Leadership in transformation: BHGE CEO Lorenzo Simonelli on a changing industry
Lorenzo Simonelli, chairman and CEO of Baker Hughes, a GE company, talks about the changing oil and gas landscape: localisation, digitalisation and collaboration between operators and service companies
The oil and gas industry favours transformative companies; companies that are able to transform and adapt to an ever-changing market, and companies that transform the industry itself, making it smarter, leaner and more agile.
Lorenzo Simonelli, the chairman and CEO of Baker Hughes, a GE company (BHGE), is no stranger to transformation. In fact, his 24-year career at GE is a testament to its potential. His five-year stint as the president and CEO of GE Transportation, which spans the rail, mining, marine and energy storage industries, was marked by technological innovation.
Following his tenure at GE Transportation, he took the reins at GE Oil & Gas as its president and CEO in 2013. One year later, the industry was rocked by a crash in oil prices.
“The downturn brought many challenges and encouraged all players to disrupt their traditional ways of working… with many positive results,” Simonelli says. “Disruption can be a powerful driver for innovation, forcing legacy structures to change and industries to transform for the better.”
That may be why BHGE, which was formed through a merger between GE Oil & Gas and Baker Hughes in July 2017, is so disruptive. Formed in the midst of industry downturn, BHGE was an opportunity to do something new—creating enhanced optimisation and efficiency across the industry’s value chain. As such, it is inherently transformative.
“As the merger was coming together in 2017, oil and gas markets remained challenging with oil supply exceeding demand, and the industry’s lower-for-longer dynamic continued to squeeze operators and supply chain,” Simonelli recalls. “Crude oil prices hit lows in June 2017, one month before the formal creation of BHGE.”
He led BHGE through the merger and the downturn simultaneously. Throughout his career at GE, he grew accustomed to working in sectors like appliances, lighting and transportation, which are cyclical, so he was poised to take on the challenge.
“I found that I have worked in highly-cyclical industries, which have taught me a lot – about patience, about resilience and making tough decisions to help ensure the business was positioned for growth when those cycles turned up” he says. The vision for BHGE was clear from the start. BHGE’s purpose, in the simplest possible terms, is “inventing smarter ways.”
BHGE has made big investments in digitalisation, recognising that its value and necessity is indisputable. The industry is asset intensive and this places enormous importance on extracting the most value and the best performance from equipment—that requires advanced analytical capabilities and digital technologies.
A January 2017 report by the World Economic Forum and Accenture estimated that digital transformation could unlock $1tn for oil and gas companies. But saying ‘digital transformation’ is far easier than making it happen—particularly for an industry (and region) with decades-old assets. That is where BHGE enters the equation.
BHGE provides digital technologies, solutions and applications that support customers’ objectives to optimise operations and ensure sustainability. BHGE’s portfolio includes cloud technologies and artificial intelligence (AI) that connects operators’ planning and operational activities, and fit-for-purpose software that captures predictive insights and enables faster, smarter, more informed decisions.
AI and advanced analytics are particularly relevant to the upstream segment, as they allow operators to capture and analyse the immense amounts of data generated by sensors in their equipment. With advanced analytics, large streams of data can be analysed in real-time, so engineers can detect issues immediately and avoid any downtime, which can be costly.
This technology is already in use. BHGE’s Plant Operations Advisor, which is a cloud-based advanced analytics solution created in partnership with BP, has now been deployed at four of BP’s production platforms in the deepwater Gulf of Mexico. It will also be used in more than 30 of BP’s assets across the globe, which Simonelli says will make it the world’s largest industrial internet of things (IIOT) deployment, when completed.
But technology, even at its most intelligent, still requires talented and “new-thinking” people. “It’s not just about machines,” Simonelli says. “Companies need a talented workforce that is capable of focusing on high-value-adding tasks and acting on intelligence in real time.”
It is a workforce that has to widen its skillset and keep pace with technological advancements. Simonelli believes this will “open the door to a whole new set of career paths” around the development and management of digital solutions.
“From software engineering to drone avionics and 3D printing design, the future oil and gas workforce needs to be as dynamic and multidimensional as the technology driving it,” he says. This is key to increasing efficiency and productivity of existing wells, a key challenge for the region as energy demand grows.
Rising energy demand calls for increased investment in building a robust energy infrastructure and in increasing the efficiency of existing assets. Ageing assets, typical in the region, also face more downtime and more costly maintenance than newer assets. Saudi Aramco is one company taking a head-on approach to the issue—it is currently working to redevelop many of its ageing assets, including its Berri and Safaniya fields.
But Aramco’s largest upstream project this year is the $15bn Marjan Crude Increment Programme, which is expected to add 300,000 barrels per day to the field’s production capacity. In September, it awarded an integrated services contract for the redevelopment project to BHGE—one of several collaborations between the two companies.
BHGE also recently signed an agreement with the Abu Dhabi National Oil Company (ADNOC) to acquire a 5% stake in its subsidiary ADNOC Drilling. It will provide ADNOC Drilling with proprietary leading edge and differentiated equipment and technologies to help deliver more competitive well completion times, greater drilling efficiencies and better well economics.
But BHGE’s work also includes downstream assets. As a fullstream oil and gas company, BHGE works across the industry’s value chain. Regional oil and gas companies seem to be on the same page: Saudi Aramco is in the process of acquiring a controlling stake in chemicals company SABIC, and ADNOC plans to invest $45bn into upgrading its Ruwais refining and petrochemicals complex to increase output.
Still, transformation at the company level is not enough—Simonelli says it must happen at the industry level, too.
With the downturn, a new focus on operational efficiencies and identifying productivity improvements became a big priority. New partnerships and collaborations, along with new approaches to project design and subsequent tendering processes are becoming more prevalent.
Although he says the industry could make processes simpler, and the oil and gas industry must “transform the way we work together,” Simonelli concedes that it is a change that no one in the industry can make alone—it requires a collaborative effort. He believes that there has been a change in the operator-service company relationship—an evolution in the tendering process and an openness to work earlier, and closer together, to help find productivity improvements collaboratively.
To Simonelli, collaboration involves co-creating solutions and developing technologies with customers, so they are part of the process. With digital technology, this is important to ensure that solutions are made to fit the needs of a particular operation.
Dynamics are changing throughout the region’s oil and gas industry. Localisation initiatives, like the In-Country Value (ICV) program at both Petroleum Development Oman and ADNOC, in addition to Saudi Aramco’s In-Kingdom Total Value Add (IKTVA) program, continue to support local growth and supply chain expansion—bringing together a connected workforce, enhanced skill-building as well as manufacturing and supply chain expertise.
“It’s about partnering for the long term and being much more than just a technology provider,” says Simonelli.
For example, BHGE supplies 36% of the drill bits it manufactures in its Dhahran factory to Saudi Aramco and exports the rest to more than 40 countries. Next year, the company plans to increase the factory’s production capacity by 50%. BHGE has also established the region’s first Customer Solution Center in the UAE, which familiarises academia and industry with the latest digital oil and gas applications and provide hands-on training.
Growth is on the horizon for the industry at large, encouraged by recovering oil prices. The downturn brought many challenges and encouraged all players to disrupt their traditional ways of working, with many positive results. However, like most executives in the oil and gas sector, Simonelli is cautious in his optimism and sees a continued focus on capital discipline in the coming year.
“The macro outlook continues to be favorable,” he says. “Production is increasing as operators grow rig and well counts, and we are seeing signs of increasing international activity in some geomarkets. Our portfolio mix positions us well for short and long-term growth as the market improves and the next wave of customer projects come into view.”
As such, he sees opportunity in gas. BHGE services the entire integrated gas value chain—a fact which differentiates it in the gas market. Its portfolio ranges from concept design to well construction and production to LNG operations to fuel transport and end customer.
“In Iraq, we are working with South Gas Company to fast track solutions to help the recovery of flared gases in Nassiriya and Al Gharraf oilfields,” he says. “The project will support the development of a fully integrated NGL plant at Nassiriya that will recover 200 MMSCFD of dry gas, LPG and condensate.
“The modular solution will support power plants with dry gas for efficient power generation, thus helping meet the growing demand for electricity using clean fuel,” he says, noting that surplus LPG and condensate will be exported, generating high revenue for the Iraqi government.
He also notes that by contributing to the social and economic development of Nassiriya, the project is aligned with the vision of the Ministry of Oil and the government.
For an innovative, fullstream company like BHGE, the region’s oil and gas sector holds much potential. But the industry, being sensitive to market movements and geopolitics, can change swiftly, and the only thing that can be safely assumed is transformation.
Fortunately for BHGE, the man holding the reins is well-equipped to trek through shifting sands. “Transformation is a constant, and something to be embraced,” Simonelli says.