Robotic Process Automation (RPA) has emerged as a great way to automate business processes cost-effectively. The use of this technology is widespread. Investment has expanded quickly. The RPA market grew from $1.2 billion to $2.1 billion from 2020 to 2021. That is an increase of 68 percent! The RPA industry should exceed $7 billion by 2025 (source). This forecast reflects an expected compound annual growth rate (CAGR) of over 35 percent yearly. This growth will impact every industry – including the upstream oil market segment.
What is Driving the Growth of RPA Investment in the Upstream Oil Industry?
The Oil industry faces significant risk and uncertainty today. Supply chain disruptions are occurring with greater frequency. Russia’s invasion of Ukraine has had a ripple effect on global energy markets – especially in Europe. Energy costs across the EU have increased by over 50 percent since the second half of 2021. European natural gas prices nearly tripled. Crude oil prices reached $105 per barrel for the first time since 2014 (source).
A new level of “hyperdynamic” price and volume fluctuations has become the status quo. This shift has increased the financial risk of oil exploration. Unsuccessful exploration is costly. Incorporating just the cost of conducting seismic studies and drilling, a dry well could cost up to $20 million per exploration site (source). And this cost estimate doesn’t factor in the opportunity cost or overhead expenses. Today there is a greater focus on how to streamline processes to improve efficiency.
US oil production has been more severely affected than domestic gas production. This will lead to an impact on RPA investment. Consider a middle-of-the-road climate policy shift scenario. In this situation, US oil production could decline by 50 percent of 2020 levels by 2050 (source). This decline could easily occur. Several factors such as steadily increasing adoption rates of electric vehicles (EVs). Combine this impact with greater awareness and actions on climate change, and production levels could drop by half.
Big changes will happen. The only question is how will oil companies respond and adjust to these macro changes.
RPA Helps to Overcome These Challenges
Automated systems and processes can respond faster to change – and with greater efficiency. Years of investment in legacy systems and the resulting technical debt from these older applications have created an urgent need to invest in new, more modern automated systems and processes.
This article, How to Cut Costs with RPA, explains how Title Insurance companies overcame this same challenge. As another example, this healthcare company successfully streamlined its back office activities to deliver significant staffing productivity gains. Read the full case study to learn more, How to Achieve 3X Staffing Productivity Increase with RPA.
These organizations are automating business processes with RPA to cut costs and improve employee productivity. RPA and other automation strategies can not only improve efficiency and respond faster to change – but can do so with fewer employees. This improved scalability helps not only increase efficiency and cut costs but also to better adapt to an environment where hyperdynamic price and demand changes occur with greater frequency.
RPA Addresses Labor Shortages
RPA investment provides a way to address the current labor challenges faced by the upstream, midstream, and downstream oil industries by improving labor efficiency. The energy business, among others, faces an extreme labor shortage. This might even be the oil & gas industry’s greatest challenge.
Several factors have contributed to the labor shortage within the energy production sector that includes upstream oil. The underpinnings for this labor shortage began during the economic downturn taking place in 2014-2015. At that time, the oil and gas industry slashed its workforce, cutting nearly half a million jobs in the process. Boom and bust cycles since then have alternately expanded and contracted the industry workforce (source).
Compounding matters further, the great resignation, stalled wage growth, and a shift in the desire to work remotely made matters worse. This article, Why a Labor Shortage in the Oil & Gas Industry is Now Driving New Levels of Automation Investment, provides further clarity on how these changes have heightened today’s labor shortage in the oil and gas industry.
Market research leader IDC suggests that not only will upstream companies be compelled to invest heavily in automating back office processes, but that public cloud adoption will also increase by this market segment, as outlined in this prediction:
By 2025, 85% of Upstream Companies, Driven by Cost Pressures, Will Be Compelled to Streamline Back-Office Operations Using RPA and Outsourcing and Will Adopt the Public Cloud to Increase Profitability.IDC FutureScape: Worldwide Oil and Gas 2023 Predictions (source)
Back office operations can be defined as managing and executing legal documents, regulatory compliance reporting, and the administration of title document reviews necessary for identifying sites suitable for land acquisition and drilling. An increasing reliance on working with partners and collaborating with third parties means modern IT systems will be required to accommodate digital data exchange, high-speed data review and analysis, and automated systems capable of performing standard processes at high speed.
The oil & gas industry has not traditionally faced such hurdles. Yet these investments will be critical to pivoting business models to operating with a greater focus on cost reduction and process improvement. The companies that are successful in adapting to this “new normal” will be best positioned to emerge as new organizations capable of supporting the world’s future energy requirements over the next decade.