Interoperability a key consideration in oil and gas mergers and acquisitions

ByDan Turner, Business Development - Oil & Gas, Kepware Technologies

While financials and assets are certainly important factors in mergers and acquisitions, there is another significant consideration that is often overlooked: interoperability.

With the news that Royal Dutch Shell will acquire BG Group, the Oil & Gas Industry is abuzz with talk of additional acquisitions coming down the pipe—no pun intended. Many feel that the industry is due for another wave of mergers reminiscent of the 90s and early 2000s, and that this could be just the catalyst needed to put things in motion. The previous wave was perhaps best characterized by the merger between Exxon and Mobil. It was a move that rattled and re-shaped the industry, and Oil & Gas financial trends will certainly face a greater level of scrutiny in anticipation of another event of that magnitude.

While financials and assets are certainly important factors in mergers and acquisitions, there is another significant consideration that is often overlooked: interoperability. A wave of acquisitions means that organizations with unique and diverse architectures are going to be converging and trying to integrate their technical systems: this is a monumental challenge, especially with Oil & Gas giants that possess enormous and dispersed architectures. Without the ability to integrate disparate systems and communicate in a streamlined manner, parent companies stand to experience significant losses and even disruptions on operations. I don’t need to tell you the cost of well site downtime in the Oil & Gas Industry, and that is exactly what may be at stake.

To some, this might not seem like a significant consideration. One could argue that mergers are a natural occurrence and this hasn’t been a top priority before, but that’s exactly the point. Much of the interoperability issues companies face today result from multiple acquisitions, and as the industry continues to experience acquisitions, the issues will only become more of a problem. It’s rare that assets within a company all have the same equipment. And as growth via mergers continues, the amount of assets that need to be monitored and controlled—and the number of users interested in the information generated by those assets—will continue to rise.

Acquisitions are complicated to begin with, so anything a company can do to smooth the transition is beneficial (whether the company is making the purchase or being purchased). Acquirers want to eliminate the possibility of extensive downtime, and sellers want to offer buyer-friendly assets, since in the end, it will only help maximize profits.

Ensuring Interoperability
There are two routes for ensuring maximum interoperability: employing a comprehensive, software-based communications platform or standardizing equipment so that it all comes from one vendor. If a company chooses to stick with existing equipment and adopt a communications platform, it should look for one with the ability to do the following:

• broker communications between all—if not most—disparate devices and applications that are unable to communicate with one another natively
• provide the advanced functionality required to solve domain-specific problems
• run uninterrupted and scale easily to meet the needs of tomorrow
• support the convergence of operational data between the merging companies to help provide a holistic view of the new expanded organization

If the company chooses to go with the latter option and standardize the equipment on one vendor, technicians should take into consideration the cost of both time and money that will go into the process. For example, a small acquisition typically results in somewhere around 2,000 wells changing ownership. In general, it costs $6,000 to $10,000 per well site to replace the flow computer or RTU, so even small acquisitions may cost upwards of $20 million just to continue operations as usual. A process like this also takes time—typically at least a few months, but larger overhauls can take years to complete. So while still an option, companies should be sure to weigh the pros and cons of each route to determine which one fits their current needs—and budget.

Interoperability Equals Value
In the end, both buyers and sellers benefit from implementing tactics to ensure interoperability even before talks about a potential acquisition begin. As we’re all aware, the value of an Oil & Gas company depends on the value of its wells, and anything a company can do to ensure a speedy integration will only make those wells of greater value. Whether the analysts are right and the next wave of Oil & Gas mergers is just around the corner—or even if it’s a bit further off—interoperability plays a significant factor in the future success of a company.

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