Anadarko: Big Oil Meets Big Data

The oil and gas industry is undergoing a digital transformation.

While often perceived as less innovative than its media-darling green-energy competition, Big Oil is not sitting idly by as producers eagerly enter the new digital age.  There is a set of exploration and production (E&P) companies in the U.S. known as “independents”, who are responsible for much of the sector’s innovation and are beginning to invest in their artificial intelligence (AI) capabilities to essentially use data to extract more resource out of rocks at less cost[1].  Houston-based Anadarko Petroleum Corporation (NYSE:APC, ~$47 billion enterprise value) is one of the most forward-looking of these independents and at the forefront of the AI/hydrocarbon marriage in their quest for lower breakeven prices, reduced exploration risk, and advanced seismic interpretation[2].

If the economic extraction of oil and gas from shale (made possible through advances in hydraulic fracturing and horizontal drilling) was the first major step-change in the industry, the adoption of new technologies to improve production efficiency is the second[3].  These new technologies will often employ “machine learning”, a form of AI that uses algorithms to draw conclusions from large and complex data sets.  Applications include seismic analysis (determining which underground regions have the most oil and gas resource), production optimization (determining which well length and spacing will lead to maximum recovery), and predictive maintenance (determining where pieces of equipment such as pumps and valves are likely to fail)[4].

A recent survey of oil executives by Accenture found that 70% of them expected to invest more in digital technologies, reflecting the growing acceptance of the impact of data analytics among E&P’s[5].  Notably, the power of AI is still just scratching the surface, as Baker Hughes estimates that the oil & gas industry only uses about 1 percent of the data it generates[6].  The economic impact of this trend will be tremendous, with a recent Wood Mackenzie study estimating that digitalization could save the global upstream oil and gas sector $75 billion annually[7].

As an E&P, Anadarko’s core business is the extraction of crude oil or natural gas.  They have had a terrific amount of success over a long period of time by continually implementing the latest technologies.  It is critical that Anadarko continues to invest in digital so that they do not fall behind competing producers such as EOG Resources, “dubbed by one of its analysts as the Apple Inc. of the oilfield”[8].  EOG’s premium valuation (~8.5x EBITDA) compared to Anadarko (~7.2x EBITDA) reflects their differentiated perception as the industry leader in machine learning.

Anadarko has embarked on an organizational culture change to embrace these digital technologies and remain competitive in this new era of big data.  In October 2016, Anadarko formed an Advanced Analytics and Emerging Technologies (AAET) group to help the company harness and grow its technical skills[9].  And to execute on the group’s vision, Anadarko has grown their staff of data scientists from just 1 in 2014 to almost 20 today[10].  As part of their vision, Anadarko is focused on integrating these new data scientists with their experienced petroleum engineers to share ideas and devise complex solutions[11].  While the efficacy of this group will be instrumental for long-lasting impact, Anadarko is also focused on its digital prowess in the short term and has approached this by partnering with a mix of tech firms, startups, and tech-focused oilfield services companies[12].  For instance, Anadarko has hired Biota Technology to use data from the DNA in well bacteria to map the most optimal drilling targets[13].  Perhaps their most innovative solution, Anadarko has even launched a crowdsourcing program that assigns projects to a digital community of coders[14].

Given the increasing importance of this oilfield data, the data has become a resource itself.  Anadarko must work carefully with their legal team to ensure that they own and control their own data, not the oilfield services companies such as Halliburton and Schlumberger[15].  And to truly be an AI leader in the oil and gas industry over the long-term, they need to continue to attract top engineering talent.  They can do this by ensuring that technology is known as a core tenet of Anadarko and that they are committed to using AI as a key driver of performance improvement.[16]

As the power and influence of AI continues to grow within Anadarko, thereby diminishing the more traditional geophysicist role, how will the company culture remain intact?  Said differently, will this infusion of young Silicon Valley engineers mesh with Anadarko’s entrenched oil-industry veterans?

(733 words)

[1] “How AI Can Help The Oil Industry”. 2018. Synced.

[2] “Big Oil Taps Silicon Valley Expertise On Journey To Advanced Technologies”. 2018. Exploration & Production.

[3] “Drillers Turn To Big Data In The Hunt For More, Cheaper Oil | Financial Times”. 2018. Ft.Com.

[4] Ibid

[5] Ibid

[6] “‘Netflix For Oil’ Setting Stage For $1 Trillion Battle Over Data”. 2018. Bloomberg.Com.

[7] “Digitalization Can Save Upstream Sector $75B Each Year”. 2018. Rigzone.Com.

[8] “‘Netflix For Oil’ Setting Stage For $1 Trillion Battle Over Data”. 2018. Bloomberg.Com.

[9] “Big Oil Taps Silicon Valley Expertise On Journey To Advanced Technologies”. 2018. Exploration & Production.

[10] Jacobs, Trent. 2018. “An Inside Look At Anadarko Petroleum’s Digital Transformation”. Journal Of Petroleum Technology.

[11] Ibid

[12] Ibid

[13] “Operators finally embrace digital technologies to improve production efficiency”. 2018. WorldOil.Com.

[14]

Jacobs, Trent. 2018. “An Inside Look At Anadarko Petroleum’s Digital Transformation”. Journal Of Petroleum Technology.

[15] “‘Netflix For Oil’ Setting Stage For $1 Trillion Battle Over Data”. 2018. Bloomberg.Com.

[16] Parshall, Joel. 2017. “Artificial Intelligence and Human Expertise Form Powerful Combination for Performance Improvement”. Journal Of Petroleum Technology.

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2 thoughts on “Anadarko: Big Oil Meets Big Data

  1. Super fascinating stuff Volpert. I think you raise an interesting set of questions about the impact of “silicon valley” on “Texan oil” on corporate and industry culture. I suspect these two cultures might actually be complementary. Silicon Valley brings to the table new ideas, values, and ethos can be tested in old industrial spaces, while Texan oil brings tried and true disciplines and methodologies that in many ways can help to better inform tech product development and innovation.

    This article also reminds me a lot of a handful of tech companies I’ve come across in the past who are looking to transform the oil and gas value chain with software (https://www.rigup.com/), (http://flowcommand.com/).

    The critical unanswered question that all of them are still trying to answer is similar to the one you posed: how culturally resistant to change are the workers, managers, and executives within the natural resources space. Many of them launched in the midst of the collapse in oil prices during 2015-2017 and received significant uptake within the industry, when conventional wisdom would have suggested that an industry contraction should have made these companies less willing to adopt new software vendors and processes.

  2. Great article. The general public generally does not understand the level of big data and tech that is going into O&G. As far as culture, I think Anadarko needs to take an index of what they really value as a company. Do their core values really shift with the make-up of their workforce? I would think values such as operating safely etc. would remain. Potentially geophysicists will have to start learning how to analyze big data themselves similar to engineers starting to use computer software versus hand calculations for their designs. Is a larger issue actually getting the Silicon Valley engineers to join Anadarko rather than a Google type company? How can Anadarko brand themselves as a cool “tech company?” Do they need to adjust pay structure to compete for talent? Also how do you make the larger corporation value their contributions instead of regulating them to the IT bucket?

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