Energy: Big Oil Seeks IT Standards

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September 22, 1997

ENERGY:
Big Oil Seeks IT Standards

'Do more with less,' is today's mantra; to that end, IT is playing a pivotal role
By Stuart J. Johnston
IW 500 slug he Next Year is bound to see big changes in the oil and gas business as more energy companies merge or form partnerships with competitors. At the same time, technology managers will face escalating pressure to provide more useful IT services at lower costs.
The oil and gas business has long been highly competitive, and it's getting more so by the day. "There is a very strong requirement to lower co st while producing higher reliability, and providing global reach and infrastructure services," says Jim Crompton, principal technology adviser at Chevron Information Technology Co., Chev-ron Corp.'s IT arm.
Today, doing more with less reigns supreme in the oil and gas industry. That mantra is behind several technology trends, all of which are interrelated.
If there is one overriding trend, says Bill Miller, a partner in the Americas energy practice at Andersen Consulting's Houston office, it is a "tremendous pressure to bring costs down." However, he says, "It's difficult to isolate a single trend, because they're all coupled."
One of these linked trends is a movement to decrease the amount of custom code used, and increase the amount that is standard across the industry. For instance, several oil companies are in the process of deploying IS-Oil, a common set of core business applications based on SAP's R/3 3.0 applications set. A consortium of 21 oil companies, in partnership with Andersen and SAP, aims to help contain costs.
Deployment of IS-Oil has just begun, and it will be several years before all the 21 companies have implemented it throughout their enterprises. "That process started one to two years ago and will continue through the year 2005," says Miller.
Chevron will be the first to implement IS-Oil on the "upstream" side-finding and extracting oil and gas deposits-although other major energy companies are sure to be close behind, says Crompton.
IS-Oil is only one of many enterprise resource planning applications finding their way into the oil and gas companies. Because of their large size and wide variety of business activities, energy companies have a huge investment in IT. But applications suites that let IT oversee the entire enterprise have been lacking. In this respect, fixing the year 2000 date-field problem has served to push innovation at many oil and gas companies.
Confronted with the choice of fixing older programs they need to run their businesses or deployi ng new ones to take over those tasks-while at the same time providing enhanced oversight on the enterprise-many companies are choosing the latter. "The year 2000 will force companies to look at software that they wouldn't have looked at two years ago, and IS-Oil is a perfect example," says Scott Albro, a senior analyst at IT advisory firm G2 Research Inc. in Mountain View, Calif.
"A lot of companies have decided that rather than just fix the year 2000 problem, 'Let's go to client-server,'" says Miller.
Nevertheless, IT managers in this industry are not entirely sold on the move to client-server. Between the year 2000 and the need to consolidate systems as more companies merge, to some it seems like swimming to stay in place.
Consolidation projects and fixing year 2000 problems "consume resources, and they don't gain you anything. You just get back to where you started," says Gary Richardson, director of IT at Star Enterprise, a joint venture of Texaco Inc. and Saudi Aramco, which sells Texaco's pr oducts in the Eastern and Gulf Coast states.
That ties in with another growing trend, a move by some energy companies to migrate more business applications onto Microsoft's Windows NT as well as onto stalwarts such as Unix. "When we've looked at SAP, NT is the application server of choice on over half the shipments," says Dan Kusnetzky, director of the client and server environments programs at advisory firm International Data Corp. in Framingham, Mass.
That doesn't mean that NT is undercutting Unix, since Unix shipments continue to grow as well. In fact, fixing the year 2000 problem and moving to applications suites may play in both NT's and Unix's favor, in the oil and gas industries and others.
Train Once, Run Anywhere
But that could change over time if NT's penetration continues. "NT runs the same on any vendor's system, and that answers a lot of problems for companies because you train your users once and they can run their applications anywhere. It would also diminish operations costs," Kusnetzky adds.
However, even companies that have made a large commitment to NT, such as Chevron, will still deploy IS-Oil on Unix. "It was probably more of a comfort factor for Unix rather than a technical issue because the decision was made three or four years ago," says Chevron's Crompton. "It takes a long time to deploy technology like that in a company of our scale."
Indeed, NT still has a lot to prove before most IT departments trust it with applications such as IS-Oil, says Andersen's Miller. "I don't think you're going to see them jump on the NT bandwagon just yet."
For now, NT is gradually working its way into the hearts of IT managers, but Unix still maintains its hold. The introduction of Microsoft's enterprise editions of NT Server and SQL Server may change this situation. While NT has succeeded as an application and department-level server, it has been repeatedly stymied in taking over enterprise applications because of its lack of scalability-both real and perceived.
The Enterprise Edition of NT Server, due this month, will let NT run on machines with as many as eight processors and cluster a pair of machines together so one takes over the other's tasks if it fails. Enterprise Edition of SQL Server will be able to handle up to 1 terabyte of data, moving it closer to the levels of data storage and access required by companies with huge data stores.
"I certainly want NT to work for a lot of reasons, including that it is the cheapest and the best operating system out there today," says Richardson. "Scalability is still a problem. In 1997, will NT be the central server? No. But, in the year 2000, you may see NT invading the upper levels of Unix."
In Focus
Meanwhile, the adoption of products such as IS-Oil will help oil and gas companies oversee their entire enterprises. "ERP runs dead last in terms of current systems adequacy, so that's why they see a big opportunity there," says G2 Research's Albro. "The great thing is that these integrated applications suit es let people throughout the organization, but especially in the executive suite, get an overview of the whole business. ERP is about access to information and, in particular, about access to financial information."
Broad access is extremely important in hard-pressed oil and gas companies that constantly feel the pressure of falling profit margins and the accompanying mandate to drive IT costs ever lower.
ERP packages also provide a common data format that allows companies to share necessary information with suppliers and partners. "We've been saying for a long time that we need business process reengineering and all of those things, and if IS-Oil is a manifestation of that, then that's a positive," says Star's Richardson.
With the constant drive to lower costs, it should also be no surprise that more IT functions are being outsourced. Chevron Corp., for instance, just inked a deal with Vanstar Corp. to outsource PC and help-desk management. It also will lease its desktop PCs and notebooks-a tota l of more than 30,000 machines-on a three-year rotating basis from Hewlett-Packard. The total value of the contract is in the neighborhood of $200 million.
To Outsource Or Not To Outsource
Oil and gas companies are still learning which functions can be effectively outsourced and which cannot. The lure of outsourcing, of course, is replacing staffing costs, which can be large and unpredictable, with a fixed-cost contract. But the downside is that the fixed-cost contract can turn into a nightmare of finger-pointing and buck-passing as each outsourcer says a specific problem is not covered under its agreement.
Outsourcing is really tough because each firm only does one facet of it, so what one group currently does internally might require several different outsource firms. One midlevel manager at a large oil company that outsourced its communications network to a major service provider says the arrangement "didn't really work out and we eventually took it back."
Andersen's Miller feels a lot of guesswork has gone into outsourcing. "If you look at the outsourcing that has been done in the past, you don't see a lot of cost reduction," he says. "People guessed what it made sense to outsource."
G2's Albro notes that outsourcing is "still an area where it's open season and nothing has been decided" about what functions should be taken over by outside companies. "What happens when users start looking at outsourcing is a cost/benefit analysis, and there is a definite pullback."
"My whole labor structure has been discombobulated, because 50% to 60% of my technical coding resources are contracted," says Star's Richardson, adding that contractors cost double what an employee does. But he sees no solution to the problem as schedules for accomplishing projects shrink drastically and specialists, such as competent R/3 programmers, are needed to implement a project but later are no longer required.
"Faster is a trend," Richardson declares. "Now six weeks is the answer to the question--not a ye ar."

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