The Future Belongs to the Digital Engineer: Transforming the Industry

By Dutch Holland and Jim Crompton

The Future Belongs to the Digital Engineer
By Dutch Holland and Jim Crompton

The Digital Engineer will be a person with knowledge and skill in the use of engineering and digital technology to enable major process improvements and performance increases in both physical and business operations.

New engineers today enter the workforce with high digital literacy, in addition to their qualifications in traditional disciplines. The challenge is to turn new professionals into Digital Engineers who bring value to the business.

Jim Crompton, with his coauthor Dutch Holland, has clearly shown us how to bring historically-disconnected skills, organizations and technologies together to drive competitive advantage. This book needs to be on every upstream business persons digital bookshelf. Peter J. Robertson, former Vice Chairman of the Board, Chevron Corporation

• Language: English
• Publisher: Xlibris US
• Release date: Dec 30, 2013
• ISBN: 9781493104062

Dutch Holland

Dutch Holland, PhD & Jim Crompton, MS ENG are highly regarded as “thought leaders” and as consultants who will tell it like it is. The authors’ collaboration combines management consulting experience in upstream with oil & gas domain expertise into important insights about creation of business value from digital technology. Jim and Dutch are both convinced that the Digital Engineer concept must be made a reality or the Big Crew Change will likely result in both “outdated roles” and replacements that may “fit the roles but not the digital future of the upstream business.”

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Copyright © 2014 by Dutch Holland, Phd & Jim Crompton, Ms Geoph & MBA.

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TABLE OF CONTENTS

Preface: The Future Belongs To The Digital Engineer

Let’s face it. New technical professionals in the fields of engineering and information technology in upstream organizations will be required to play with the cards they are being dealt by the evolving energy industry. These reality cards call for the Digital Engineer to be a professional with knowledge and skill in the use of engineering and digital technology to enable major process improvements that result in performance increases in both physical and business operations. The Digital Engineer with need to be engineering talented, information-technology competent and business savvy.

Part One: The World Of The Digital Engineer

Chapter One: The Energy Business Is Changing!

The Digital Engineer will start his professional life in a different industry than many of us grew up in. The new energy industry is being shaped by four critical forces: a shift in the industry’s ‘center of gravity’ from the developed world to the developing world; changing roles for IOCs, NOCs, and SOEs; the end of easy oil and the shift to complex reservoirs, complicated operations and unconventional resources… all flavored with the Big Crew Change bringing a new workforce with no legacy skills to the re-shaped industry.

Chapter Two: Inventing The Future With Emerging Technology

The Digital Engineer will live and work in a wonder world of technology. He can expect the continued advancement of a variety of technologies as long as Moore’s law in computing and storage capability technologies stays relevant. Expect to see developing over the next few years robust technologies helping to automate, optimize and integrate business operations, accelerating business insight (through more integrated asset management) and connecting people and partners. Smart equipment; highly instrumented facilities; full-cycle interpretation systems; predictive, integrated simulations… and more… will be the order of the day.

Part Two: Emergence Of The Digital Engineer

Chapter Three: The Emergence Of The Digital Engineer

The story of the global emergence of the Digital Engineer is interwoven and complex. The emergence has been quite a journey from earlier times, when interpretation was done on paper seismic sections with colored pencils… to today’s world of the convergence of emerging IT and emerging engineering analytics. It is now hard to look at a technical team and figure out who has the computer science degree and who has the petroleum engineering degree. The truth is that some individuals have both.

Chapter Four: Digital Engineering… And The Digital Engineer

An old family recipe calls for a pinch of this and a splash of that. Early assumptions about the development of Digital Engineering and the Digital Engineer remind us of that recipe. But development of this new breed of technical professional may call for more thought and planning around the necessary competences of the Digital Engineer: the ability to engineer solutions to take advantage of all Mother Nature’s gifts, the ability to design digital tools that enable the engineering, and the ability to turn digitally-enabled process improvements into business value.

Part Threel Implementing Digital Engineering In An Energy Organization

Chapter Five: Implementing Digital Engineering In An Upstream Company

Implementing a new way of thinking or operating in a company has always been a challenge. Implementation of Digital Engineering will be no exception. No single-step implementation will suffice; a phased implementation will be required to put digital engineering to work on a wide-scale basis. Expect to see companies work through three Digital Engineering implementation phases: awareness and education on DE, proof of the value of DE through pilot projects, and finally, full-scale integration of Digital Engineering into the day-to-day operations of the company.

Chapter Six: Organizational Change Is Required For Implementation Of Digital Engineering

Many organizations have learned the hard way that the incorporation of any new way of operating or any new technology requires ‘an organizational change.’ That is, an implementing organization will need to change from its current way of doing business WITHOUT Digital Engineering to a new way of doing business WITH Digital Engineering. That’s easier said than done. Successfully changing an organization will require the use of valid organizational mechanics.

Part Four: Integrating Digital Engineering Into Day-To-Day Operations

Introduction To Chapters Seven Through Eleven

We will follow what we call a ‘recipe’ organizing model for the next five chapters: first describing the four critical ingredients of an organizational change to Digital Engineering followed by a fifth chapter on project management that shows how to blend the ingredients together.

Chapter Seven: Communicate A Clear Vision Of Digital Engineering  . . . That Really Rocks!

Without being too dramatic, we can repeat the line of old: without a vision, the people will perish. And without a detailed vision of the Digital Engineer and how he will work and contribute to upstream, new engineers entering the industry may be directed by remaining management to the previous jobs and competences of the departing Crew. Such a mistake would take an upstream organization out of the race for the future and keep them anchored in the past.

Chapter Eight: Ingredient Two: Altering Work Processes And Procedures To Bring Digital Engineering To Life!

If a company wants to implement Digital Engineering, multiple work processes currently used in the organization will need to be altered to align with the Digital Engineering vision. Processes requiring alteration include most of the performance management processes (recruiting and selection, assigning work, training, evaluating performance and compensation).

Chapter Nine: Altering Facilities, Equipment, And Technology For Digital Engineering

While much the work of the Digital Engineer could be accomplished with contemporary tools, equipment and software, new tools of the trade will need to be available for the Digital Engineer to effectively and efficiently practice his profession and do the work of the company. Tools of the trade for the Digital Engineer will include everything from collaborative systems to the hardware and software needed to work with Big Data, its master data stores and analytics and optimization software.

Chapter Ten: Altering Performance Management For Digital Engineering

Implementing Digital Engineering will require several changes in the way the organization manages the performance of its managers and employees. The most important needed action is to recast the work agreement with employees to include their involvement in appropriate elements of Digital Engineering. Everything about managing performance… from the writing of job description, the training of employees, management feedback and performance evaluation systems, as well as compensation structure… will all have to be changed to include the flavor of Digital Engineering.

Chapter Eleven: Project Management Of The Implementation Of Digital Engineering

The four ingredients required for a successful organization change… vision, processes, technology, and performance management… must be brought together into a project plan and schedule that can be executed by the organization… on target, on time, and on budget. Formally chartering the change to Digital Engineering followed by disciplined Project Management will be the key to successful implementation.

Part Five: The Energy World Belongs To The Digital Engineer

Chapter Twelve: The World Belongs To The Digital Engineer

The concept of the Digital Engineer and the competence of Digital Engineering are quickly coalescing and becoming real factors for the Big Crew Change. Professionals with Digital Engineering competence will be the technical leaders of today and the business leaders of tomorrow. The future of the upstream energy world surely belongs to the Digital Engineer

References And Readings

Appendix Of Detailed Steps And Scripts For Chapter Seven

Appendix Of Detailed Steps And Scripts For Chapter Eight

Appendix Of Detailed Steps And Scripts For Chapter Nine

Appendix Of Detailed Steps And Scripts For Chapter Ten

Appendix For Project Management

PRAISE FOR PREVIOUS BOOKS

Change Is the rule: Practical Actions for Change

ON TARGET, ON TIME AND ON BUDGET &

RED ZONE MANAGEMENT: CHANGING THE RULES FOR PIVOTAL TIMES

Double Day Select Executive Program Book Club Alternate Selection

You don’t have to be afraid of change any longer! Change is the Rule offers entertaining and simple solutions that will help you move swiftly and efficiently through the growing pains of organizational change.

Ken Blanchard

Co-author, The One Minute Manager and Leadership by the Book

Just brilliant! In his book Change is the Rule Dr. Winford E. ‘Dutch’ Holland expands on the metaphor of the organization as a theatre company—and it is brilliant! It’s brilliant because it simplifies understanding—it reduces the complexities of organization change to common sense with a very clear ‘picture’ to relate to. It is a very powerful metaphor that is very easily understood and ‘got’ by almost anyone who has ever been to any type of theatre presentation.

Rick Sidorowicz From Best of The CEO Refresher

on Leading Change

What a great uncluttered roadmap for understanding, embracing, and leading change. We have trained over 10 million leaders worldwide, and change is their biggest challenge. This book should be next on their reading list!

Dr. Paul Hersey, Chairman

Center for Leadership Studies

Home of Situational Leadership

Organization change—on target, on time and on budget . . . what a concept! How easy it is to forget these fundamentals when we leap off the cliff of organizational change! The basics aren’t new—but they’re organized in a way that you want to slap yourself on the forehead and say why didn’t I think of that!

Katherine M. Tamer

Vice President and Chief Information Officer

United Space Alliance

. . . a Red Zone loss could mean irrecoverable losses for your company. Among conditions that flag a Red Zone: major shifts in competitive strategy, mergers, culture changes, and implementation of new computer systems. Principles for success under Red Zone conditions include practical advice such as, Put the Best Players in the Game. Holland points out that if you select your organization’s best for the Red Zone and your key executives are not on that list, . . . you may want to do some re-staffing. Red Zone Management pulls few punches, and its perspective is likely missing from many a boardroom.

Harvard Business School

Working Knowledge

"Red Zone Management is a new, creative and comprehensive treatment of a complex and seldom understood subject. I could not put the book down until I had finished reading it. The book is packed with case histories of business success and failures with comments for why the outcome was as it was. In the past while being involved in a major merger, my company successfully utilized the principles described by Dutch. The results were that the whole was greater than the sum of the parts—a resounding success for the shareholders.

M. P. Corky Frank, President

Marathon-Ashland Petroleum

Dedication by Dutch Holland

This book is dedicated to the kids in my life: the little kids, Everett (EJ), Hope and Win, and the big kids, Eric, Bear and Wendy. May they continue to flourish—and God Bless!

Dedication by Jim Crompton

Wise men have said that they can only see as far as they do, thanks to being able to stand on the shoulders of those who have gone before. In addition to those who have gone before me to prepare the path, I would like to thank my family (Sally, Emily, Beth and Ran), my friends and colleagues (especially Mike Hauser, Jim Brink, Helen Gilman, Melanie Bell, Michelle Pfleuger and Amy Zeringue) and those amazing young digital engineers that I have met for helping me to see just a bit of the future. The view is amazing.

PREFACE

The Future Belongs to the Digital Engineer

New technical professionals in the fields of engineering and information technology in upstream organizations will be required to play with the cards they are being dealt by the evolving energy industry. These reality cards call for the Digital Engineer to be a professional with knowledge and skill in the use of engineering and digital technology in order to enable process improvements that result in performance increases in both physical and business operations. The Digital Engineer with need to be engineering-talented, information-technology-competent, and business-savvy.

Industry trends and organizational responses are providing unique and valuable opportunities for both the ‘Digital Engineer’ and for the company in which he or she works. Just who is the Digital Engineer? What forces are shaping his new role and performance in the Oil & Gas Industry?

While current discussions about the Digital Engineer abound, hard definitions have not yet materialized. Therefore, there is an abundance of confusion and ‘pick your own definition to fit your argument’ going on. Hopefully, our definition below will guide our discussion of both the Digital Engineer and the environment in which he will perform as well as serve as an anchor for this book.

Just imagine this conversation:

Author: Mr. CEO, I understand you intend to grow your business through internal operations. I know you are a top-notch engineer . . . and from your company’s expenditures in Information Technology, I can conclude that you are willing to use technology where it helps.

CEO: You are right on all counts. I believe in solid engineering, and I know that information technology has to be a part of my firm’s future.

Author: Let’s turn to people next. If you could find the exact professionals you want to work with in your business, what capabilities or competences would you want them to have?

CEO: That question is not quite so easy to answer, because, frankly, I haven’t spent much time thinking about that. I have been too busy fighting internal brushfires between engineering and IT. It seems that about the time I get one conflict settled down, another firefight breaks out . . . and I am still not getting the engineering and IT support I need to grow this business.

Author: OK, I understand. But could you think just a moment and give me your thoughts on whom you would like to hire to be a part of the team that will grow your business?

CEO: "All right, I will take that as a challenge.

• First of all, I want people who are good engineers, who can take every barrel of oil that Mother Nature will give us. I want engineers who know enough physics and math to engineer sound technical processes that produce oil.

• Second, I want these same people to understand the potential of information technology. They must not be afraid to use digital technology to enhance both our technical and business processes.

• Third, I want these people to know that they are in the oil business . . . not in the engineering business nor the information technology business. I want them to know that they are business men as well as engineers and information technologists.

• And above all, I want people who are committed to using every technology and every scrap of potential to make this the best darned independent oil and gas company anywhere!

OK, how does that sound?"

Author: Sir, that sounds like you are looking for ‘Digital Engineers,’ right?

CEO: Right. That’s it! I am going to need good Digital Engineers!

The Context for Our Definition of Digital Engineer

Before we get to the key definition of Digital Engineer, a little context is necessary. Perhaps we can build our definition of the Digital Engineer from the four related disciplines mentioned in our conversation above: engineering, science, information technology, and business process improvement.

Let’s start with the definitions of science and engineering… and then add definitions for information technology and business process improvement:

1. Science is the state of knowing; knowledge or a system of knowledge covering general truths or the operation of general laws especially as obtained and tested through the scientific method. Scientists are distinct from engineers, those who design, build and maintain devices for particular situations.

2. Engineering is the professional art of applying science to the optimum conversion of the resources of nature to the uses of humankind. Engineering is based principally on physics, chemistry, and mathematics and their extensions into material science, solid and fluid mechanics, thermodynamics, transfer and rate processes and system analysis.¹

3. Information technology (IT) is the application of computers and telecommunications equipment to store, retrieve, transmit and manipulate data often in the context of a business or other enterprise. IT includes the study, design, development, application, implementation, support or management of computer-based information systems²

4. Business process improvement is a systematic approach to help an organization optimize its underlying work and technical processes to achieve more efficient results. In Process improvement a series of actions are taken by a process owner to identify, analyze and improve existing business processes within an organization to meet new performance goals and objectives³

Our Definition of Digital Engineer

We trust the four definitions above set up our definition of a Digital Engineer.

The Digital Engineer is an energy-industry professional with knowledge and skill in the use of science and engineering as well as digital technology . . . to enable major process improvements that result in performance increases of both physical and business operations.

So, are we defining a role that only Superman or Superwoman can play? We think not. An organization that wants Digital Engineers as a part of their workforce can have them… if they are proactive to ‘design them,’ not just wait for them to appear out of the woodwork.

Our Goals for This Book

1. To describe our view of the emerging concept of the Digital Engineer

2. To show how Digital Engineering adds to the overall performance level of an energy company.

3. To show Digital Engineering as a needed competence for (1) young engineers entering the energy industry as well as for (2) incumbent professionals.

4. To pose the Digital Engineer as a critical ingredient of the Big Crew Change.

5. To describe a method or a roadmap that an energy company might use to implement Digital Engineering… and to develop and employ Digital Engineers.

The Organization of this Book

We have divided the book into four major parts, each with a distinct place in our discussion of Digital Engineers and Digital Engineering:

Part One: The World of the Digital Engineer

Our goal in Part One of the book is to examine the world the Digital Engineer will work in… with the sweeping and far-reaching changes that are happening both to and inside the energy industry. Part One of the book will answer two fundamental questions:

• How is the energy business changing, and what implications will there be for the Digital Engineer?

• How is digital technology changing, and what impacts will there be on the Digital Engineer?

Part Two: The Emergence of the Digital Engineer

The idea of a Digital Engineer is not just the latest new theory. Digital Engineers have been emerging here and there for decades. Those budding Digital Engineers have been special management and technical professionals who can focus on and blend three things at once: petroleum engineering, information technology and business savvy.

• How have Digital Engineers emerged? How has their identity been shaped?

• How can Digital Engineers be developed? What competencies must the Digital Engineer have to be productive in today’s and tomorrow’s energy business?

Part Three: Implementing Digital Engineering in an Energy Organization

The concepts and competences of digital engineering are of little use if they ‘cannot be put to work’ to create technical success and business value. Part Three of the book will answer two fundamental questions:

• What might an energy company need to do to make use of Digital Engineers as integral parts of the operation of the company?

• What phases might a company need to go through to implement Digital Engineering?

Part Four: Integrating Digital Engineering into day-to-day operations

The integration of Digital Engineering into day-to-day use in an organization requires the use of a form of organizational engineering to ensure the organization’s structures and moving parts are re-configured to support integration. Part Four of the book will answer two fundamental questions:

• How might an energy company implement the concepts and competencies of Digital Engineering?

• What are the step-by-step actions required for integrating Digital Engineering into day-to-day operations of the company?

So Bon voyage! . . . we wish you well on your trip through our attempt to describe Digital Engineering and Digital Engineers and their value in transforming energy companies for the future.

PART ONE

The World of the Digital Engineer

CHAPTER ONE

The Energy Business is Changing!

The world of the digital engineer is being shaped by major changes in the energy business. Geopolitics, new roles for oil companies and major shifts in the population of energy workers are simultaneously shaping the world of the Digital Engineer. In this chapter we will look at four major themes that characterize the new energy business and the implications of those themes for the Digital Engineer.

We can begin to understand the world of the Digital Engineer by examining some of the major changes and challenges that are developing in the oil and gas industry.

Industry Overview: ‘The times, they are a changing.’

While the high oil prices that exist today produce significant profits for oil and gas companies, we believe this commercial success and the current long queue of major capital projects mask future challenges. Today’s ‘business as usual’ may not be robust enough to meet future challenges. We will need to start now to better appreciate those industry challenges and how to address them.

Four themes summarize the changes that are happening and the challenges that are rapidly developing in the oil & gas industry:

1. ‘Shifting Center of Gravity:’ Supply and especially demand for hydrocarbons shift away from North America and Europe

2. Geopolitics and the Changing Role of the IOCs, NOCs and SOEs

3. ‘The End of Easy Oil:’ More complex reservoirs, operations and the focus on unconventional resources

4. ‘Big Crew Change:’ More than just demographics, a new workforce with new challenges is entering the energy industry

Theme One: The Center of Gravity for the Energy Industry is shifting to the developing world

Many experts now predict that the focus of both supply and demand for energy will shift from the developed to the developing world. This change will redefine the energy landscape over the next two decades and beyond. Growing economies in Asia, particularly China, and also in the Middle East, will shape the supply and demand dynamics of everything from oil and gas demand, to electricity, to the development of renewable energy sources.

022_a_reigun.jpg

Figure 1.1: World Energy Consumption

http://energy.sigmaxi.org/?p=551

• Oil and Gas

Demand peaked five years ago in the Organization of Economic Cooperation and Development (OECD) group of 30 nations which includes the US, UK and Australia. Part of this trend is due to the impact of the persistent and deep recession, but there are supporting factors as well. Energy efficiency, supported by rising transportation fuel efficiency standards, as well as environmental concerns, is decreasing the demand for hydrocarbons in developed economies.

The OECD group is currently responsible for 55% of world’s oil demand, while China represents only 10% (but uses nearly two thirds of the world’s coal consumption). Some experts do not believe oil demand from OECD economies will ever exceed the 2005 peak.

The big story is the energy demand in China and the impact that growth will place on the world’s current energy capacity. Previously, experts predicted the energy demand in China would catch the level in the US by 2015. However, due to the recession in the US and the economic trends in China, China overtook the US in 2010. Asian governments are increasingly aware that local resources are not sufficient to meet their growth forecasts. China’s share of world GDP is expected to rise from 8.4% to 26.8% by 2025, surpassing the US share—now at 24.5% and expected to fall to 16.2% (source IHS).

China is the engine that drives oil demand in Asia. Prior to the recent global recession, China contributed, on average, 70% of Asian incremental oil demand between 2004 and 2007. While the demand of the rest of Asia contracted by 216,000 b/d and 108,000 b/d in 2008 and 2009 respectively, China continued to post a growth of 215,000 b/d and 637,000 b/d over the same period.

Despite China’s strong growth in recent decades, the country’s oil consumption per capita is still relatively low compared with developed countries such as Japan and South Korea. Analysts expect strong growth in petroleum product demand in China through 2020 due to rising incomes as urbanization continues. China’s population is expected to increase by 4.7% between 2010 and 2020, with China accounting for 68% of Asian demand growth in that period. Although the growth rate in China and India have slowed over the last couple of years, the fundamental trends of population size and the higher energy demands of the growing urban population in these countries cannot be denied.

024_a_reigun.jpg

Figure 1.2 International energy outlook 2010

(from energyfuture.com from October 27, 2010http://energyfuture.wikidot.com/world-energy-use)

Beyond 2020, the story will drastically change based on the Chinese government’s desire to ultimately cap energy use by 2040 and begin to slow oil demand in favor of cleaner fuels.

• Liquefied Natural Gas (LNG)

At the end of 2012, Asia accounted for 71% of global Liquefied Natural Gas (LNG) demand with Japan and South Korea representing 75% of Asia’s LNG imports. A growing appetite for LNG in China and India shows up with nearly 12% of the global market going to these two emerging nations. Sluggish gas demand in Europe is demonstrated by a 22% decline in 2012 deliveries (versus a 9% increase in Asia) and 2012 net imports less than the demand in 2009.

The supply side story is similar, but it has been with us for a while. Future oil supply is expected to largely come from a group of 15 major oil producers from the Middle East, Africa, Russia, Canada and Brazil.

Active exploration plays include:

o Redevelopment of major fields in Iraq

o Sub salt play in the Campos Basin offshore Brazil

o Shale Oil & Gas plays all over the world

The industry has eyes on the future development of the Arctic, which largely lies in the hands of the Russian state owned companies, Gazprom and Rosneft. Three recent deals between Rosneft and ExxonMobil, ENI and Statoil reflect this interest of major energy companies in this emerging area.

The future may look something like this:

• Future gas supply will be driven from two directions: LNG and unconventional gas. The major source of LNG begins with the giant North Field in Qatar, with a major contribution from Australia anticipated mid to late this decade, with additional contributions from West Africa as the flares are put out and commercial channels, including LNG and Gas-to-liquid (GTL) plants open in Nigeria and Angola.

• Conventional gas plays in new areas may also add to the resource base. Recent discoveries in East Africa and in the Levant Basin offshore Israel and Cyprus may also factor into the future supply equation on a regional level.

025_a_reigun.jpg

Figure 1.3: Growth of Technically Recoverable Shale Gas Reserves

(http://ro.unctad.org/infocomm/anglais/gas/market.htm)

The latest energy supply story is the surprising contribution from unconventional resources such as shale oil and gas and coal seam gas, which will significantly influence local markets (like in the US) where these plays are being aggressively exploited. The economic impact of this development, such as the potential ‘energy independence’ of the United States from shale oil and gas production, will be significant regionally, but will not dramatically change the global supply equation.

If you happen to live in the United States, you may think that the global trend is actually reversing with the turnaround in US production, but looking at the supply demand balance from a global perspective tells us a different story.

The unconventional supply story may be delayed in basins outside of the United States due to lack of industry infrastructure (i.e. pipelines, drilling rigs, fracturing crews, experienced staff, regulations, political and environmental concerns by local communities not familiar with oil and gas production and shortage of water resources.)

A Shifting Center of Gravity: Implications for the Digital Engineer:

1. There will be no shortage of work for the Digital Engineer who will be required to tackle the technical and business problems globally by applying digital technology to more complex