Using Blockchain for Oil Drilling Equipment Management

Ever since the blockchain technology took the world by storm with the advent of cryptocurrency, it has been steadily making headway into other sectors too: finance, healthcare, cloud storage, music, and more have been exploring how they can implement blockchain to the benefit of their respective industry. The benefits of transparent and cost-efficient, incorruptible ledgering are wide and varying; this is exactly why the oil and gas industry is looking to bring in the tech to overhaul the current way things are done.

As a primary sector industry, oil and gas has forever been at the forefront of innovation, keeping up-to-date with technological developments by regularly investing in advanced machinery to optimize output. The application of blockchain offers it the opportunity to revolutionize its drilling equipment management to its very core by shifting from centralized paper archives to digital ledgers.

Why is drilling equipment management so important for oil companies?

There are over 5000 drilling rigs across the world and these machines are huge and expensive. This makes owning or even hiring them difficult due to the expense involved. More difficult is keeping a record of each and every detail about individual rigs.

This means a lot of paperwork, having to store information about where the machine was created, the history of every single part that has gone in to create that machine and much more. In addition, since rigs are leased, they also have to maintain information about repairs which have been performed on the machinery, who was in possession of it over its lifetime, the output of each rig at different sites, and the list doesn’t end there.

All this information is important since oil companies make decisions on which service provider they would like to lease from based on the data recorded. Since, these machines are so expensive to purchase and maintain, it is in the best interests of all parties that these records are legitimately maintained.

What’s wrong with the current system of record keeping?

As highlighted above, it is of paramount importance for these companies to keep track of the oil drilling equipment they use. Meanwhile, the only way they can access data about their history is by contacting the companies who sell or maintain them.

At present, billions of pieces of paper are needed to record information, all within centralized yet fragmented asset inventory management systems.

Since, the drilling equipment is is passed from company to company, there is no way to keep complete records about everything that happens at every on site drilling location.

How will blockchain make a difference?

Blockchain is a digital ledger that can be used to record data. It is a decentralized, open-sourced platform with multiple nodes (computers) located across multiple locations that connect all stakeholders to create a distributed and shared database.

This basically makes blockchain a way to solve the issue of incomplete records, something that is prevalent across all industry. The key idea is that each individual company and stakeholder, can update the ledgers as they use the drilling equipment without creating additional paperwork. Furthermore, data can be recorded automatically through the use of self-executing smart contracts to produce a thorough history of each piece of oil drilling equipment.

The global blockchain technology market size is expected to reach $7.59 billion by 2024 (Grand View Research, 2018)

Paper archives Vs blockchain records

• Reliable information

The biggest problem with centralized paper archives is that they are prone to being lost or falsified. Paper records that are then inputted into computers also run the risk of being misinterpreted or altered to suit the interests of certain stakeholders. For example, drilling companies that lease the rigs are able to conceal damage to the machines, whilst a smart contract in a blockchain based system would automatically log faults within.

• Planning horizon

Making long-term plans is difficult since these machines are of a complex and delicate nature; even a slight breakdown or unexpected failure has the potential to cause financial, environmental and health risks. This also makes it impossible for oil service companies to evaluate the exact conditions of the equipment even though each machine undergoes multiple technical audits.

With blockchain, all data is regularly updated and made accessible to all stakeholders. According to some experts, reliable, blockchain-based databases expand the planning horizon of the oil companies for to up to 3 years, as opposed to the 1 year window available at present. Also, it saves costs on backend operations such as supply chain and inventory management.

• Tracking

Blockchain does not just alter the way records are maintained but is complimented with the installation of RFID tags and GPS tracking, which allows for control over the equipment’s location and logistics. Once drilling equipment is circulated in the market, the database and records for each piece of equipment can easily be updated. All data regarding current ownership, audit, damages, etc. can be recorded on a single system.

• Easy accessibility

Blockchain is, at a very basic level, an open network for data. Hence, all stakeholders can just log on see all the information they need. It is no longer necessary to make countless calls and pay regular visits to service providers to find out about previous repairs to equipment, or when parts were last changed. This makes drill equipment management an easier task.

• Advantage in the market

Any informed company will naturally look to approach a service provider that offers them complete information about the equipment that they are leasing. This means that suppliers who implement blockchain, will have the added advantage of transparency, thereby gifting them an advantage over their competitors. It is a first mover’s advantage that will, if taken up, give a good head start to service provider companies.

What are the challenges that need to be overcome to make this into a reality?

To facilitate revolutionary change in the basic operation of an industry, there are a number of challenges that need to be dealt with. As far as the oil and gas industry is concerned, realizing the potential of the blockchain technology means creating an integrated, trusted and transparent environment for all stakeholders to come together within an integrated ecosystem. This essentially means doing away with multiple technical audits and simplifying equipment management, in addition to providing access to other stakeholders in the office as well as on the field to ensure the safe and continuous work of machinery. The final step is to build a decentralized register of drilling equipment with full technical data and a complete history of maintenance and service throughout the lifecycle of the drilling equipment in question.

How will blockchain change the big picture?

Storing all data on a blockchain means that all data is open for the companies and service providers to inspect. This level of transparency means that companies have the knowledge they need to take the necessary measures while leasing equipment. This in turn reduces the chances of oil drilling accidents, and emergency breakdowns that would otherwise be a threat to people and the environment.

As a result, the oil industry at large is set to become a safer and more trusted environment for all concerned. Furthermore, it places the industry at the forefront of the technological and digital transformation that is currently being facilitated by distributed ledger technologies.

Sagar Arora is a freelance writer and working for the past 4 years. He is from a technical background and have expertise in domains such as fintech, AI, and programming languages such as C, C++, python, Php, java etc.

Blockchain Business Review from Apla provides high-quality educational material from the world of blockchain to inform the business community of the competitive advantage that can be gained by integrating distributed ledger data storage within organizations. Our mission is to promote knowledge about blockchain and its uses in both the private and public sector and demonstrate the value of blockchain integration.