M A R K E T S P O T L I G H T

Migrating to Cloud: The Business Value for Oil

and Gas
September 2014
Adapted from Business Strategy: Cloud — More Traction in Oil and Gas, by Jill Feblowitz, Usman Sindhu,
Roberta Bigliani, Gard Little, IDC #EI235384
Sponsored by CSC

Introduction
IDC Energy Insights research shows that oil and gas companies are becoming more receptive to
using the cloud and deriving the benefits:

 Reduced cost

 Quick deployment

 No need for capital investment in IT

IDC Energy Insights believes that now is the right time for oil and gas companies to develop a cloud
strategy. Companies will need to examine where various cloud models — private, public, and hybrid
— can be deployed in the industry to achieve benefits while still meeting requirements for security.
We see the most potential for business-related cloud applications in supporting collaboration for large
capital projects and joint ventures, environmental health and safety, and seismic processing.

Cloud Adoption in Oil &Gas

Oil and gas companies have approached cloud with caution, but they are increasingly deploying
cloud services. Energy companies have carefully weighed whether they should opt for a public cloud
versus a private one, and which applications are fit for deployment via the cloud. For the most part,
the industry has opted to use cloud for generic purposes. For example, cloud is being used or
considered for infrastructure such as data backup and archiving and data storage (raw data, backup,
archiving, email storage).

Generic business functions like payroll process and procurement are being run through the cloud,
along with customer relationship management, likely through software-as-a-service offerings that
have become well-known. Another fairly generic application is for collaborative applications such as
email, group calendaring, and messaging. Entrepreneurial independent upstream oil and gas
companies primarily involved in unconventional shale gas and tight oil initiatives have adopted cloud
to perform these functions.

Because of security considerations, the oil and gas industry generally prefers private cloud over
public cloud for core applications (see Figure 1).

IDC 1755
 Figure 1

Cloud Adoption Plans — Oil & Gas vs. Other Industries

n = 146
Source: IDC IT and Communications Survey (U.S.), 2013

There have been several applications of cloud for exploration and production; the following are
proven uses of the cloud as applied to the oil and gas industry:

 Document management and workflow for large capital projects. Unlike more general
collaboration technology such as calendaring and email, the collaborative environment is fit for
use for the oil and gas industry, mainly because there are many players in the capital project
ecosystem. For one thing, major capital projects like new oil wells in deep water are so costly that
these are accomplished primarily through joint ventures. For another, there are a host of
suppliers that support capital projects – design and engineering, oil field services, construction

2 ©2014 IDC
 contractors, etc. Each of these parties needs to have access to the latest approved specifications
and drawings

Of note is the use of a private cloud for exchange of documents and creation of workflow in the
Norwegian Continental Shelf. The Norwegian Continental Shelf (NCS) operators formed a
consortium in 2007 called the Exploration and Production Information Management Association
(EPIM) to provide information technology solutions that facilitate the best possible flow of
information among any and all users. A cloud-based solution now provides communication and
archiving for administrative interaction between operators, participants, and authorities for all
licenses on the NCS.

 High-performance computing. Oil and gas companies have used the cloud to handle peak
computing capacity needs for seismic processing and reservoir simulation that cannot be handled
in-house.

 Software testing as a service. This use of the cloud involves testing preproduction systems for
security, integration, and validation that variations of industry standards such as PRODML and
WITSML are working together. While this application does not work on data itself, it is used to
pretest systems.

 Software as a service. Environmental health and safety, hydrocarbon accounting, along with
energy trading and risk management applications, are being successfully deployed in a software-
as-a-service (SaaS) delivery mode. In particular, hydrocarbon accounting has been deployed in
areas where oil and gas companies are interested in entering new trading markets, but are not
yet ready to establish a presence. There is even one recent example of a drilling company
implementing cloud-based ERP, an ideal application for managing companies consisting largely
of hotel-like drilling rigs.

Most oil and gas companies are balancing the opportunities versus the risks in considering whether
to adopt cloud technologies. On the one hand, cloud enables increased collaboration and can result
in decreased operational costs due to reduced infrastructure investments, quick deployment, and
flexibility of use. That said, security concerns persist over cloud deployment. IT security remains the
number one priority for the industry, and many CIOs have had doubts about the security of the cloud
and the ability of cloud providers to offer data privacy.

However, there is evidence that the industry is becoming more receptive to cloud technologies. Cloud
will likely be used in less-sensitive applications. Collaboration is becoming critical for many O&G
companies, due to skills shortage, internationalization of operations, and growing importance of
collaborative work with business partners. Sensitive information needs to be shared with
stakeholders, remote teams, suppliers, and JV partners to maximize productivity and knowledge
transfer. Deployment of cloud-based solutions for document management would enhance the
collaborative experience and allow the O&G companies to eliminate decentralized systems with a
central repository across multiple locations and business units.

The pursuit of resources has become more and more expensive, and pressure from shareholders
about performance has oil and gas companies looking to reduce costs. This makes cloud a more
attractive solution for oil and gas companies as a way to reduce operating costs and reserve capital
for investment in energy-producing assets. As a result, O&G organizations are gradually evolving
from the "hype" phase of cloud adoption, and IDC anticipates reasonable uptake in the near future.

IDC believes that even though currently there's a preference for private cloud deployments, O&G
organizations will eventually settle for hybrid models with certain noncore components being moved
to public cloud. Independents and smaller O&G companies will be leading the way in terms of cloud
adoption; International Oil Companies (IOCs) will likely follow. IDC Energy Insights sees cloud-based

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petro-technical applications eventually coming to the market. However, it's unlikely that process
control systems will be run in the cloud in the near future, given security considerations.

Cloud as Part of a Future Resilient System

As the future unfolds, change will be the rule rather than the exception. With so much change in the
industry, IDC Energy Insights sees the need for oil and gas companies to adopt resilient systems.
Applying the concept of resilience to business has raised the level of discussion in business with the
publication of books and articles by Andrew Zolli and Ann Marie Healey.

A resilient system, according to these authors, is a system that has the "ability to adapt to changing
circumstances while maintaining its central purpose." For example, an ecosystem like a coral reef,
which may lose a species that controls keeping algae in check, comes to depend on other species in
the reef to perform that function. This ecosystem is resilient to the extent that it responds to changes
by adaptation so that it does not degrade. The result is a "new normal."

For the past five years, IDC has predicted and chronicled the IT industry's massive and disruptive
shift to a 3rd Platform for innovation and growth — built on the four technology pillars of cloud,
mobile, Big Data/analytics, and social technologies. The 3rd Platform will obviously disrupt every
industry, including oil and gas. IDC predicts that by 2018, market share leaders in most industries will
be significantly disrupted by new competitors (and "reinvented" incumbents) that use the 3rd Platform
to create new offerings, new business models, and new cost structures to drive revenue growth and
expand value.

IDC Energy Insights expects that development and production will be two areas where the oil and gas
industry will apply the 3rd Platform to advance. As the oil and gas industry moves to the "resilient
oilfield," the industry transformation will be supported by a mash-up of different combinations of Big
Data and analytics, mobility, cloud, and social business to inform drilling, optimize production,
maintain asset integrity and arrive at the best logistics. For example, mobility, cloud, and big data and
analytics will come together to support real-time drilling. The cloud will also be used alongside of big
data and analytics to support operationalized asset management for rig equipment.

Conclusion and Recommendations

Forward-looking energy companies seeking to deploy cloud services are finding that they need to
engage with services firms to help them define a cloud strategy and understand how to construct
contracts that have the right service-level agreements (SLAs) to protect their interests. About a
quarter of large enterprises across all industries are engaging with service providers for cloud
strategy and assessment services; architectural, pilot, or proof-of-concept services; or for services to
build, test, migrate, and deploy cloud services.

IDC Energy Insights recommends the following actions for energy companies to consider:

 Choose a service management framework. Service management frameworks will be essential

in managing complex hybrid clouds, as well as outsourced and in-house services. IDC Energy
Insights believes that ITIL V3 Service Strategy and Service Design will become the primary
activities for managing hybrid clouds and service architectures.

 Dedicate appropriate attention to your cloud contracts and SLAs. To obtain cost advantages
from cloud, companies must be prepared to undertake a rigorous evaluation exercise in vendor
selection and spend the appropriate budget and time to mandate tight service-level agreements
for reliability and performance. Ongoing monitoring and reporting must be mandated.

 Establish security SLAs with the cloud provider and understand how they handle sensitive
information. Minimally, cloud providers should offer encrypted communication, strict access

4 ©2014 IDC
 control (role-based access), intrusion prevention, data leak prevention, malware detection, and
identity management — built in to their infrastructure. In addition, energy companies should
include an additional layer of security on their end, such as host intrusion prevention, Web
security, and threat detection tools. For companies that have regional privacy laws limiting the
use of cloud services, they should ask about the locations of providers' datacenters and inquire
how compliance laws are addressed.

Finally, in-house deployment capabilities should be replaced with capabilities to cleverly select and
orchestrate services on the market. Evaluate the systems integration skills and experience of
prospective vendors and give them a higher weighting in comparisons, even if your initial project is
simply a cloud strategy or an assessment.

A B O U T T H I S P U B L I C A T I O N

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©2014 IDC 5