KEY POINTS

  • This past year's significant drop in the price of oil is leading oil and gas companies to implement Internet of Things (IoT) ecosystems to become more operationally efficient. Over the next three to five years, 62% of oil and gas executives worldwide say they will invest more than they currently do in digital, according to a recent Microsoft and Accenture survey
  • Oil and gas companies will use IoT devices and their associated analytics to survey land for new potential drilling sites and extract the oil from the ground. Among oil and gas executives, 89% believe they can leverage analytics to improve business practices, according to Microsoft and Accenture.
  • We estimate the number of devices used on oil extraction sites — primarily wells — will increase from 346,000 in 2015 to 5 million in 2020, representing a 70% compound annual growth rate (CAGR). The devices will primarily be internet-connected sensors used to provide environmental metrics about extraction sites.
  • By fully optimizing the IoT solutions available, an oil and gas company with $50 billion in annual revenue could increase its profits by nearly $1 billion, according to a Cisco study. 

The oil industry in flux

The past year has been tumultuous for oil and gas companies. The price of oil has steadily declined from $105 a barrel in July 2014 to $43 a barrel in October 2015, reflecting an increase in supply and a decrease in demand.

  • Demand for oil has dropped as demand in alternative energies have risen; vehicles have become more fuel efficient; and the economy in China — the world's biggest oil importer — has weakened.
  • The supply of oil has increased significantly over the last five years. US crude oil production has risen from 5.4 million barrels per day in August 2010 to 9.3 million per day in August 2015, according to USEIA. The increase in production is largely due to the rise of horizontal wells and hydraulic fracturing.
    • Horizontal wells cover four times as much land as vertical wells, which increase the amount of oil the wells can extract from the ground.
    • Hydraulic fracturing is the process of pumping a mixture of water, sand, and chemicals into the ground through a perforated well to break up the shale containing oil and natural gas. The oil and natural [...]