remotely control mechanical and electrical equipment Highly securitised communications environment Substantial benefits are possible through increases in oil and gas recovery and production rates, reductions in OPEX and in offshore staffing levels, with a key enabler being telecommunications 5

1 Field Telecom in Oil and Gas - Oil and Gas Value Chain The field telecom technology chosen is also highly dependant on the maturity stage at which the Oil and Gas field is at any particular time Oil and Gas value chain Different operational domains Value chain Exploration Exploration & Appraisal Development Production Abandonment Offshore Onshore Activity Acreage Evaluation Acreage Acquisition Pre-Drill Drilling Feasibility Phase Field Development Production Operations Recover Exploration Production Exploration Production Joint Venture Partners Asset Lifetime Short (a few months to 1 year) Very Long (1-3 decades) Very Short (2-3 months) Very Long (1-3 decades) Organizations involved Geological, Geophysical and Reservoir Services Drilling Service EPC Companies Mobility Requirements Preferred Technologies High Limited Very high Limited Satellite (VSAT, Portable) Microwave Fibre Satellite Microwave Wi-Fi Satellite (VSAT, Portable) Microwave Cellular radio Fibre Satellite Microwave Cellular radio Wi-Fi Several additional factors including geo-political conditions and prevailing market regulations also influence the technology that might be deployed for different asset classes Source: Arthur D. Little analysis 6

2 Buyer Side Trends - Different Categories of Buyers There are primarily four different types of buyers who procure Field Telecom services Field Telecom services buyer categories International Oil Companies Typically engage with different categories of tier 1 suppliers who might in turn work with several tier 2 and tier 3 suppliers in order to provide the FT services required Oil Field Service Companies Localized relationship and often relates to a single capital project or a specific field development Different categories of companies have different drivers for procuring Field Telecom services National Oil Companies Contrasting approaches observed A leading South American NOC buys whole transponder capacity on satellites. A European NOC has commissioned its own satellite. Engineering Procurement and Construction Companies Sometimes customer other times competitors Typically involved in the deployment of new communications hardware on a platform Source: Arthur D. Little analysis 7

2 Buyer Side Trends - Contrasting Approaches to FT Service Management One set of oil companies wants to outsource all aspects of FT, others are considering or actively increasing asset ownership especially in the satellite segment Oil Companies are adopting Contrasting Approaches to FT Service Management One set of Oil Companies outsource all aspects of FT services Another set of Oil Companies are becoming more deeply involved in the technology themselves Requirements definition Procurement Installation and Operations to a dedicated project management company (typically an Oil Field Services company) Outsource Insource One large IOC considered buying distressed satellite assets out of administration, to own the assets outright and manage themselves A leading South American NOC buys whole transponder capacity on satellites A European NOC has commissioned its own satellite 8

1 Field Telecom in Oil and Gas - Telecom Technologies The Oil and Gas sector prioritises stable, reliant and resilient solutions that are available 24x7 Key existing technologies Selected emerging technologies Technology Fibre Microwave Wi-Fi Cellular Radio 3G, 4G VSAT Description Provides the best combination of performance and reliability High capacity now available for long range as well Connection with mobile devices but limited distances Wide device support and deployed across regions Flexibility in remote areas but costly and limited bandwidth Domain of use Onshore Offshore Production Exploration Production Exploration Technology O3b High Throughput Satellite Description O3b is a new MEO satellite constellation and several companies are actively planning their contracting and negotiating route to ensure access to O3b With throughput capacity (x10-20) of a normal satellite, Ka band HTS could potentially disrupt the satellite backhaul market The technical requirements beyond resilience and 24x7x365 connectivity are not highly onerous unlike some other sectors (e.g. Financial services) Source: Arthur D. Little analysis 9

3 Supplier Landscape - Market Context The Field Telecom market in oil and gas is highly fragmented and there is no outright global lead supplier, or category of supplier, in terms of technology, geography or archetypes Market Fundamentals The Field Telecommunication service provider market is highly fragmented Market Structure Extremely fragmented market Large vendors as well as lots of local providers (inc. Mom and Pop vendors) illustrative examples (representative key players shown as illustrative) Several potentially complimentary technologies fulfil field telecoms archetype requirements No one key supplier either in terms of technology leadership or archetype Onshore Very fragmented market Variety of large players compete to secure contracts No standardised contracting model between oil and gas operators and FT service providers prevalent today There is no consistent insourcing or outsourcing model employed by users of field telecoms services today Offshore >90% of the market consolidated in the hands of 2 suppliers Logistics / Facilities Explore/Drill Produce Well served by many global telcos, and others Source: Arthur D. Little analysis 10

3 Supplier Landscape - Supplier Categories There are five main categories of field telecom suppliers which serve the needs of oil and gas companies FT Supplier Type Example Companies Supplier Type Assessment Field Telecoms Specialists Systems Integrators (incl.epcs) Global Telecom Operators Have the specialist core offshore services Dominates offshore exploration areas but they are actively trying to grow into other value chain roles Project management and engineering capabilities to deliver FT for complex megaprojects from offshore production to onshore plants Offer relatively complete technology portfolios and skills in solution design, but typically lack offshore FT capabilities Challenged by O&G environments Satellite Providers Equipment Providers (global/niche) Provide VSAT and portable satellite phones, although some have expanded to cover additional technologies Typically sell their services via channel partners Strong technology innovators Do not typically provide integration services or operations, and can struggle with delivering to challenging environments Source: Arthur D. Little analysis 11

3 Supplier Landscape - M&A in FT Supplier Market The FT supplier market is highly dynamic; the specialist FT players have evolved through a series of M&A s to enhance their solution offerings Starting Point Original DNA RigNet was primarily a provider of FT services to offshore drilling rigs RigNet acquires Nessco Allows services expansion from drilling to production, both offshore and onshore 2010 2011 2012 RigNet acquires Inmarsat s Broadband business In-house access to High Throughput Satellites and new customers 2013 Current positioning The acquisitions have helped RigNet Enter the production environment (Nessco) Access to new geographies, customers and technologies Strategic reseller of Inmarsat s GX satellite system Harris was an international communications and information technology company serving government and commercial markets Harris acquires Caprock Strong entry into the energy market Harris Caprock acquires global connectivity arm of Schlumberger Extends capabilities as a global provider of end-to-end managed satellite services The acquisitions have helped Harris (now Harris CapRock) Big bang entry in energy sector (onshore and offshore) International teleports, 24x7 NOC s, Customer care centres Market leadership in satellite segment Source: Arthur D. Little analysis, Company filings 12

4 Trends and Implications We identify four key trends that should shape the Field Telecommunications market Trends 1 2 3 4 Technology is not the limiter Value not cost Ways of working with clients Dynamic nature of the market Technology requirements are not onerous unlike other sectors (e.g. financial services) and hence several technologies are fit for purpose Still beware the technology disruption (O3b) Clients expect reliant 24x7x365 connectivity with cost not being one of the key criteria for selection Be prepared to sign extremely stringent SLAs Clients have no clear ownership and control for FT services Suppliers need effective Go-to-Market approaches and develop specialized product propositions FT players have been active in M&A as they try to extend offerings across multiple operational domains opportunities exist at interesting valuations to grow inorganically Source: Arthur D. Little analysis 13

Contact Details As the world s first consultancy, Arthur D. Little has been at the forefront of innovation for more than 125 years. We are acknowledged as a thought leader in linking strategy, technology and innovation. Our consultants consistently develop enduring next generation solutions to master our clients' business complexity and to deliver sustainable results suited to the economic reality of each of our clients. Arthur D. Little has offices in the most important business cities around the world. We are proud to serve many of the Fortune 500 companies globally, in addition to other leading firms and public sector organizations. For further information please visit www.adlittle.com Contacts: Russell Pell pell.russell@adlittle.com Mob: +44 7531 030175 Richard Swinford swinford.richard@adlittle.com Mob: +44 7738 041737 Arthur D. Little Limited Sicilian House Sicilian Avenue London WC1A 2QS United Kingdom Tel: +44 207 7660 200 Copyright Arthur D. Little 2014. All rights reserved. 14