How Oil Companies Use BI to Maximize Profits
- 08 July, 2008 14:37
Gas tops US$4 per gallon. Crude is trading at all-time highs-above US$140 a barrel. And oil and gas companies are booking fat profits. In May, Exxon Mobil reported US$10.9 billion in profits for its latest quarter, just short of its record-breaking US$11.7 billion the quarter before.
It's tempting-and politically expedient-to explain such astounding numbers by saying that greedy oil companies are taking advantage of market fears, making money on the bent backs of corporate and individual consumers. So many of us, after all, have no choice but to buy fuel. We fill our cars to drive to work, where buildings must be heated in winter, supplies must be shipped, products trucked and executives jetted hither and yon.
Yet economists will counter that taking advantage-spotting a revenue opportunity and moving on it-is exactly what companies should do: That's capitalism. Oil companies excel at identifying where their profit advantage lies. And they obtain that advantage through sophisticated business intelligence systems.
Without good BI, oil companies risk their livelihoods, says David Knapp, a senior editor at the Energy Intelligence Group, an information provider for the oil industry. "Those that have lagged in understanding have lagged in performance," Knapp says. And BI is all about understanding what makes your company-and your industry-thrive. Mortgage lenders, for example, are going under in part because they didn't analyze enough of the right customer data and signed up risky borrowers. Retailers in trouble are studying financial intelligence to determine whether they should seek loans to stay afloat, like Borders Group, or, like RedEnvelope and Lillian Vernon, file Chapter 11.
Oil companies have always lived and died on BI, says Gary Lensing, VP and CIO for global exploration and production at the US$32 billion Hess. "Data drives what we do, always quantifying where that value is."
Hess and its competitors harvest data from inside and outside their four walls, plus they factor in wild cards such as war, weather and global politics. BI in oil and gas isn't a simple matter of buying a set of analysis tools and feeding data into them. Oil companies pass information through multiple layers of software, with nearly every employee focused on collecting and storing some kind of data. Exxon, for example, wants its geophysicists to know Fortran, C and Java so they can code their own, quick analyses. When Hess drills a well, Lensing says, engineers collect status data every 15 seconds.
Typically, specialized applications for oil and gas-such as Geolog from Paradigm Geotechnology (to find patterns in seismic measures) or PDI FocalPoint from Professional DataSolutions (to track gas station store sales in a dashboard)-have their own analysis capabilities. But to get a global view of company performance, that data must be fed into off-the-shelf BI analysis and reporting packages familiar to most CIOs, such as those from Cognos or SAS Institute. Then the companies add supply-chain information. SAP for Oil & Gas modules manages the supply chains at companies like Hess and Valero. Those companies also use at least some of SAP's analysis and storage applications, including Business Warehouse. Oil companies store data in both common databases, such as Oracle, and specialized ones for the oil industry, such as OpenWorks or StratWorks from Halliburton.
When it comes to BI, Big Oil has a big view. "We're not as transactionally driven as other industries," Lensing says. "Are you trying to gain operational efficiencies by squeezing pennies out of transactions, or are you looking at core assets and trying to extract additional value?"
Examine how oil companies approach BI and you will uncover valuable lessons for improving your own BI efforts, whether you're trying to optimize profits or uncover untapped markets.
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