The Services Research Company HfS Blueprint Report Energy Operations 2017 Excerpt for Infosys August 2017 Derk Erbé Research Vice President [email protected] Table of Contents Topic Page Executive Summary 2 Key Market Dynamics in Energy Operations 11 Contract Data Analysis 25 Market Forecast 30 Research Methodology 32 Service Provider Grid 37 Service Provider Profile 43 Market Wrap-Up and Recommendations 45 About the Author 54 © 2017 HfS Research Ltd. Excerpt for Infosys Proprietary │Page 1 Executive Summary Introduction to the HfS Blueprint Report: Energy Operations n The HfS Research Blueprint Report for Energy Operations provides a comprehensive overview of services for the oil and gas industry. This Blueprint looks at business process outsourcing, information technology outsourcing, and engineering services across the oil and gas value chain areas of upstream, midstream, and downstream, and cross value chain BPO and engineering and ITO services. n This report analyzes and reviews how the market is evolving toward more business-outcome focused, flexible, and collaborative services, and how service providers are meeting the needs of oil and gas clients. n The HfS Blueprint includes profiles and assessments of 13 service providers of energy operations services. n Unlike other quadrants and matrices, the HfS Blueprint identifies relevant differentials between service providers across a number of facets in two main categories: innovation and execution. The assessment of the 13 service providers is reflected on the HfS Blueprint Grid. n The HfS Blueprint Grid recognizes up-and-coming service providers (High Potentials) that are scoring higher on innovation criteria than on execution criteria as the providers build these practices. The Grid includes a group of established, high-execution service providers (Execution Powerhouses) that have built effective delivery operations but need to innovate capabilities and offerings further. They are in addition to the rankings for highest overall performance (Winners Circle), and strong combined innovation and execution performance (High Performers). © 2017 HfS Research Ltd. Excerpt for Infosys Proprietary │Page 3 Oil and Gas Value Chain: Business Processes, IT, and Engineering Upstream Midstream Downstream Exploration, Development, and Marketing and Transportation Refining Distribution Production Retail • Asset management • Linear asset • Emission • Terminal operations • Energy marketing • Asset integrity management management (pipeline management • Distribution services operations, modelling, • • Digital oil field management Integrated refinery management • Retail and franchise surveillance) information systems operations • Drilling and well completion management • Transportation • Plant operations • Energy trading and • Petro technical computing infrastructure operations • Refinery production risk management • Reservoir engineering management planning and • Upstream accounting • Supply and trading scheduling • Upstream engineering and R&D • Supply planning and • Production optimization sourcing • Upstream data management • Field development and planning and contract management Cross Value Chain BPO and Engineering Analytics (customer, marketing, asset), capital project management, customer experience management, digital transformation services, field force and workforce management, finance and accounting (including complete hydrocarbon accounting), HR and learning, knowledge management, legal services, MRO services, PLM services, procurement, product design and engineering services, sales and fulfilment services Cross Value Chain ITO Application development and maintenance services, end user computing services, enterprise content management, environmental, health and safety systems, GIS services, IT operations, IT security management, mobility and IOT services, SAP/Oracle oil and gas ERP implementation and management HfS Value Chain Definition: Value chain refers to the series of departments that carry out value-creating activities to design, produce, market, deliver, and support a company’s product or service. In this usage, we refer to the range of primary processes and support services that providers offer to their clients. © 2017 HfS Research Ltd. Excerpt for Infosys Proprietary │Page 4 Key Highlights – State of the Energy Operations Market n Energy is in a Perfect Storm: The term “Perfect Storm” is used to describe an event in which a rare combination of circumstances drastically aggravates the outcome. The world of energy (both the oil and gas industry and utility industry) is in a Perfect Storm. Rising social and political pressure in conjunction with technology advances and economic shifts are combining to create a positive atmosphere to address the energy transition in order to lower carbon emissions, one of the biggest challenges of the coming decades. This energy transition will have tremendous impact on the oil and gas industry, and the impact is felt today and will be amplified over the next decades. n The Rise of Natural Gas: Natural gas has replaced coal as the cheapest source for power generation. It’s not only much cleaner, it’s now also cheaper. Solar and wind have become economically competitive alternatives, with many wind and solar projects now cheaper than generating power from coal, oil and even natural gas. In any case, the demand for natural gas continues to grow and it is seen as a bridge fuel in the energy transition, and is a big driver for the North American shale revolution. n ”Lower for Longer”. Dealing with Sustained Lower Price Environment: In 2016, the oil price reached lows of under $30 per barrel. Now the price of oil has rebounded to around $50 per barrel. In a world of high oil prices and cash abundance, most oil and gas companies let inefficiencies exist. Now there is a strong imperative to find new efficiencies, optimize production, decrease capital needs, and take advantage of data. In 2017, the name of the game for oil and gas still is: Figuring out how to operate in a “lower for longer” environment and be profitable with the oil price between $45 and $55 per barrel. This means fixing the basics and leveraging new technologies by investing in digital transformation and new operating models. Service providers play a role here, bringing more efficiency into processes, fueling innovation, implementing new technologies, and preparing oil and gas clients for a new era. n Innovation Rapidly Becoming a Hygiene Factor in Energy Operations: Service providers are expected to incorporate innovation in services and constantly bring the cutting-edge of technology to the client’s attention as the focus shifts on the capabilities that truly extend clients’ operations. © 2017 HfS Research Ltd. Excerpt for Infosys Proprietary │Page 5 Key Highlights – State of the Energy Operations Market n Outsourcing and Automation Are Key Levers: As the focus of the industry continues to be on cost reduction, production optimization, and operational efficiency, automation and outsourcing are two principal levers available to the industry. Oil and gas executives are forced to have a good look at their strategy. In the 2016 Blueprint we noticed leaders asked themselves these key questions: n What is the core of our enterprise? n What do we need to do internally that differentiates us from the competition? n What parts of our processes can we automate? n Can we outsource what we can’t automate? In 2017, the effect is noticeable in the priorities of oil and gas executives, the expectations they have of service providers, and the emphasis on automation in engagements. Now, new questions are added: n How do we speed up digital transformation? n Who are the right partners to drive digital transformation? n Who are the credible innovation partners for us? n Buyers’ Perception of Service Providers Becoming More Strategic: A pivotal changing dynamic in the market is how buyers look at their service providers. With the renewed focus on outsourcing as a lever to deal with the pressures in the volatile business environment, oil and gas clients tell us they look beyond labor arbitrage and see service providers as an extension of their organization. They want deeper relationships with their providers and to forge stronger ties between internal and external staff. They look at their service provider(s) to help the organization become more flexible and scalable, ramping up and down in the cyclical business of oil and gas. n Proactive Innovation: Service buyers HfS interviewed during the Blueprint research process expressed a desire for more proactive innovation from their service provider. Clients want their service providers to be innovation partners, driving new ideas and engaging on all levels of the client organization. © 2017 HfS Research Ltd. Excerpt for Infosys Proprietary │Page 6 Key Highlights – State of the Energy Operations Market n Heterogeneous Providers Focus on Diverse Client Needs: Most of the 13 service providers covered in this Blueprint have a unique set of offerings and capabilities for addressing clients’ needs. There are a couple of clusters of expertise to be identified in the field of service providers. Some, like HCL, focus on a specific area of the value chain, others, like TCS, Infosys, NTT DATA, LTI, Wipro, Accenture, IBM, and Cognizant, focus on strong domain expertise and consulting-led delivery while others, like EPAM, Atos, Luxoft, and Tech Mahindra, lead with engineering or digital transformation with credible experience from other industries.