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Increasing Resilience, Profitability, and Sustainability in the Oil and Gas Industry – Futurum Tech Podcast The Intelligent Enterprise Industry Series
by Daniel Newman | October 15, 2020

This episode of the Futurum Tech Podcast – Interview Series is the third installment of our Intelligent Enterprise Industry Series — done in partnership with SAP. I welcomed David Shimbo and Craig Kindleman, two executive advisors for the oil and gas industry at SAP to discuss how they are focusing on furthering their intelligent enterprise story.

The Interconnected Oil and Gas Sector

SAP recently partnered with Oxford Economics to conduct a research study to identify how an interconnected mindset impacts organizations including how data has impacted the supply chain and ways organizations are building better workforces. The report includes findings from 3,000 senior executives, including 300 from the oil and gas sector.

My conversation with David and Craig revolved around the following:

  • How volatile oil prices are impacting the operational strategies in the different petroleum segments.
  • The digital transformation initiatives organizations in the oil and gas industry are undertaking.
  • How organizations within the oil and gas industry are innovating a mostly stagnant industry.
  • Ways organizations are improving productivity and operational efficiencies while reducing costs.

David, Craig and I explored some of the findings of the Oxford Economics report: Thinking Beyond the Barrel: Increasing Agility Through Systems Thinking that will have a big impact on the future. We only explored a few topics in the report and there’s so much more to it. If you’re interested in a comprehensive view of the subject download The Oxford Economics report on the Interconnected Oil and Gas sector here.

Listen to my interview with David and Craig here:

Disclaimer: The Futurum Tech Podcast is for information and entertainment purposes only. Over the course of this podcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.

Transcript:

Daniel Newman: Welcome to the Futurum Tech Podcast, The Interview Series, I’m your host today, Daniel Newman, Principal Analyst, and Founding Partner at Futurum Research. And I’m very excited about this particular interview series. We’re going to be talking to SAP’s Craig Kindleman and David Shimbo. We’re going to be talking about the oil and gas industry. And as you may have already listened to, we’re doing a whole series working with SAP around the intelligent enterprise, around an Oxford economic study that the company underwent looking into what’s going on with transformation and driving businesses towards greater intelligence in the modern global era, that is by the way changing, oh, so fast.

So if you haven’t had a chance, I’m just going to get ahead of this right now, check out all of these podcasts, there’s going to be 10 of them. And they are all very interesting. Like I said, I focus on tech and the transformation of all businesses, but these folks that we have on the show, oh, so interesting, great depth of knowledge work closely with some of the world’s biggest companies in each of these respective fields, but without further ado, let me welcome our guests today. Craig Kindleman, David Shimbo welcome to the Futurum Tech Podcast Interview Series.

Craig Kindleman: Daniel glad to be here.

David Shimbo: Thank you very much. Nice to meet you guys.

Daniel Newman: Oh yeah. Very, very good to be here. And David, I think you know Craig. I’m sure he was very glad that you said that. And if you can’t see us here, because we’re only on audio, I just winked at David because he said nice to meet you guys. And I’m just having a little fun with him, David, I’m going to let you go first. I’d like to have both of you just quickly introduce yourselves. Talk a little bit about the work you do at SAP.

David Shimbo: Yeah. So David Shimbo job was oil and gas industry advisor. We work very closely with customers to identify oil and gas specific challenges and pains, and then match up that core technology with SAP’s capabilities. So our focus is really on two things I think in the oil patch and it’s increasing productivity and reducing, operating constantly oil patch.

Daniel Newman: Absolutely. And by the way, a lot of capabilities, a lot of different solutions. So when you’re working with these companies, I’m guessing that matching those capabilities across the whole stack of SAP can provide a lot of opportunities. A lot of discussions. Craig, welcome to the show.

Craig Kindleman: Daniel, Thank you very much. And definitely talk about discussion. So curriculum and director of oil and gas, like David focused with our customers and with our own organization. And when you talk about discussion Daniel, let me give you an example of like you asked, what do we do, last week, spent several discussions with CEOs of companies and then several discussions with CFOs of companies. And what did we talk about? We talked about their organizations in North America, some of the top oil and gas companies.

They’re trying to understand what from technology can they count on as they try to move forward in the volatile market? So that’s what I do on a weekly basis with Dave is we’re trying to help them and advise them, what can they count on that’s solid? What is leading edge or what is the next generation that they should start to look at that’s going to help them stay competitive. So that’s what we do on a daily basis.

Daniel Newman: Yeah. It’s fascinating stuff. And we had a great conversation offline, not everybody gets, actually, nobody really gets to hear these conversations, but before we jumped into the show, we were having this great discussion about oil and gas, the industry it’s its impact and influence on the world right now. And so gents before we jump in, because I have a few questions specifically for you about what you’re seeing in the discussions you’re having and getting behind the scenes of some of these conversations with these clients you just mentioned, Craig what’s kind of the state of the state with oil and gas? It’s kind of one of those topics that sometimes the faces a lot of challenge because it’s an older industry, but it’s also a really exciting industry. It’s an industry that every one of us probably benefits from on a daily basis, but what’s kind of the state of the state?

Craig Kindleman: Dave, you want to go first?

David Shimbo: Yeah. State of the state right now is we’ve had very volatile oil prices for the past, about nine months. And the problem is that volatile oil price in particular the drop in oil price caused by oil companies being too successful at finding oil and gas has been also in concert with the COVID 19. So we’ve had what I would call the classic boom bust. And we’re just coming out of the bus very nicely. Everybody thinks the oil and gas industry is really hurting, but actually we are now back to at least downstream and midstream standard operation procedures. Outstream is slowing down, has slowed down quite a bit, but midstream and downstream are doing fine. Craig, maybe additional thoughts?

Craig Kindleman: Yeah. I think, I mean, Daniel, we talked about volatility, right? In a market that produces the world’s energy and there’s different forms of energy one can look at utilizing. The market goes up and down. And there was a CEO at the start of the pandemic this year said that he simply got up every morning because his stock was being used as a currency. They were using the petrodollar as a way to exchange currency. And his point was he’s, in his lifetime, he thought it was phenomenal that his company’s stock was being used, and the price of oil or different oil products is being used as a currency around the world versus some country’s currency.

And we’re not going to talk about politics, but the question from him was how do you then combine energy that people consume and use and need every day, as we talked about with it being used as a currency to stabilize economies around the world and during this time. So, volatility is expected. What David and I spend time on is counseling our executives of our customers with how do they accommodate that, but yet really talk about basic business, what the cost of our product, the margin of a product, the people that worked for their company, et cetera. Right. And get away from the hype of the volatility of the market, because there always will be given it’s a currency for all intents and purposes.

Daniel Newman: Absolutely. It’s funny. I mentioned to you guys, when we were talking in the green room, I do a lot of investing, but because I’m an industry analyst and tech, I don’t invest in tech. I can’t. So I’m in other fields, and oil and gas, I was telling you was one of those fields that I’m in on. I still remember the day I was watching CNBC. We were deep in the quarantine period. I think it was an April, May period night. And you guys might even remember the date though, but I remember the day the oil futures went absolutely ballistic and they were actually, remember it went negative and they were actually basically bidding or paying people to take the supply. And I remember just watching it because you were talking about volatility. And I was like, I remember that day.

And that was just insanity. It looked like the whole global oil and gas business were going to collapse. I mean, it looked like there was going to be gluts of demand. I mean, I was wondering about these futures traders, like where are they going to be, I think barrels of oil, because this is the one… When we trade futures with stocks, you’re trading paper, you’re trading ones and zeros bits and bytes. Commodities, you’re actually taking delivery on these things. So people were selling and they were pushing because nobody wanted to actually take it. So they were pushing up and up and up and up what they were willing to give somebody to actually take delivery on that, and I guess I would say that was sort of the worst moment in this whole thing, but now prices have really stabilized. They’ve come full circle. You’re seeing the future sitting at around 40 a barrel. Maybe we haven’t pushed back up to those 60’s, 70’s, but that means reasonable gas prices. And it keeps the everyday consumer in pretty good shape. But wow, that had to been an interesting time for you gents.

Craig Kindleman: It was a very interesting time. I mean, David and I had to go through and explain to our own company as well as clients, that the fact that it went negative was not so much that there was doom and gloom. It was that somebody had a shipment out there that there was no place for it to go. And they were having to pay somebody a negative price to simply take it. So they were almost giving away their product, not so much that it dropped, but they had physically, and this is what Dave and I talk about and deal with. The physical aspects of the world had met the virtual aspects of the world in one single day. And there was conflict.

Daniel Newman: Like I said, I enjoy watching the turbulence because I think it makes for great television, but for people’s lives, it’s a little more chaotic people in those businesses, there’s a lot to consider, because it’s not all TV, not for everybody, but you’re in the tech space. So I’m glad you mentioned the volatility, but SAP itself, you as vertical leads, driving business, aren’t really in the business of pulling oil out of the ground or fracking or oil services or any of that, you’re in the business of technology for these companies, so they can do the work better than they do today. So I want to ping you a few questions.

Hopefully you can give me some perspective. That’s what the audience here in feed from tech podcasts like. They like the tech stuff. So we’ve been geeking out a little bit about the oil itself and I hope everybody out there has liked that. Little change of pace here on the show, but let’s talk a little bit just based on everything you just said, you talked about the pandemic, you talked about volatile prices. So how is this impacting the operational strategies of those different segments that you mentioned? You mentioned upstream, midstream, downstream, oil field services. This has to be changing their strategies.

David Shimbo: Yeah. I think what’s happened a lot, has been the oil company’s awareness of the sensitivity of both production and operating costs relative to the price of oil. And what oil companies have already figured out is what wells to produce and what wells not to produce given the current price range and also really from an operations maintenance strategy, whether it be in the downstream, or upstream space, what things to work on versus what things to defer. Oil is very much a manufacturing, efficiency type business, where you’re really, and one of the things, and that’s why there’s oversupplied to place, is oil has to continuously flow. Once your oil comes out of the well, it’s got to keep moving through the whole system from the oil field to the refinery, from the refinery to the gas station has to keep moving. So we have to, as SAP, provide the background, the plumbing, the core capabilities of procurement, supply chain, finance, operational efficiency, asset management, we provide all the plumbing that allows the oil companies to run efficiently.

Daniel Newman: Yeah, no, I think that makes a ton of sense, Craig I’d like to kind of kick this over to talk a little bit about the digital transformation as a whole. First of all, that vernacular one of my favorite things written seven books, six of them were specifically on digital transformation. My seventh was on human machine partnerships, which is pretty much digital transformation. The practicality of transformation, the terms are great, but every business is going through this in some way, shape or form. When you’re working with these companies, what kind of projects are they undergoing right now? What is the things that you’re seeing these oil and gas companies putting the most focus on today when it comes to their digital transformation investments?

Craig Kindleman: So, let’s talk about one that Dave and I talk about the crosses and Daniel, we talked, there’s four sub-segments in the oil and gas industry, right from the wellhead and exploring all the way down to retail or anybody who pumps gas or uses oil in their car or their lawnmower, et cetera. So there’s a whole supply chain. And one common element is repairing a piece of equipment that’s broken, right? And one of the things, that’s a challenge that is really a focus for digital transformation is if there is, and there’s there’s repairs that need to be preventative, just like all of us in our homes or our own equipment that we use need to do preventive maintenance, making sure things continue to run all the way to break, fix. And one of the things that the customers have had problems with it historically back in our grandfather’s era, is that if I go to order parts, how many do I need?

How many do I have on hand? Where are they? Where’s the warehouse, who’s the worker that’s going to repair that one part that’s broken versus repair a part that preventively needs to be fixed because it’s going to wear out and break, which will cause problems. And so there’s one where the customers, our own customers are asking us and new customers are saying, “Can we take digital, can we use digital capability that’s there today to that basic process?” So worker A and worker B are looking for the same part and the company only has one part and the scenario would be can they quickly determine that there’s only one part and they need to order a second one because there’s two workers. So it’s basic.

I call it a grade two grade, three mathematics. If you have two things you need one more, how do you go get it? There’s, Daniel, digital transformation at a very simple equation, right? And our point is determining with that customer, do they understand what’s the capability of digital transformation? What’s the cost because in some cases you can digitally transform, but economically it won’t pay off. Right? And that’s whether it’s an upstream company producing oil, or whether that’s somebody supplying you gas that you can fill up at the end of the day for your automobile or your motorcycle, et cetera.

Daniel Newman: It’s an interesting point. I mean, one of the universals that really the digital transformation and I’ve studied this extensively for what feels like forever now, is it’s never ending. It’s continuous. It’s kind of the idea of digital transformation is a little nebulous in the sense that you’re not really ever transformed. You’re just not. You reach different stages of a transformation. Maybe your investment is transforming your data to provide a common data model and a schema that can be utilized across multiple systems concurrently. That’s a transformation activity. Maybe you want to enrich that data. So you want to add ML and you want to use AI to be able to provide visualizations for executives so that they’re not trying to sift through extensive and long spreadsheets and reports to find a few key data points that most business decisions are made on. These are all steps forward.

Maybe it was just putting infrastructure in place during COVID-19 to allow your employees to work from home. And what’s funny is so many companies have done that to some extent in 2015, 16, 17, and 18, but yet we’re completely unprepared to do this in 2020 when it went from maybe having five or 10% of your workforce working remotely at any given time to having your entire workforce being at home and needing to secure that. So I just think your examples are terrific, but I think for everyone out there understanding, and I talked to industries about this all the time is it’s not a stop start moment. You didn’t start and finish your transformation. It’s continuous. So it’s all the things that you both have mentioned in the show. And then it’s also carried forward by building a culture that’s very adaptable, and is able to change very quickly.

And it’s able to see the opportunities of new technologies and how those new technologies can drive businesses forward. Identifying and implementing innovation requires not just the ability to spend money by technology, but it requires great people within your organization, which kind of brings me into the next question. David, I’d love for you to chat to this a little bit, but what are the innovations? I mentioned a bunch, I just went through a list of things. Are those some of them? What are these companies really spending the money? And when they think of digital transformation, what are those areas that you’re seeing a lot of investment going towards?

David Shimbo: Yeah, what I would say is given that, again, back to that theme of focus on reducing operating costs and increasing productivity, the oil patch has been spending a lot of time gathering the data the past 20 years, whether it be sensor data, whether it be human performance data, whether it be operational cost, we’ve gathered tons of data. And now we’re reaching a point of, “Oh, let’s start to analyze that data.” Let’s take a look at operational analytics, let’s apply machine learning or natural language processing to figure out how to run a refinery more efficiently. Let’s look at robotic process automation to automate some of your financial process to get rid of some of those Excel spreadsheets.

One of the things that actually we in oil and gas are doing is because we’re very strong in what I call point applications. We’re also starting to see cross-functional applications, the sort of composite applications that combine a little bit of finance and asset management and procurement, so that the guys in the field that’s my big bias is to make their life easier, more efficient. So they’re not spending tons of time looking for data, or doing dashboards within the KPIs and metrics. And they’re spending more time being engineers, making decisions that’ll help them with a sufficiency productivity play. So, those are some of the things that we think are going on right now. We know that’s going on.

Daniel Newman: Yeah. And it sounds to me like a lot of it comes back to streamlining business, improving productivity levels, investing in making workflows faster. And I’m guessing Craig, you may have a few adds to what David just said, but I have to imagine data. I know you haven’t said it specifically, but you’re implying it a lot in everything you said and SAP, this being such a core part of the business. Is data something that these businesses are… They have to be just locked and loaded. I’m trying to get more out of every bit and bite they have in the cloud.

Craig Kindleman: Daniel, data’s a big problem. Right? And what I mean by that is that they’re overflowing with data. And as I talked, when Dave and I talked to our executive clients, the CEO that I was on the phone with last week, we’re talking, he has 12 different systems. And his point was as the executive leadership team, he’s having trouble trying to get at all of the data. It’s not that he’s lacking the data, it’s been collected as Dave said, for years, or in some cases, generations of company employees, but he wants to be able to get it so he can see the full picture. Because his point is when he goes to his bank, his credit facilities, when he looks at making an acquisition or divestiture, he needs to see the whole picture of data and his complaint was I can’t get it.

And we were talking about back to, you talked about digital transformation. How do you do incremental, and continuous transition or transformation that is easy, and it’s the old do little nibbles and little bites off is what we were talking about. So, he can get at that as a C-level executive at that data. In a little bite, what’s the critical bite that he needs so that he can advise his customer. And then we talked about how his CFO or the person in working for him, the common worker, do they need the same little nibble of digital transformation that gets at that data because it’s not a matter of there isn’t the data or is it the right data? Like we were talking that he’d been collecting data. And then when we talked about what digital machine learning brings, and it’s the old adage of you need three points to do a curve, right?

Two points only if you draw a line between them only gets you a line, you can’t do a curve without three points. And what we were talking about was whether did he have the right data in his company, by which to, if we digitally transitioned him to a next gen technology, could he even utilize it? So data is a very big priority. And then Dave and I advocate incremental, small, economical, competitive advantage steps for these companies. Big bang is no longer the trend. It has to be right place, right time, right payback for the shareholder or the stakeholder, if it’s a private company.

Daniel Newman: Yeah. I’m really glad you said that too, because the return is always key. When you’re leading a business, the shareholders stakeholders always have to be top of mind, how is this investment making us better? And there’s the short and the long. Right now in 2020 companies that have had to think both ways. We’ve seen a decade of transformation in some cases take place in a matter of just a few months, but in the end, as we come out of this thing, right, we’re going to see companies hopefully apply what they’ve learned to drive a meaningful and significant continuous path of transformation. And hopefully something that doesn’t allow them to be vulnerable, because I think a lot of companies were vulnerable in every industry during this pandemic, because this hadn’t been seen before, nothing quite like this had been seen before.

Craig Kindleman: Well, and that’s the question, Daniel of how can you Bulletproof a company, right? Can you bullet proof, or where’s the weak points? And Dave and I do this with each of the sub segments of what’s the critical business process for that subsegment upstream or downstream or midstream or a refiner or a retailer. And what should they utilize from technology to make that critical business process better? Right. And we talked about before we started the podcast here of like machine learning and some of our customers came along and said, “We want to use predictive analytics.”

We said to them, “Do you have enough data to even start to predict, try to predict what your future’s going to be, because if you don’t have your history, you can’t predict your future.” And so that’s where it’s a question of what exactly should be the focus during the pandemic or after the pandemic. And I think what we’ve seen, at least in, for some of the customers, they really weren’t focused on the right stuff. They were really thinking, “Oh, business is going to continue as usual. The economy is going to continue to as usual”, and the pandemic coming really kicked them.

Daniel Newman: You make some great points there. I think so many times the biggest failure, most businesses and individuals is when there’s a fundamental belief that there’s only one a market can go. And for a long time, it felt that way. And I think we get knocked back to earth, or you had it in 2001 with the bubble. We had it in ’08 with the real estate. And then we had a really nice 12 year run where it felt like with other than a few little ebbs and flows, it’s like, it was almost euphoria for a lot of people. And in businesses we’re investing in transforming. But I think people felt they had a lot of time. I think businesses felt that there was time to transform and clearly there was not much time to transform it. And by the way, all the things you just mentioned, I want to just go ahead and point out that in the show notes, I’ll share a link to this Oxford economics study.

And there’s some great insights in this study. It cuts across a number of industries, including oil and gas to help people sort of understand. there were some themes in here and you guys both dug into them, David and Craig thoroughly about the importance of increasing productivity, reducing operations costs, optimizing your processes, and then applying the new technology. I think those are really all the parts that this study showed. And it seems to me and David, I’d love to give you a last word. If there’s anything else you recommend the audience has here. But it seems to me, these are really the pieces that derive an intelligent enterprise.

David Shimbo: Yeah, I guess quick, last words are really, the oil patch is still here. We’re doing fine. We’re very much focused on delivering energy to not only America, but to the world. And ideally we can keep it a clean and green solution along with operational efficiency and getting energy to the right people at the right time.

Daniel Newman: Well, gentlemen, Craig, David, I want to thank you so much for joining me today on the Futurum Tech Podcast, interview series, terrific guests, like I said, in the beginning of the show, we have 10 of these vertical industry podcasts with SAP focused on intelligent enterprise, and this Oxford economics study fascinating stuff. I read it had to get involved with it, wanting to talk to all these industries. I wanted to use this podcast as a forum to not just talk about the tech anymore, but to apply the tech to all these different industries.

Craig, David, he did a great job. So thanks for being with me today.

Craig Kindleman: Daniel it was a great pleasure. Good talking with you.

Daniel Newman: Like I said, check out the show notes, check out the study, download it, it’s free. Please hit that subscribe button. Follow me on social media, follow Futurum Research on social media, follow SAP on social media, we really do appreciate our community. All the listeners that tune in each week to the Futurum Tech Podcast for this show, for myself, for the gentlemen that joined me, I got to say goodbye. We’ll see you later until next time.

 

Daniel Newman