IT budget cuts for oil and gas companies have been lower than expected, despite oil prices having dropped under $50 per barrel.
Based on an IDC Energy Insights flash poll of CIOs from 20 non-OPEC (Organisation of the Petroleum Exporting Countries) oil and gas companies, a new report, Business Strategy: The Impact of Lower Oil Prices on Oil and Gas IT Budgets Is Not as Much as Expected (Document # EI254699) examines the impact of low crude prices on oil and gas companies’ IT budgets.
The report serves as a guide to understanding what oil and gas sectors’ IT investments are most impacted, and what technology investments companies are making to mitigate lower oil prices. Essential guidance is provided on planning within the context of uncertainty.
The flash poll indicates that although there will be cuts in IT budgets in 2015, these will not be across the board. Cuts are more selective as respondents reported a projected 75% reduction in internal staffing, also a positive net projection for external data services, external services and telecommunications.
Oil and gas companies are strategically evaluating the costs and value of their IT departments to make good decisions about what budgets to cut, and how much.
Key findings of the report include:
* Line of business areas with the largest IT budget cuts are the knock-on effects of reduced investment in exploration activities such as finding oil and drilling oil; line of business areas with the largest potential IT budget increases are production and midstream
* While drilling activities are slowing down, some oil and gas companies continue drilling to take advantage of lower drilling costs, and also for adhering to lease agreement requirements
* The biggest IT budget cuts will be in internal staff.
* External data services, telecommunications and software ranked high in importance for potential budget increases
* Oil and gas companies plan to invest strategically in automation and analytics, big data and cloud to mitigate the impact of lower crude prices.
According to the poll, 25% of respondents indicated that IT budgets will remain the same in 2016 as the IT budget plans for 2015. Another 5% of respondents reported that budgets would increase 5% in 2016 compared to 2015 and 5% of respondents reported that budgets would decrease 5% compared to 2015.
Even though the budget amount may stay the same in 2016, IDC Energy Insights believes that the focus will shift to applying a more disciplined approach for evaluating and selecting IT products and services that improve business performance and help to reduce costs.
“The impact of lower oil prices on oil and gas IT budgets is not as much as expected, and cuts are not across the board as companies are more strategic and disciplined about reductions. The challenge for CIOs is to understand the company’s plans going forward and present the role of IT to help successfully implement these plans,” says Chris Niven, research director, IDC Energy Insights.
To navigate the current state of IT successfully, IDC Energy Insights recommends to CIO’s:
* Focus on immediate goals and objectives and identify what resources and tools are necessary;
* Be prepared to cut, reduce, and postpone investments to accomplish these goals in the short term.
* Identify which IT areas are core to the business, which can be outsourced and which can be dropped.
“Oil and gas companies need to spend their investments wisely to help them become agile and operationally efficient. The software vendors and service providers that help them achieve these objectives will be successful,” concludes Niven.