Why Oil and Gas companies should consider a different strategy for their telecommunications

— November 4, 2014 — Leave a comment
Connection Article - Oil and Gas Telecomms Article

Click to Read the Article in the Connection Magazine – Issue 5

Trevor Textor, President of Text Corp, argues that treating communications as a utility will translate to better business efficiency and big savings.

Selecting telecommunications solely based on price is often a lost opportunity for businesses. Setting up telecommunications like Land Mobile Radio (LMR) as a utility may be more expensive initially, but the difference can be measured in more than just cash – it is measured in potential and investment.

As individuals, we all expect that our utility networks – like electricity and telecom – will be around when we need them, be easy to connect to and provide resources to get our work done. But businesses are different from consumers, and should go a step further.

Enterprise involves many-to-many communications between people and assets, all performing at maximum efficiency, and all demanding quality telecommunications. When a business accepts responsibility for its telecommunications, it effectively runs its own utility with a customer of one: itself. Then, to maintain quality, it must also maintain engineering and operational authority. It doesn’t work well any other way.

In industries as diverse as banking, health, local bodies, public safety, education and Oil and Gas, forward-thinking businesses are making the communications investment leap because they understand the critical role of communications networks to their profits.

A typical mid-to-large company manages its communications internally, usually through its Information Technology (IT) department. This group often leases the underlying physical systems and contracts to guarantee service quality. This is fine as long as there are assets available to lease and they can contractually guarantee quality. In reality, a grade of service, or even availability of service can vary greatly, particularly in rural areas.

In the absence of lease options, an enterprise can consider construction. Distance and low population/asset density can price out wired builds, so rural “last mile” builds are often wireless. Towers, power and buildings can consume 50-95% of the cost of a wireless solution – a quality tower can cost US$50K-350K – and requires detailed engineering and planning. This reality certainly flies in the face of common expectations, that IT can just ‘turn on’ connectivity cheaply like you can at home. This is where the challenge lies, but also the opportunity.

Businesses need to think differently about building that expensive network infrastructure. This is a multi-use, long life (multi-decade) asset which can, potentially, be used by numerous local stakeholders including businesses, government and consumers. Conversely, electronic devices such as radios need to upgrade more often and may be dedicated to a single entity. Infrastructure can be easily shared by renting space on the tower to multiple users. The tenant leases space for their radio and antenna on a tower so each tenant pays only for what they use.

The utility model is simple. One entity, public or private, builds and owns the infrastructure and rents it out.

Cost sharing also benefits Public Safety, who demand more robust tower design. LMR systems depend on the physical properties of waves, which translates into a pretty simple engineering principle for the design of the tower.

The network must be designed to handle considerably more traffic in a crisis or incident. This requires more resources on the tower and subsequently, a more expensive tower. However, renting infrastructure spreads this additional cost.

Making a shared tower available means public cellular providers can focus their dollars on providing a higher level of service. Consumers and small business will benefit from the improved cellular service provided by the utility model. Small businesses might also use the tower for their shared or private LMR systems.

Crisis point - Networks

Medium to large businesses can benefit exponentially from treating telecom as a utility. If the primary activity revenue is impacted substantially, it can drive some “impossible” business cases. An exceptional example of this is electrical grid management technology.

For example: an oil and gas company installed electrical compressors to produce gas. The electrical requirements meant that the company needed to build a sub-station to extend the electrical grid to provide enough electricity. The grid management technology relies on telecommunications links to interconnect the nodes so they can communicate real-time status updates. If a telecommunications link goes down, visibility is lost and the grid automatically shuts down the “dark” stations as a preventative measure. The company would lose millions of dollars every day, if the outage were due to a poorly designed telecommunications link.

This is one of many business cases. Deploying a centrally-managed utility model can impact positively, and because communications support many components of business, the effect is cumulative. The current default to telecoms in industry is the decentralized, lowest-cost model, which has a negative impact. Simply changing attitudes to the utility model allows companies to reap the positive effects.

For the oil and gas sector, definitive research supports the centrally managed utility model. In 2003 IHS CERA conducted a technology study with major oil and gas companies. The report outlines the emerging technologies that positively leverage the oil and gas business, and the majority of them involve quality telecommunications. The estimated impacts of these new technologies have since been validated consistently by real world scenarios:

  • improve hydrocarbon recovery: 1-7%
  • accelerate production: 1-6%
  • improve operating efficiency: 3-25%
  • reduce drilling cost: 5-15%
  • reduce downtime: 1-4%

Oil Refinery - Gas companies - telecomms articleUsing a large, publicly-traded company’s annual report allows these percentages to be translated into dollar figures. Assuming that businesses have implemented 50-70% of the technologies since 2003 it still translates to significant savings of US$35M to $182M each year. Conceivably, we’re talking about US$1 billion saving in less than a decade. This will easily cover the cost of telecommunications, but you could save even more.

Delivering a utility model using this example, from scratch (including all towers, buildings, etc.), would cost $50M. That would be less than 5% of the total saved over the decade. This is why there are isolated occurrences of building these systems from scratch in the oil and gas sector. If the project is funded and delivered without community relations and Public Safety involvement, the inclination is to just complete it and not deal with the complexities of sharing the infrastructure. But by becoming an anchor tenant, there is an excellent opportunity for a win-win-win arrangement: business-community-safety!

The owner will need to ensure commitment to ensure there is revenue to support and maintain the asset. From a large company perspective, all it needs to do is act in advance and invest some labor to arrange the situation as an anchor tenant – and sign commitment letters to guarantee revenue to support and maintain it.

The business also benefits from the increased opportunity to contribute to the bottom line, because a utility benefits the most when it captures the complete business cycle. It’s guaranteed to be available when capital expenditures are highest which yields the most leverage from the utility.

Oil and gas capital expenditures are highest during drilling and infrastructure development with a typical project investment of about 30%. Communications infrastructure payback would be between 6 – 12 months if capturing the high capital expenditure stages. After the payback period, return on investment is infinite.

This utility business model can be endorsed from within by centralizing comms efforts, including the multiple components which might today be managed over multiple teams. This in turn permits centralized funding, which naturally clarifies costs and benefits via key performance indicators.


 

Tait Connection - Issue 5 This article is taken from Connection Magazine, Issue 5. Connection is a collection of educational and thought-leading articles focusing on critical communications, wireless and radio technology.

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