September 2011, IDC Energy Insights #IDCWP37T

Col laborating to Solve Shared Oil and Gas Industry Chal lenges — Drivers, Enablers, and Best Practices

W H I T E P A P E R Sponsored by: Logica

Roberta Bigl iani September 2011

I D C E N E R G Y I N S I G H T S O P I N I O N

When a major event strikes the oil and gas industry — a change of regulation, a health and safety incident, or similar — it never affects just one company. It impacts the entire industry. This is why oil and gas companies — traditionally not inclined to share information with competitors — are gradually exploring new ways of collaborating to solve shared challenges.

This is not always easy. The data involved may be commercially sensitive; it may be subject to local data protection rules; the volume of data is often so substantial that it is not practical to share it; there is then the issue of safely sharing information with a huge number of contractors and with joint venture partners that may need to use it.

IDC Energy Insights believes that the initiative launched by Exploration & Production (E&P) Information Management Association on the Norwegian Continental Shelf is an inspiring and innovative best practice collaboration — with License2Share, Norwegian Continental Shelf operators came together and solved shared challenges around licensing information management.

THE IMPERATIVE FOR COLLABORATION

Oil and gas companies operate in a difficult and uncertain political and environmental landscape. Global demand for oil and gas is back on the rise, while E&P costs are rising. Company executives have never been more challenged by pressure to control costs and speed up reserves development activities and operations. IDC Energy Insights believes some of the major industry challenges are best tackled through a collaborative approach:

● With the so-called ending of "easy oil" — and gas — the pressure to meet future energy demand while securing the industry's own future has increased. As investments for deep oil or unconventional resources are significantly more substantial, oil and gas companies have sought solutions to mitigate and spread risks through global alliances, M&A activities, internationalization, and innovation, including technological innovation.

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● In order to mitigate the risks of drilling, and more generally of large E&P investments, oil and gas companies have formed joint ventures (JVs). Decisions on budgets, procurement, drilling, and at the later stage on production, transport, and compliancy reporting need to be taken collaboratively and effectively. The global and dynamic nature of these relationships makes the role of the JV administrator very complex: collaboration tools need to show a clear, positive impact on operational effectiveness and improve processes such as ease of communication and reporting.

● Recent environmental disasters have led to additional environmental, health, and safety concerns, and regulators are evaluating more stringent controls. Proactive, collaborative, and industry-led initiatives to produce comprehensive regulatory reporting are preferable over obligations to fill in bureaucratic forms.

● As sustainability issues (affecting people, the planet, or profits) become more global in their impact, more standardized processes and collaborative technologies and tools are being developed to tackle the inherent complexities of the industry.

● The time it takes to complete major infrastructure work (such as exploration or production rigs and refining capacity) do not need to be impacted by ineffective JV operations.

● Oil and gas companies are struggling to find the balance between embracing sustainability and green/environmentally friendly practices, while facing the need to gain permission to expand their operations into more challenging territories or to develop unconventional resources.

T h e V a l u e o f C o l l a b o r a t i o n

Rethinking and indentifying new opportunities for collaboration enables oil and gas companies to anticipate risk effectively, improve performance, operate more efficiently, and respond to emerging trends and challenges. Following are a few examples of areas that are benefitting from increased collaboration.

Collaboration to Safeguard Health, Safety, and the Environment

Developing and operating oil and gas fields involves the collaboration of many players: operators, JV partners, specialized contractors, and local governments and authorities. All these are often simultaneously involved with the same assets, so in order to streamline processes, mitigate risks, and best handle any problems that might arise, an information sharing platform is highly desirable. This allows all involved parties to have the appropriate level of understanding to organize themselves to manage risks, and act promptly if problems arise. The ability to rapidly act in the event of an emergency is crucial. Insufficient or inconsistent information can cause delays in reaction

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time, sometimes turning problems into disasters and disasters into calamities.

Collaboration for Effective Operation and Risk Mitigation

Sharing operational information has a lot of benefits compared with exchanging data and reporting to partners in a joint operation. Inefficiencies are unaffordable, as they can lead to missed deadlines, lower production output, rescheduling of very expensive infrastructure, and longer time to "first oil." To limit the financial damages caused by delays or downtime, a proper orchestration of information flows is critical and must be backed by adequate supporting collaboration tools. All the involved parties need access to the required information — no more, no less — that can affect their work. This would enable, for instance, the timely exchange of data with contractors or the management of a multiparty workforce. Excellent collaboration capabilities enable people in diverse locations to really work globally as a team, allowing companies to optimize scarce or highly skilled resources.

Collaboration to Reinforce Compliance

The value of high-quality information-sharing goes beyond collaboration for improved efficiencies, into the realm of compliancy. Compliance infringement is a type of risk oil and gas companies cannot afford to take. They need to operate according to a multitude of local, national, and international regulations and controls, and be able to report the appropriate data to the relevant organizations, be it a national authority or a partner in the joint venture. Once an exploration permit or a production license is obtained it needs to be managed during its entire life cycle.

Collaboration to Safeguard Knowledge

Another risk related to the complexity of joint ventures is that often valuable information can be lost among partners. Many of the assets employed by the oil and gas industry are built by one firm, operated by another, and maintained by yet another. Valuable knowledge gained during the build phase may be lost as the asset passes from construction to operation. By sharing information and lessons learned among the involved organizations, operating and maintenance costs can be significantly reduced.

E N A B L I N G C O L L A B O R A T I O N

E l e v a t i n g C o l l a b o r a t i o n W i t h C l o u d - B a s e d S o l u t i o n s

For oil and gas projects, considering the number of parties involved, the geographic spread of these parties, and the amount of data being dealt with, collaboration via an information-sharing platform such as the cloud is a promising option.

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A private cloud-based solution is a good choice as it guarantees standard procedures for all parties. Also, a shared industry cloud platform, such as RigNet/SOIL, is even more able to address security concerns. According to IDC Energy Insights' International Survey on Security Governance, Risk, and Compliance, cloud adopters' key security issues when introducing cloud computing services into their organizations are dominated by data protection and compliance issues (25%), including data control over the cloud, privacy, and data localization issues. IDC Energy Insights, however, believes these fears may be misguided:

● Organizations that are wary of cloud because they believe their data will necessarily be more secure when kept within the confines of their organizations need to consider that as many as half of all security breaches are caused internally, by accident or by design.

● Serious cloud providers are likely to be as good as or even better than companies' internal IT organization because they can leverage their scale to keep up with the latest technologies and hire the best staff, and due to the scrutiny to which their procedures and policies are subjected by customers and regulatory authorities.

● A significant shortage of skilled IT security specialists puts a price and availability premium on their heads, and attracting and retaining such skilled staff is difficult.

Customers need to ensure that service providers have undertaken external auditing and that they have security certifications. This does not transfer ownership or responsibility for data security and integrity to the service provider, as the customer is ultimately responsible, but it does lay the foundation for serious information security governance.

I n f o r m a t i o n S e c u r i t y i s N o t T h r e a t e n e d b y C o l l a b o r a t i o n

Oil and gas companies deal with extremely sensitive data. Collaboration inherently requires increased data sharing, but this does not necessarily mean increased threats to data security and protection. In effect, data security and data protection can be guaranteed, even in collaborations where data sharing is a must, through appropriate data protection measures and processes and adequate data management. As oil and gas projects become more complex, involving ever more entities, more stringent data protection processes must be put in place, and data access and data handling must be scrutinized to ensure that rules are respected. In the best practice case study in the next section, security is stringent and each access is handled according to strict identity management rules. The myth of increased collaboration and a greater number of participants not respecting data protection must be dispelled, as data security can be guaranteed if the correct measures and policies are in place.

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THE B EST PRA C TICE

E & P I n f o r m a t i o n M a n a g e m e n t A s s o c i a t i o n a n d i t s L i c e n s e 2 S h a r e : A n E x a m p l e F r o m t h e N o r w e g i a n C o n t i n e n t a l S h e l f

Members of the Exploration & Production Information Management Association (EPIM) operate exploration permits, production, transport licenses, and joint ventures involved in activities on the Norwegian Continental Shelf (NCS). Members include leading global oil and gas companies such as Chevron, ConocoPhillips, ExxonMobil, BP, Statoil, ENI, Total, and GDF Suez. In addition, observer members include the Climate and Pollution Agency, the Ministry of Petroleum and Energy, the Norwegian Petroleum Directorate, and the Petroleum Safety Authority Norway.

EPIM's mission is to make available IT solutions that facilitate the best possible flow of information between its members. By working closely with oil and gas companies operating on the NCS, EPIM aims to identify areas where, by introducing collaboration platforms, it is possible to improve information quality and flow, minimizing the risk of inconsistent versions, reducing handling times (retrieval and version control), and lowering costs for each individual operator. All this needs to be done without impacting competition between companies or joint ventures.

EPIM provides a number of services, and one of the most successful is License2Share (L2S), implemented and operated on behalf of EPIM by Logica.

What is License2Share?

License2Share (L2S) is the official communication and archiving tool for administrative interaction between operators, partners, and authorities for all licenses on the Norwegian Continental Shelf. The application, which runs in a private cloud environment, is designed to meet the requirements for information handling as stated in the license agreements and encompass functionalities for publishing and reporting, managing workflow and approval documentation, archiving, and providing assistance for user training.

L2S is currently used by 76 companies (operators and partners) and by the Norwegian authorities. It has more than 6,000 users, and every day has an average 800 to 1,000 unique log-ins. Role-based views are created for joint venture administrators. Security is stringent and each access is handled according to strict identity management rules. L2S is the de facto enterprise content management system for license data throughout the lifespan of oil and gas fields. The standardized processes and practices embedded in the solution are built on more than a decade of operator experience in the NCS, and are a best practice reference. For this reason, adoption of the service by each user requires very limited customization (which is easily done during configuration), and some functions are mandatory and not subject to

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change. Lean interfaces are also provided to integrate information into companies' own systems.

EPIM chose Logica to provide system integration services to implement L2S and to migrate data from previous platforms. Logica is now responsible for the outsourcing services, as well as user support services based on OpenText Content Lifecycle Management software.

L2S: The Value of Collaboration

L2S brings together JV parties with disparate processes, data from various sources, and applications into a single collaboration platform. The key business value of the initiative is that companies recognize that the collaboration does not jeopardize competition, but actually streamlines work processes, making them more effective and reducing information risks and costs. "All players involved are confident that they are all gaining from collaboration," said Ove Ryland, managing director, EPIM. "They can count on L2S to fulfill regulation requirements in a very effective and predictable way." L2S facilitates the information sharing inside each JV operating on the NCS, and simplifies the process for companies deciding to join or leave a joint venture.

A key success factor of the initiative is the pragmatic approach taken for its implementation. Experts from the key operators worked together to define standard procedures or data formatting and reporting, looking for a best practice solution that would satisfy the requirements of both companies and regulators. The same approach is followed for any additional new functionality that is implemented. By doing so, any adopter can count on a "best practice" solution built on the industry's concrete experiences. In addition, companies might have different roles in various JVs, being an operator in one and a partner in another, for instance. By adopting the platform they get consistency across licenses.

To summarize, the key advantages of L2S are:

● Reliable administration and archiving of JV documentation

● Reliable collaboration on events, compliance, and legal document sharing and data management

● JV life-cycle content management of different document types, traceable and time stamped

● Easy alignment to changes in the JV life cycle

● Compliance with local legislation, including the flexibility to incorporate future changes in legislation

● A private cloud-based solution that is easily extendable and scalable

● A proven and accepted industry concept

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C A N D I D A T E S F O R C O L L A B O R A T I O N

Joint venture partnerships span the entire oil and gas industry, both upstream and downstream. There are a number of situations where a solution such as L2S could be effectively adopted. The best practice example described above proves that regulators are excellent candidates for adoption. IDC Energy Insights would expect interest from other entities, such as the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE) in the U.S.

In addition to the regulators themselves, there are three other prime collaboration candidates: deepwater, shale, and LNG. Deepwater assets require multibillion-dollar investments over extended periods of time, and this alone leads operating companies to de-risk large portfolio investments by sharing the costs through joint ventures. The wave of unconventional shale investment in North America, started by independents, has attracted numerous investors, from the "super majors" to international independents and national oil companies. Many of these investments have been through joint ventures and partnerships, making them strong candidates to seek better ways to collaborate. Finally, there is the LNG market, in which by nature multiple parties are involved throughout the value chain, from gas producer to liquefaction plant to wholesale gas consumer, making them excellent candidates to share information.

C O N C L U S I O N S

Collaboration, when done effectively, allows oil and gas companies to mitigate risk effectively, improve performance, operate globally more efficiently, and solve shared challenges. IDC Energy Insights recommends the following to oil and gas companies:

● Sharing specifications, drawings, and other documents, while insuring appropriate approvals, has always been labor intensive and subject to version confusion. Alternative approaches, such as L2S, need to be evaluated and more often translated into practice. Often it is not true that collaboration is not possible due to competition among players.

● Challenge the myth that collaboration equals weaker information security, and keep a close eye on evolving information technologies such as cloud. Though oil and gas companies have been slow to adopt some of these technologies, the technologies are gradually becoming part of organizations' set-up, bringing significant benefits to a number of critical business activities.

● When adopting cloud solutions, the location of data storage is a key piece of information in that data storage must be subject to privacy and usage regulations depending on the country or region. Data handling, segregation, and encryption, including availability issues, must be evaluated. Should there be a requirement for a legal investigation involving inappropriate activity, the cloud vendor

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must be able to demonstrate where the data is and that its movements can be traced. Customers must ask for identification of key personnel, such as administrators with privileged access, along with hiring policies and employment cessation processes.

● Finally, detailed processes and agreements must be in place for data recovery, replication, infrastructure replication, and service restoration in the event of an interruption or disaster.

ABOUT LOGIC A

Logica is a business and technology service company employing 41,000 people across 40 countries. Logica provides business consulting, systems integration, and outsourcing to clients around the world, including many of the Global 500. Logica creates value for clients by successfully integrating people, business, and technology. Logica is committed to long-term collaboration, applying insight to create innovative answers to clients' business needs. It has worked in the oil and gas industry for over 30 years, with oil majors, regional operators, and service companies, throughout the world. Logica helps its clients harness technology to extract more value from every single aspect of their supply chains, whether that involves improving decision making in rigs and refineries, making distribution networks run more efficiently and sustainably, improving health and safety, making trading decisions, or restructuring their businesses. Logica is listed on both the London Stock Exchange and Euronext (Amsterdam). For more information, please visit www.logica.com.

ABOUT IDC ENERGY INS IG H TS

IDC Energy Insights provides research-based advisory and consulting services focused on market and technology developments in the energy and utility industries. Staffed by senior analysts with decades of direct industry experience, IDC Energy Insights covers the energy value chain — upstream, wholesale, delivery, and customer service — providing independent, timely, and relevant analysis focused on key business and technology issues. IDC Energy Insights serves a diverse and growing global client base, including electric, gas, and water utilities; IT vendors; independent power producers; retail energy providers; oil and gas companies; equipment manufacturers; government agencies; financial institutions; and professional services firms. IDC is a subsidiary of IDG, the world's leading technology media, research, and events company.

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