IBP1512_12 DATA THE OIL AND GAS ASSET THAT IS NOT MANAGED LIKE ONE Colin Samir Frost1

Copyright 2012, Brazilian Petroleum, Gas and Biofuels Institute - IBP

This Technical Paper was prepared for presentation at the Rio Oil & Gas Expo and Conference 2012, held between September, 1720, 2012, in Rio de Janeiro. This Technical Paper was selected for presentation by the Technical Committee of the event according to the information contained in the final paper submitted by the author(s). The organizers are not supposed to translate or correct the submitted papers. The material as it is presented, does not necessarily represent Brazilian Petroleum, Gas and Biofuels Institute opinion, or that of its Members or Representatives. Authors consent to the publication of this Technical Paper in the Rio Oil & Gas Expo and Conference 2012 Proceedings.

Abstract
Data has significant value in oil and gas businesses, which is not necessarily recognized by executive management. The value can be articulated and the consequences of not managing the data as an asset can be understood. The value justifies an approach to its management which is different from what we typically see today, which if implemented across the industry will likely lead to greater performance and efficiencies across the whole hydrocarbon value chain. This paper explains the dependency between successful execution of business strategy and fit for purpose data. It presents a method for valuing data and estimating ROI on data management activities. The consequences of not managing data well are examined and the converse business benefits of managing it well summarized. A model will be presented for clear setting of data governance accountabilities within the business that in turn will ensure the right decisions are made about how the data asset of oil and gas companies is managed and thus enable associated business risks to be mitigated and significant business benefits to be realized.

1. Introduction
The dependency of the Upstream oil and gas industry on data and information to underpin critical decision making is universally understood. Recognizing that data has value and managing it as such is not. This paper will present a means of valuing data and presenting a business case for managing it as an asset. The intention is to equip the audience with a clear argument for Executive Management to understand its value and to sponsor a value-driven approach to managing data with clear business accountabilities assigned.

2. The Value of Data

Despite the fact that data will have been discussed many times directly and indirectly during the course of this conference, the word itself has connotations which make it difficult for business executives to understand its importance to their objectives it conjures up mental images of bits and bytes and hard drives often causing at best a reaction of thats IT and nothing to do with me. Often the best way to secure attention is to conjure up the consequences of not doing so. The consequences of bad data can include any of the following:- loss of life; loss of a valuable asset or licence to operate; loss of credible reputation amongst the investment and sovereign government communities; and the list goes on. Even if oil and gas companies typically do not manage their data as an asset, it is true to say that typically every oil and gas company invests significantly in data. According to a study recently undertaken by a supermajor, the annual amount their upstream division spent on the acquisition of Data (excluding management and technology costs) exceeded $2billion per annum.

______________________________ 1 Computer Engineer; Partner, Head of Global Energy and Americas - Molten Group

Rio Oil & Gas Expo and Conference 2012 All of these acquisition costs ended up somewhere on the balance sheets of the company in question and applying a straight-line depreciation over 10 years to this data equates it to an asset worth more than $10 billion for that company. With $10billion an oil and gas company can acquire several production facilities. We cannot conceive of any of these assets not having ongoing investment in their care and maintenance. The same should apply to data - as with other assets of this value, a due level of diligence and care is required to manage and maintain it. However typically this asset oriented mindset does not happen in the oil and gas segment, because business executives, through no fault of their own, do not or, more accurately, cannot see it in that way.

2. Brothers in business - Process and Data

Understanding the role of data in supporting key business decisions and workflows is essential. Getting business leaders to understand that data is inextricably linked to business process is not easy. However, we can demonstrate the high level relationship in the 5 tier business model shown in Fig. 1, linking business strategy through organization, process and technology to data. Strategy: sets the strategic objectives, values and policies for the company. People: a well-designed and highly effective organization that enables the organization to make and execute decisions required to realize its strategic objectives. Process: standard decision making processes and workflows, to enable decision making and execution effective, efficient and consistent Technology / Tools: help to automate, accelerate and ensure consistency in the core processes. Data: forms the factual basis upon which all interpretations, conclusions and decisions are made. Data are input to and created by all decision making processes.

Fig 1: Five Tier Business Model showing linkage between Business Strategy and Data

3. The Interdependency of Process and Data

Many times, making a change to the Process, Technology or Data tier will have an impact on the other tiers (e.g. changing a decision making process will result in reconfigurations to supporting applications; this will often affect Data input requirements). Let us look at the role of data in process in a simple example. Fig. 2 below shows a Maintenance Purchase Order process, oversimplified for illustration purposes. There are four simple steps involved in this process, which monitors a particular valves operating conditions and if the valve is subject to conditions outside of its design tolerances, as defined in its corresponding material master, then a precautionary purchase order is triggered and sent to the authorized vendor with the correct price stipulated. Looking at the dependency of this simple process on data we can surmise the following: if the proper operating conditions are not specified correctly then an order may not be triggered when a valve has been operating outside its design limits if the valve has a safety critical role then this outcome might have serious consequences. 2

Rio Oil & Gas Expo and Conference 2012 If the vendor master details are not entered correctly (e.g. incorrect vendor / address / Electronic Data Interchange details) then the order may not be sent to the right vendor or sent to the wrong address this could result in loss or delay of the purchase order which again could have serious consequences If the Price Book, which relates the price of a particular material from a particular vendor depending on factors like ordered quantity, lead time, delivery location etc, contains incorrect data then an order could be created with an incorrect price, which may result in administrative delays when trying to map the invoice from the vendor with the original purchase order. This is a less severe outcome.
Process Tier
Start Monitor Valve Condition
Tolerance Range Acceptable

Ops Example - Preventative Maintenance PO*

N

Create Purchase Order

Process

Send PO to Authorized Vendor

End

Process

Data Tier

Actual Operating Conditions

Operating Condition Tolerances

Price Book

Purchase Order

Data

Material Master
Operating conditions Re critical valves

Vendor Master

Vendor purchase Request

Tolerance triggers for valve replacements

Material details

Authorized vendor details

Vendor pricing details

Legend
- Process Step - Process Decision

- Data Object

- Data Attribute

Fig. 2: Simple Process:Data dependency diagram Of course, to fully understand the interdependency of all processes with the data that they use would require all processes to be modeled. This can require a significant amount of effort to achieve in the first place, but nevertheless is done by the best run and most efficient oil and gas companies. The set of processes are sometimes referred to as the Enterprise Activity Model, modeling the business processes from high level processes (such as Explore, Develop and Produce) down to much more detailed levels such as the level illustrated above. The models are often captured in industry-strength process modeling tools such as ARIS. However, what is not done as commonly is to explicitly map each processs requirements for data in terms of defining fitness for purpose and documenting and enforcing a rigorous set of data quality rules associated with each data type. As a result we often see results of surveys, as recently undertaken for a supermajor, showing that less than 50% of technical staff were confident in their technical data. Some companies have developed what is known as an Enterprise Data Model, which shows all the different data types a company uses in particular functional areas, typically when a major IT-enabled transformation project is done (e.g. implementing a new ERP system or a new corporate petrotechnical data store), but such efforts tend not to be truly enterprise wide. Thats OK thats what is practical. The most important thing is that the company recognizes that it has an opportunity over the longer term to knit together all of the EAM processes and EDM data models as they are created and eventually achieve virtually full coverage. With a comprehensive EAM and EDM the two can be mapped together to show for any given business process what data is used and for any given type of data which business processes use it. The value then comes from ensuring that data standards are defined for each data type in line with the needs of business process.

4. Data Diversity
In considering what fitness for purpose looks like for a given data type, we need to acknowledge that the intrinsic nature of data changes as one moves from Exploration through to Production on the E&P value chain. At the E end the emphasis is firmly placed on petrotechnical data, such as seismic and geophysics data which is expensive to acquire and whose half-life is relatively long. Moving along towards the P the real time nature of data becomes more prevalent, such as flow rates, production rates, maintenance schedules and control of work, and the cost of acquisition 3

Rio Oil & Gas Expo and Conference 2012 decreases but its value diminishes rapidly over time. At the Production Operations end of the value chain, real-time Data has more value, thus, the management of Production Operations data tends to be more operationally intensive and requires well-defined, repeatable, standard processes and clearly defined roles and accountabilities. As a result, as Data moves from Exploration through to Production, the activities needed to manage it become more operationally, process and resource intensive.

5. Value Model for Data

We have shown how the nature of data varies across the hydrocarbon value chain, however the method of putting a value on data is consistent throughout, and should be derived from the following 4 assessments for any given data type, as shown in Fig. 3:1. The business value of good data the value of all key business decisions which are dependent on fit for purpose data 2. The cost of data acquisition and how it is represented on a balance sheet as an asset 3. The cost of data management i.e. the operational management activity required to ensure that data is available, fit for purpose and accessible, including stewardship (setting and ensuring compliance with appropriate standards), data maintenance and access, archiving and records retention 4. The potential business impact of bad data on decision making in human, environmental and business terms (e.g. loss of life; loss of a valuable asset or licence to operate; loss of credible reputation amongst the investment and sovereign government communities; and the list goes on).

Business Value of Good Data

Cost to Acquire Data

Data Value

Cost to Manage Data

Business Impact of Bad Data

Fig. 3: Data Value Framework We will now consider each of these four factors in turn:5.1 Business Value of Good Data The business value of data to oil and gas companies relates to the role that data plays in making critical decisions well. The value of different types of data to a given company will vary depending on where the company in question is generating its value. Integrated Oil Companies (IOCs) will typically have more than 75% of their value created in the Upstream part of their business. In practice the most critical decisions will vary from company to company and will relate to their particular area of strategic focus and strength. for example Company A might excel at exploration and development in technically challenging frontier basins (e.g. presalt or arctic) whereas Company B may find its competitiveness in the area of operations efficiency on mature assets. The key business decisions for the former will be in the exploration and development activities (e.g. select basin, acquire data, choose locations, win licence, shoot seismic, drill exploration well,etc) whereas for the latter it will be in the production area (optimize reliability and maintenance, optimize production, maximize recovery factor, reduce lifting costs etc). Having identified the key value adding activities for your company, the next step is then to examine the dependency of fit for purpose data in performing those activities and related decisions. A high level example for Company A is given below in Fig. 4 below, which shows a high level representation of the oil and gas value chain with 4

Rio Oil & Gas Expo and Conference 2012 Company As highest value activities highlighted in green and of which those which have a high level dependency on fit for purpose data are highlighted in orange. Further in depth analysis to assess the value of data for lower level business processes can be defined. For example, a recent study was undertaken to understand the role of data in the area of topside facilities operations management for an IOC. An evaluation of the dependency of three major process areas of Works Management, Materials Management and Procure to Pay on fit for purpose data was assessed. The results were significant and showed the following:- that around 60% of the works management process benefits of reduced maintenance costs and in turn reduced lifting costs were dependent on fit for purpose data; that around 90% of the materials management process benefits of Reduced Inventory Carrying costs and reduced inventory costs were dependent on fit for purpose data and around 85% of the procure to pay process benefits of spend visibility and strategic sourcing, master contract compliance and invoice price compliance, spend under management and early payment discounts were dependent on fit for purpose data. However, the same study, tautologically, revealed that the company did not enforce data quality standards on its data, hence meaning that the business benefits were being compromised and business risks were increased.
- Highest Value Creation Business Activities for Company A
A. Strategy & Planning
Enterprise Strategies Definition and Management

- High dependency on fit for purpose data

Business & Competitive Intelligence Maintenance

Financial Performance Planning and Mgmt

Risk Mgmt and Regulatory Compliance

Portfolio Management

Stakeholder Relationships Management

Knowledge Management

B2 Exploration & Appraisal B1 Operations Support

B3 Development
Logistics
Project Management

B4 Production
HSE

B5 Refining, Marketing, Transportation

B. Operations

Basin Selection Opportunities Assessment Licence Acquisition Exploration Appraisal

Engineering Support

Reservoir Management

Maintenance Mgmt.

Operations Management

Concept Development and Basic Definition

Production Unit Development

Fuels Value Chain

Production Operation

Well Development

Pipeline Development

Deal Opportunities Identification Ship and Store Products Purchase and Sell Products

Well Management Decommissioning Marketing Deals Administration

Commissioning and Start-up

C.. Support Functions

Oil

Treasury Information Technology

Finance Procurement

Human Resources 3rd Part Mgt

Legal Compliance Physical Infrastructure

Fig. 4: High level representation of the oil and gas value chain, with highest value business processes and their dependency on fit-for-purpose data 5.2 Cost of Data Acquisition One of the challenges in understanding the value of the data asset is that the cost of acquisition are not fully understood across the whole organization. A study undertaken for an IOC in 2009 showed that around 70% of their total data holding is technical data (compared with financial or general business data) and the majority of that is in the subsurface and wells area. A 2010 high level analysis of annual spending on petrotechnical data acquisition by another supermajor showed the following spend profile: Seismic - ~$1000mm Well logs - ~$600mm Reservoir - ~$250mm Measurement / Logging While Drilling (MWD/LWD) - ~$90mm Engineering - ~$80mm 5

Rio Oil & Gas Expo and Conference 2012 Plant Equipment - ~$120mm

Total acquisition costs of all data were estimated to be well in excess of $2billion, a sum of not insignificant value, even for the oil and gas sector, and one that warrants a due level of care afforded to any asset. Furthermore, the cost of acquisition was seen to differ substantially depending on Function, with seismic data heading the list and Drilling, Engineering and Plan Equipment data each coming in at an order of magnitude less. Of course, the relative costs will vary from company to company depending on where their strategic focus lies. Often the value of these investments are entered on the balance sheet as assets and depreciated over time. Many times they are not, and are thus more difficult to identify when trying to get an overall true aggregate of spend on a particular data type. This requires a change in the approach to how such data acquisition spend is categorized and recorded at least for the purposes for management reporting, if not accounting. With these insights, the value of the asset can start to be understood and the data can start to be treated like an asset. Until these insights are obtained and shared with executive management, we will continue to see that data are not managed like assets in oil and gas companies. 5.3 Management costs We normally have a concept of a due level of care of any asset, which translates to the annual operating costs required to manage the asset responsibly. In the studies and research that we have undertaken we see that often less than 1% of the value of the data asset is invested on an operating cost basis per year to maintain it. For any other type of asset in an oil and gas company this would be seen as inadequate and perhaps bordering on irresponsible. The due level of care really manifests itself in having an appropriate data management organization, processes and tools in place. The cost largely translates to people and systems. In many cases the data management profession is not managed as a profession and it is difficult to know exactly how many data managers there are actively executing data management processes and activities. However, a 2012 study undertaken for another Supermajor revealed that there were in excess of 500 staff (both full time and contracted) actively engaged. Interestingly there is not a direct correlation between the number of data managers required and the cost of acquisition for a given data type. In fact there is evidence to suggest that the opposite is true. In the case of seismic data, which is very expensive to acquire, there is often only one person accountable for its management for a particular region, and each of these people have other accountabilities in their job description. However, in the case of operations management, for example, where data is much cheaper to acquire but has a much shorter half-life, there can be several people required to manage the rapidly changing operational data landscape in a region e.g. adding data about new suppliers, delivery locations, new equipment specifications, new contracts etc. To fully understand the management costs and in deed the appropriate investment to make in managing data well on a day to day basis it is important to understand the business processes that a given data type supports and the effort required to ensure it is fit for purpose. In general data types with shorter half-lives will require commensurately more management than those with longer half-lives as the relevance of data expires much more quickly and more effort is required to ensure that the right data is being acted upon to make particular decisions but at the same time appropriate historical records are sustained to ensure compliance with local regulations and enable retrospective analysis to take place if operational problems occur. To determine the appropriate scale of resource, data management activity models can be created, modeling all of the data management processes, similar to the way business processes are modeled, and determining the amount of time and effort required to execute each step for each data record. By knowing the number of data records to be processed or managed during a given time frame we can simulate the amount of time and effort required to successfully manage that data and estimate the number of resources required. A recent study undertaken for another supermajor showed that up to 10 full time people were required for a particular Region just in the area of sustaining Materials and Services data for topside operations management. See Fig. 5 below.

Rio Oil & Gas Expo and Conference 2012

FTE required Create 60% 6.5

100 requests per week

Change Deactivate

30% 10%

2.6 1.4 Results

9.5 Total

Assumptions

Fig. 5 Estimate of Full time Equivalent resources required to manage Materials and Services Data in a Region In addition to the people costs we have the costs of data stores (both physical and digital), technology and tools and applications. The tools and applications tend to both store data and help automate workflows, so an appropriate allocation of costs to data needs to be agreed. In general, these costs tend to be more easily gathered and understood. 5.4 Potential business impact of bad data Unfortunately the consequences of inappropriate or incomplete data driving key business decisions can be catastrophic. One measure of successful data management is a long and hopefully eternal record of avoiding such incidents. Unfortunately, such diligence is often not recognized or understood by executive management when things are going well. Only when the disaster happens and root cause identified does the understanding come. Of course it is not human nature to share insights into such incidents, which we understand, but it is important for all of us in this room to recognize that in real life such incidents do happen or are only narrowly avoided. Anecdotes will be described of the financial consequences of not managing data well: Exploration - An individual (now retired) happened to be talking to the head of Region as they were about to abandon exploration rights. He pointed out that data had been acquired 15 years previously. The report was found under a desk, after searching the office. The outcome was recognition of a target worthy of exploration which would have been given up due to the lack of good data management. Root cause poor management of exploration data. Subsurface - Field tapes containing critical seismic lines went missing in a particular Region. The potential consequences included loss of operating licences and substantial fines from the State. Root cause poor management of seismic data. Wells the geodetic references for two separate data sets on an onshore gas prospect were different. However, the two data sets were combined using the same geodetic reference. The resulting analysis concluded that prospectivity was poor. Some time later an intern came across the anomaly and reported it. The appraisal was rerun and showed high prospectivity. Appraisal well was drilled as a consequence, resulting ultimately in one of the highest flow rate gas wells in North America. Production - Poor/inconsistent workflows across disciplines led to 3 self-operated and 1 partner-operated fields using faulty fluids models in fiscal allocation calculations. For just one of these fields, the impact was $3mm/year - for 6 years.

ROI of Data

A mechanism for evaluating the ROI of data in a supermajor has been applied in the following way. We consider a typical oil and gas business to be structured by Function, such as Exploration, Wells, Developments, Subsurface and Operations etc, and then by Region. By performing an analysis of a) the acquisition costs, b) the management costs and c) the agreeing a formula for the business value of data we can represent the role and value of data quite powerfully in the form of a forensic appraisal of data as shown in Fig. 6 below.

Rio Oil & Gas Expo and Conference 2012

Costs and value of data management, for different functional areas in different geographies and target benefits : Differences in ROI can be questioned and then explained. Relatively poor rates of return can be challenged. Strong rates of return can be identified and focused upon Capital and operating expenditure require separate evaluation methods and must be clearly segregated. High value activities can be identified, maintained and improved where possible.

Value*
Low value activities can be identified and targeted for cost reduction.

Planned cost Challenged cost

Regions or Assets
Functional Activity Breakdown

*value measured according to Data Value Framework Fig. 6 showing Forensic Value Framework for comparing and contrasting return on investment in data management activities It is referred to as a forensic analysis to reflect the reality of oil and gas businesses today that data is not managed as well as it can be, and the data to compare costs and value across functions and regions is not a straightforward exercise. The data has to be found, gathered and then analysed. The results of the forensic analysis will show where best practices within a company will be taking place and will allow those practices to be promulgated. It will also provide the basis for challenge in areas where evidence of suboptimal performance appears. The ultimate long term objective will be of course to move the company to a sustainable basis of such reporting such that it becomes a business as usual reporting activity rather than a forensic one.

7. Getting Laser Focus on Data Management

7.1 The quantum of data So far in this paper we have been referring to Data Types. We refer to each Data Type as a Data Object. Each Data Object is a defined collection of data which serves a discrete purpose in supporting business processes. Two examples: Seismic data is a Data Object which helps drive the Exploration business process. Purchase Order is a Data Object which helps drive the Asset Operations business process.

Each Data Object must be clearly defined for it to be managed properly as an asset, in the same way that physical assets re managed. 7.2 Assigning accountability for data assets A critical success factor for managing data assets well, is to clearly assign accountabilities for different Data Objects. There should be one person who has ultimate accountability for making all decisions about a given Data Object including the way in which that Data Object is managed. Typically, as discussed before in this paper, well defined business processes are key to ensuring a standardized way of working in oil and gas business, to ensure efficiencies and reduce risks. Business processes tend to be owned by Business Organizations or Functions which are responsible for developing, documenting, and improving them. Some processes are unique to a Function, while others are owned by one Function but affect or involve many others.

Rio Oil & Gas Expo and Conference 2012

Production Operations Operate

Organization

Engineering

Major Projects

Process

Set Eng. Standards

Design & Construct

Data

Data Objects

Systems
Engineering Data Store Project Data Store ERP Ops

Fig 7. the same data object may be used by multiple business processes and organizational functions. Fig. 7 above shows how the same Data Object may be used by multiple business processes and organizational functions. The business owner of the leading dependent business process should normally be accountable for the Governance of a given Data Object. The leading dependent business process can be defined by identifying the process that would most severely impact the business if the Data Object in question is not delivered in line with business requirements. Examples of severe impact include loss of life, significant impact on business reputation, or non-compliance with legal or regulatory frameworks resulting in loss of license to operate.

Fig. 8: Process for Selecting Accountability for a Data Object Fig. 8 above shows the process for selecting accountability for a Data Object. All the business processes which depend on a given Data Object are identified. The Process Owners are then determined. The owner of the process with the most dependency on the Data Object is then selected (i.e. the most to lose or gain from fit from purpose data). Appropriate data standards are then enforced in the Master System of Record for that Data Object and assured through all other workflow enabling systems which use that Data Object, supported by management processes and resources. 9

Rio Oil & Gas Expo and Conference 2012 7.3 People Resources - we must not forget that it is people who manage any asset, and data is no different in that a due level of care is appropriate to it. The ability of a company to provide that due level of care to managing data is reflected in the data management organization, clear role definitions with clearly assigned accountabilities and decision rights. Each role must be appropriately defined in terms of required and desired skills, competencies and experience with appropriate management grades afforded to reflect the relative seniority of key roles. Where these roles report to is important. Data is a business asset and should be ultimately owned and managed from within the business. However the activities to manage the data asset well must be shared between the business and the IT department. The technical aspects of providing digital storage, access tools and interpretation schools will be managed from within the IT department, but it should be noted that IT has a T in it and it is managing the technology that is done there not managing the data.

8. Benefits
The expected benefits from improved data management include: Revenue increase improved finding efficiency and better operational results from better informed decision makers Risk reductions sustaining licences to operate, maintaining the value of data assets, avoiding unintended data loss, disclosure or damage to reputation. Accessible benefits are linked to the change and cost of catastrophic loss through operating with poor data Acquisition cost reduction benefits can run into tens of millions of dollars per year based on 5% optimization Opex Optimization reducing the cost of data management by managing our data better and avoiding rework, running to 2% optimization.

9. Conclusion
Data has significant value in oil and gas businesses, which is not necessarily recognized by executive management. The value can be articulated and the consequences of not managing the data as an asset can be understood. The value justifies an approach to its management which is different from what we typically see today, which if implemented across the industry will likely lead to greater performance and efficiencies across the whole hydrocarbon value chain. A critical success factor is clear setting of accountabilities for data within the business and giving authorities to ensure that fit for purpose data is provided to the highest value business processes, if not all of them.

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