Economic and organizational effects of business ICT systems` evolution in oil and

energy sector

Saša Aksentijević1, Edvard Tijan 2, Bojan Hlača3

1
Saipem Mediteran Usluge
Alda Colonnella 2, Rijeka, Croatia
Tel: +385 51 65 17 00 Fax: +385 51 65 17 81 E-mail: axy@vip.hr
2
University of Rijeka, Faculty of Maritime Studies
Studentska 2, 51000 Rijeka, Croatia
Tel: +385 51 33 84 11 Fax: +385 51 33 67 55 E-mail: etijan@pfri.hr
3
Rijeka Port Authority
Riva, Rijeka, Croatia
Tel: +385 51 35 11 77 Fax: +385 51 33 17 64 E-mail: bojanhlaca.ri@portauthority.hr

Abstract - The past several years in the oil and energy sector
have been marked by the disruptive behavior of the market
shifts and economic cycle downturn: rising oil prices caused
oil and energy sector to explode and then contract, marked
emphasis is on operative cost maintenance, deployment of
inventive ICT deployment strategies and utilization of ICT
services and introduction of new technologies and concepts
while lowering absolute investments value. One of the most
prominent new technologies (although present on the market
for well over a decade in various forms) is virtualization of
software, operating systems and finally, in the last
development step, infrastructure. This technology has allowed
oil and energy sector to align its demands in form of
distributed and remote project execution with technologies
possessing similar characteristics that do not require close
physical presence of resources in order to provide satisfactory
levels of service. This is reflected in paradigm change from
consideration of software, applications and infrastructure
being a service instead of being a tangible asset and platform
being a service instead of a tangible asset. This has allowed
broader usability spectrum of centralized services, flexibility
of usage and lower utilization cost, satisfying primary
motivational drivers behind new technology adoption.
I INTRODUCTION
Oil and energy sector is generally divided into three
distinctive components: upstream, midstream and
downstream. Upstream sector is used to describe
discovery, recovery and production of natural gas and
crude oil. In the commonly used jargon upstream oil sector
is usually referred to as E&P – Exploration and Production
sector. Midstream sector processes, stores, transports and
markets goods like natural gas liquids (LNGs) and crude
oil. Finally, downstream oil sector is a term used to refer to
refining of crude oil and sale and distribution of natural gas
and products derived from crude oil. They also include oil
products like gasoline, diesel, jet fuel, fuel oils, asphalt and
petroleum. Downstream sector is very capital (investment)
intensive as it includes (in its portfolio) petrochemical
plants, petroleum product distribution, consumer outlets,
natural gas distribution companies and oil refineries [1].
II. NEW TRENDS IN DATA MANAGEMENT
It is estimated that the volume of emails grows around
30% every year, and in year 2010 world`s information base
will double in size every 11 hours [2]. Storage demands are
growing and on average the amount of collected and stored
data doubles every 18-24 months [3]. There are additional
requests arising from business requirements motivated by
strict compliance regulations that further push the envelope
so data cannot be easily disposed of, in order to meet strict
compliance requirements. Simultaneously, ICT systems
must keep most of the data readily accessible, regardless of
placement, making dislocation of rarely used data more
difficult and raising the storage cost. Therefore, the
strategy of adding more capacity will not prove to be
adequate – current trend calls for clever new ways of data
management. There are several strategies that may prove
beneficial in order to achieve these targets: Data
compression, Database consolidation (it can be achieved
by introduction of basic principles of information lifecycle
management (ILM) and consequent complete elimination
of redundant, unnecessary or obsolete data) and Data
archiving (data that is accessed rarely and does not require
immediate availability can be offloaded to archive media).
This helps databases to run more efficiently and can lower
the hardware and software cost of hardware storage
devices. It is interesting to note that all three methods, if
deployed properly, can be also used to introduce or
enhance current disaster recovery (DR) and business
continuity plans (BCP).
III. SYSTEM COMPLEXITY AND INCREASE OF
CAPACITIES
The number of hardware solutions, software
applications, various databases and systems deployed is
getting so high, due to increased demands from service
users, that administrators fail to have the complete
overview of the systems they are managing. Even simple
operations and tasks like keeping up with offloading and
application of system and application patches and basic
and routine system maintenance prove to be extremely
demanding in a distributed environment. Separation of test,
roll out and production environments, even with the usage
of virtualization products, makes this problem even more
daunting.
The obvious logical reaction of ICT department
managers is to enhance and increase the capacities, both in
terms of hardware, software, human resources or
outsourcing contracts. However, it is certainly possible to
do “more with less” by simplifying the management,
reviewieving the existing contracts for provision of
services and consolidation. Another strategy that might
prove to be beneficial is process automation – many tasks
in everyday ICT department processes can be automated
which will not only decrease the cost, but will also create
more efficient work environments, decrease errors and
decrease cost. Finally, the outsourcing of non-critical
services can help the permanent staff to work on new or
critical projects while the routine administration,
monitoring and backup management is entrusted to
external partners.
As the systems develop, it is common practice to
purchase additional servers as new services are required.
With time, there is a number of servers that not only take
up space and administrator`s time, but also consume large
amounts of electric energy. Virtualization is therefore a
technology of choice to remove unnecessary hardware
capacities but at the same time to provide redundancy
where needed.
If for some reason virtualization is not possible, another
choice would be consolidation of server capacities using
existing hardware or switching over to modular server
technology. This technology can help reduce maintenance,
management, power consumption and space required to
hold servers, thus enabling to achieve set goals of ICT
systems simplification and enhancement of existing
operations.
Usage of virtualization and consolidation can lower the
planned and unplanned downtime of services and together
with clustering technology can provide automatic
redundancy activation in case of various disasters of
failures.
Finally, if neither consolidation or virtualization are
feasible or practical, it is possible to identify several
critical physical resources and replace them with more
powerful and efficient units.
IV. INTRODUCTION OF NEW ICT TRENDS IN OIL
AND ENERGY COMPANIES
ICT trends in oil and energy sector correspond to those
in general ICT sector, however, there is a distinct
difference caused by the geographic distribution of users to
whom ICT services are provided, so economic and
technical evaluation are not the sole criteria used to
determine delivered services and their quality. Oil and
energy sector, especially upstream, is usually based around
classic business units that cater to needs of projects, whose
execution lasts from several months to several years. The
presence of projects is typically in remote and difficult
areas, that do not offer good telecommunications coverage
and availability of hardware, software and skilled
personnel. Upstream activities are further divided into
offshore, onshore and drilling, each of them having a
unique set of demands that need to be satisfied. Very
often, when deciding about the project delivery, it is very
problematic to deliver the projects to time constraint, even
more than to quality and cost, as the project bidding phase
often immediately precedes project start, so a set of
standards and guidelines needs to be in place for every new
start up.
To make things even worse, governmental information
security requirements in various countries where project
activities are ongoing need to be taken into consideration,
making a fine balance between corporate compliance
requirements, best practices and local legislation.
Generally, the local rules for the usage of Internet are
getting more and more strict so it is a challenge to
implement some of the “usual” technologies that are
perceived as a usual part of technology arsenal in Europe
or United States, for example. Many countries filter the
passing Internet traffic, VoIP technology is limited or not
allowed, there is a number of services that are banned and
furthermore, some countries require internal certification
of used network devices and disclosure of encryption keys
to the government or state body in charge of compliance.
All of these actions and requirements are inevitably
connected with the loss of time, delays and significant
raise in operative expenses for ICT.
However, there is a number of trends that can equally be
identified in all sectors of oil and energy production, that
correspond to general trends in ICT technology nowadays.
Communication and networking devices are not just
computers anymore: users want to be connected
everywhere and in every way. Email is not enough
anymore, users require total connectivity with full quality
of provided services and transport of large amounts of
data, voice and video on all devices, including notebooks
and smart phones, no matter where they are located at the
moment.
There is a change of paradigm from site working to
mobile working. In oil and energy world it does not mean
working from home – a paradigm that was considered as a
disruptive factor before the Internet bubble burst in the
way how we see the liaison between work and private life.
It means that instead of stationary devices (workstations),
notebooks are primary information terminals that use all
connectivity conduits to get connected to company servers,
using encrypted traffic towards company servers.
Furthermore, netbooks and mobile telephones (smart
phones) require the same service reliability and capability.
One of the required abilities for new smart phones and
computing devices is ability to perceive the surroundings
according to physical and logical conditions like
illumination, acceleration, position, proximity, time of the
day etc. We have witnessed introduction of gyroscope
sensory technology and in the upcoming years, augmented
reality will be the next technology for wide customer
adoption.
A number of technologies have in the past several years
carved their way out of social networking area towards
corporate use. In oil and energy sector they were primary
enablers behind collaboration among different
organizations present within corporate environment that
have facilitated close collaboration. Primary driver behind
them was adoption of Internet (Web) as a primary
computing platform, as opposed to operating system,
workstation or local network as a primary computing
platform. This allows creation of new blueprints of
collaboration across the business and resolving problems
through in-house networking.
Even though open source is considered to be the most
important movement within software industry in the past
30 years, it is not largely adopted within oil and energy
sector, at least not on the customer service level. It is
certainly used “behind the scenes”, in server environment,
especially in the operating system layer and for certain
specific purposes (Web servers, Internet traffic control),
however, the demands oil and energy sector ICT
departments claim in terms of standardization across
organizations are very high as the core of the infrastructure
needs to be aligned with set corporate demands, so the
reasons of success of open source software – innovation,
diverse community support, no set support models – are
the very reasons why on the desktop layer, the open source
did not take over commercial solutions, despite lower
initial investments and running costs.
In the old software distribution model, the target for
software distribution was user`s workstation, distribution
was done via optical media or package distribution centers
across company`s servers with the end result being very
high implementation cost. Switch from physical software
placement to cloud has enabled usage of developer`s data
centers as storages for applications, Internet became the
distribution channel and the end cost for the enterprise was
significantly lowered. In the old software distribution
model, the users were required to pay for the
functionalities they did not use that were bundled in
standard packages, the users had to perform their own
version and upgrade control along with the maintenance,
so approximately 70% of total ICT costs were made up
from constant need to take care of software and hardware.
In the software as a service model, where applications are
streamlined towards end users, companies pay only for the
functionalities they use and always have the latest patched
versions of software. Only those parts of the software that
are being used at any given time are downloaded and total
cost of ownership is significantly lowered.
Cloud computing (as a summary term for usage of
virtualization technologies, software as a service, storage
as a service, infrastructure as a service, platform as a
service, database as a service, grid computing and
application as a service) has received a lot of praise in the
past several years and has slowly become a staple for every
oil and energy company, because it provides so needed
platform for total mobility and connectivity of employees
in a challenging and difficult environment. The rationale
behind cloud computing is not only lower cost of ICT
infrastructure, but also changed relationship between two
new benchmarks of efficacy of ICT systems: agility,
efficiency and green IT initiative. Efficiency is primarily
endorsed by creation of standard service level agreements
(SLA), virtualization and strict adoption of pay-as-you-go
principles. Deployment is enhanced by faster self-
provisioning concepts and API-driven utilization of on-
demand functionalities. ICT becomes more and more agile,
living fully the transition from server-centric systems,
relational data and commercial software packages to open
source, where possible, rich unstructured data and network
data center-scaling.
V. COST OF COMPLIANCE
In a typical corporate environment, significant resources
are devoted to compliance with the law requirements or
selected best-practice systems. Urge to achieve compliance
is typically higher in very large and complex systems,
typically in shareholder companies listed on stock
exchanges, where security breaches could lower stock
prices due to broken trust link towards shareholders. To
achieve compliance and to protect themselves, companies
more and more deploy “no shredding” tactics where every
version of email, documents and transactions is being kept
for possible future use. If compliance systems are chosen
and implemented wisely, there is but one tactic to be
deployed in order to maintain the cost, and that is again set
up of automated policy based systems tailored to meet se
data classification and data lifecycle goals [4]. Therefore,
compliance induced cost can be contained using the
following:
1. Strict data governance policies,
2. Strict policies of data retrieval and disposal,
3. Record management (not only in regard to electronic
data),
4. Centralization of security policy management across
enterprise.
VI. CONSIDERATIONS OF CLOUD COMPUTING,
APPLICATIONS STREAMING AND
VIRTUALIZATION TECHNOLOGIES
For large companies, concerns over data ownership and
information security issues have sometimes managed to
obscure obvious advantaged of decentralized approach to
ICT management that is decoupled from physical hardware
and software layer. For this reason, every organization
should evaluate those services that could be migrated to
virtual or cloud platform, depending on the maturity of the
model and its own needs.
Regardless of the chosen cloud model (Figure 1.),
every company has to undertake some steps in order to
properly align its business processes with the new
evolution, where the network in fact becomes the
computer. On the data level, storage requirements need to
be defined and moved onto the network, while respecting
audit, retention and compliance requirements. However, on
the development and deployment levels, application,
developer and API inventories need to be identified in
order to adequately superpose them over the existing data
layer.
Application virtualization enables application
streaming to users, centralizes permissions, isolates
applications and provides real time metering. True benefits
are: readily accessible applications, faster deployment,
application recovery and reduced application conflicts.
Fig. 1. Cloud Ownership Models [5]
 Fig 2. Application streaming and virtualization (created by
authors)

User machines can run applications without

installation, through streaming, thus enabling users to
“withdraw” applications when they need them, in contrast
to deployment systems where applications and application
packages are “pushed” or deployed from the system
application management server. This system allows users
to have promptly ready applications without the need to
wait for installation or administrator input. Also, all
centrally managed streamed applications are isolated in
their own virtual environments, ensuring adequate levels of
security and system stability.
Technologies of desktop and application virtualization
(Figure 3.) may be used where needed in order to be better
adjusted to specific needs. For example, in cases where
branch cache servers are not applicable, or where
bandwidth or network configuration present a serious
bottleneck – usually in offshore operations and offices or
vessels, or when computer equipment is not temporarily
connected to the network, it is quite convenient to use
application virtualization. Also, a number of specialized
engineering software applications in offshore and onshore
business can be quite old and based on almost obsolete
architecture. Such applications might benefit from the
desktop virtualization approach where particular
application package might be run in its own environment,
best suited for the operating system and libraries setup
required by the calculation software.
All described technologies need to be adopted only
after the ICT infrastructure, namely the server and network
topology are aligned with the real business requirements.
Desktop virtualization Application
Virtual PC virtualization
Fig. 4. Microsoft Windows family tree (adapted by the authors
according to [6])
Common core structure of most oil and energy players
revolves around Microsoft Windows series of server
products, but even in case of other operating systems based
around Unix, Linux and others, it is possible to identify a
“quantum leap” needed to be undertaken to be aligned with
new technologies like application and desktop
virtualization and application streaming.
The red circle in Fig. 4. shows where most of the
companies currently are – the products right to it are those
versions of server and desktop systems that should be
adopted in order to adequately support new virtualization
and streaming efforts.
As part of the process of ICT systems evolution, and in
order to further facilitate transition from the infrastructure
that is typically envisaged between 2001 and 2004, main
oil and energy players are considering a series of initiatives
to achieve the objectives:
• feasibility, design and implementation of a new
architecture of ICT systems to allow a
rationalization of logical components that provide
authentication services and electronic messaging,
• definition, development and implementation of
the new desktop deployment system based on
newer versions of operative systems and office
applications for all workstations,
• design and implementation of a series of
infrastructure tools for the deployment of new
desktop deployment as well as for governance and
monitoring of client and server infrastructure of
the new system.

What it does
Data, User
settings
What it does
The new features of the new infrastructure, new desktop
Creates a package
Applications
Creates a package deployment system and new tools should meet the
with a full OS of a single
What it is good for application following requirements:
Resolve OS Eliminates software
incompatibility install
between applications What it is good for
and a new OS Hardware Resolve conflicts • promote the adoption of innovative technologies
Run two between
environments on a applications capable of introducing real benefits to the
single PC (e.g. Simplify application
corporate and delivery and testing operations (effectiveness),
personal)
• facilitate gradual standardizing of application
architecture and infrastructure (language
1 development, how to develop the code, the
reference platform, services providing profiling of
Fig. 3. Relationship between desktop and application security grants etc.) ,
virtualization (created by authors) • reduce Time-to-Market Solutions,
 • increase levels of safety, reducing the area
exposed to potential risks,
• introduce the tools for the company's intellectual
property protection, in order to prevent the
unauthorized sharing of information,
• reduce the number of logical components
necessary to maintain the infrastructure
(rationalization),
• facilitate the chosen model of ICT governance.
Virtualization decouples applications from the operating
system and enables them to run as network services.
Application virtualization can be layered on top of other
virtualization technologies — network, storage, machine
— to create fully virtual environment where computing
resources can be dynamically allocated in real-time based
on real-time needs.
Microsoft Corporation has undertaken a study [7] and
has documented cost savings per desktop based on 6 cost
studies, 45 case studies and total cost of ownership (TCO).
It reported the following cost reduction potential for key
application management activities:
• 50-98% for ICT labor (making 5-10% of total
ICT labor)
• 75-100% for application related helpdesk and user
support (15-20% of all support)
• 0-10% for application licensing
• 20-25% for indirect user costs (downtime, fixing,
installation)
The average derived shows the potential for 280 US$
savings per user machine. Considering that oil majors have
50.000 to 100.000 desktop computers and more, this
presents a direct gross savings potential of several dozen
million dollars, that rises even more if green ICT initiative
is incorporated into the total scope (savings of electricity,
no need for recycling, lowered carbon footprint).
VII. IMPACT OF NEW ICT PARADIGM ON
CORPORATE ICT BUDGETS AND ORGANIZATION
Corporate ICT budget in oil and energy sector
companies is usually created around October and then,
revisions are usually done at the end of first, second and
third quarter of the year, with budget closing according to
“invoiced at 1st January” criteria. ICT budgets are usually
divided thoroughly according to capital or operative
expenses and within each group, there are identified
subcategories of investments, costs and expenses. They are
consolidated across the group, using the same
methodology.
Usually, a typical upstream oil company has significant
operative expenditures in the area of operative expenses,
especially for data and voice connectivity. The business
activity is executed in remote areas and there is no
possibility to choose between various types of data,
network and voice connectivity. Furthermore, in a number
of countries, due to local legislation and security reasons, it
is not possible to use VoIP and data encryption
technologies, or it can be done in a limited way.
Sometimes, business units that execute offshore projects
and remote area projects struggle to obtain any kind of
service at the reasonable price and have quite limited
options when it comes to cost-cutting strategies. In data
and voice transfer, it is usually a satellite connection that is
heavily monopolized and even the purchase of hardware
and software is routed to a closed number of vendors.
Consolidating ICT services of offshore and upstream oil
companies under a common shroud of corporate frame
agreements is therefore quite a daunting and sometimes an
impossible task.
The situation is much more predictable in mid-stream
and downstream companies that can benefit from the
contract aggregation and strategies as service and
infrastructure placement in the cloud, virtualization and
application streaming. In mid and downstream sector it is
possible to centralize critical services and deliver them in a
satisfactory manner to end users.
So, under current restraints of technology and legal
requirements, new ICT technologies like virtualization and
cloud placement can benefit the most the areas that
typically have lower operative expenses, while,
unfortunately, they are not readily and easily applicable to
remote areas (upstream sector).
Utilization of cloud techniques is justified when the
requirements for ICT resources vary significantly across
time: if these requirements are fairly constant, it does not
make sense to place them into a cloud. Cloud utilization
needs to be carefully evaluated against the business needs,
requirements for information security, existing Service
Level Agreements, project development and future needs,
etc.
Transition to virtualization and to services and
infrastructure on demand typically requires high
investments in hardware, software, telecommunication and
network development (due to higher load on network
bandwidth). Also, additional costs of outsourced or in-
house development of new projects will arise. However,
the biggest savings can be expected in the mid-term period
after transition and roll out of the new services. Overall, it
can be concluded that new technologies will raise the
quality of provided services to internal customers and
stakeholders with significant investment impact in the
beginning and no significant change afterwards compared
to current investments into technology, provided that the
volume of provided services and project remains roughly
the same.
In the operative expenses area, there are a number of
services where no major changes are anticipated.
Primarily, various fees paid for software maintenance and
rental should not be significantly changed, while cost of
infrastructure services and ICT professionals will rise
significantly and continue to do so in the midterm due to
the increased need for their services and maintenance of
the new outsourced parts of the system. In the ICT
infrastructure area total impact division is the same as for
the investments. The cost of labor of permanent and
temporary staff is also likely to increase, along with
requirements for in-house and specialized training for new
technologies, and also in order to maintain the required
levels of compliance with existing and new procedures,
best-practice standards and legal framework.
 VIII. CONCLUSION
The biggest mid-term gains and savings in oil and
energy companies, derived from the new technologies
based on virtualization, streaming and deployment of
“everything as a service” concept can be expected in the
telecommunication part of ICT costs, due to development
of technology and falling prices of telecommunication
services (data links, voice, roaming). There is no specific
and easy conclusion what will be the impact of new
evaluated technologies on the overall ICT budget of oil and
energy majors. There are many contributing factors
strongly influencing overall structure and total value of
ICT costs and investments: Size of the consolidated
company and number of users, Achieved level of
technology adoption, consolidation and services, Work in
remote and difficult areas, Work offshore, Ratio of internal
ICT development, maintenance and support versus
outsourced services, Internal rules and regulations for use
of ICT assets and resources, etc. Therefore, it is not easy to
predict the impact adoption of new technologies will have
on the overall ICT budgets. However, they will surely
impact the quality of services, enabling more flexible
service utilization, prevent fixed licensing, ensure better
alignment between real need for ICT services and
resources by the usage of cloud computing and virtual
infrastructure.
REFERENCES
[1] Aksentijevic, S, “Intricacies of integral security in
upstream oil and gas sector”, presentation, Infosek 2009
conference, Gorica, Slovenia, November 2009, slides 2-4
[2] Coles, Paul; Cox, Tony; Mackey, Chris; Richardson,
Simon, "The toxic terabyte", IBM Global Technology
Services, July 2006, page 2
[3] Seifert W,Jeffrey, "Data Mining. An Overview",
Congressional Research Service - The Library of Congress,
page 5
[4] ”The top 5 IT budget killers (and how you can fight back)”,
IBM Corporation, New York, 2008, page 16
[5] Simon See, Sun Microsystems Inc, "Cloud Computing To
be or Not to be", September 2009, page 16
[6] http://www.vijayforvictory.com/photo/microsoft-windows-
family-tree/686/ , 3rd February 2010.
[7] “Microsoft Application Virtualization Cost Reduction
Study”, Microsoft Corporation, Redmond, 2009, page 2