ASUG is conducting an interview series with the SAP leaders charged with select industry sectors. These discussions will include a recap of key 2021 activities and a 2022 preview. In this Q&A, the first in our series, ASUG probed recent advances and a year-ahead outlook in the Oil, Gas, and Energy sector with SAP Senior VP and Managing Director of North America, John Tully.
This is an edited version of the full conversation followed by relevant highlights and perspective provided by SAP.
ASUG: Looking back at 2021, what were the highlights of SAP technology, services, and strategy for Oil, Gas, and Energy in the Americas?
John: A year ago, we made a conscious decision to go all-in on the shift to cloud computing. If you remember, the investment community reacted to the news with healthy skepticism. Since then, (CEO) Christian Klein’s strategic pivot has already proven to be a resounding success. We’re seeing recognition from the investment community that this change was warranted and that’s further validated by the tremendous adoption momentum we’ve seen from our customers, including those in the Oil and Gas space. If you look across our midmarket and enterprise customers in this industry, a consistent theme is that all of them are aggressively adopting cloud-based applications and moving their infrastructures to the cloud to support business goals. Two big developments propelled this shift in 2021. First, we continued our industry-specific cloud solution momentum by completing the public cloud edition of SAP S/4HANA Cloud for upstream oil and gas. Second, we released another suite of sustainability-focused solutions, including SAP Product Footprint Management, GreenToken by SAP, and SAP S/4HANA Sustainability Management to help track Environmental, Social, and Governance (ESG) progress.
ASUG: Are there particular challenges in this industry sector that you’ve encountered and that you’ve helped customers overcome?
John: There are several. First, there is a dual, economic challenge of balancing societal needs for more energy that is less carbon dependent. Pivoting to a new energy future—a shift that has been further accelerated by the pandemic—isn’t easy and will require companies to make bold choices. Tied to this is the ongoing conversation around sustainability and how companies will manage this evolution while maintaining operational integrity and profitability. Cloud is an important driver of change, and SAP has to be there to support our customers as they push into the future. We have a very broad base of customers in the Oil and Gas industry that are turning to SAP as a trusted cloud solution provider. For example, we have been working with Phillips 66 to bring its SAP S/4HANA workloads to the cloud as part of its AdvantEdge66 program. This will lay an important foundation for Phillips 66 to manage strategic investments to drive greater resiliency, efficiency, and agility as it grows our emerging energies business and operates more sustainably. What our customers in the Oil and Gas industry have realized is that SAP can be not only a top cloud service provider, but also, it can extend its engineering and services capabilities to help support new and innovative cloud applications.
ASUG: Was there anything that surprised you in this industry sector in 2021?
John: Cloud adoption has happened at a greater-than-anticipated pace. The innovation that is happening in this industry—from people, core operations, business models, and technological perspectives—has been nothing short of remarkable. These companies are going through digital transformations, as well as adopting new technologies from SAP and from other vendors to make these new business models more affordable and their core businesses more efficient. Nothing is happening sequentially anymore.
ASUG: Looking into 2022, are there any unique characteristics in this industry, in the market, across the competitive set?
John: There are significant industry-specific requirements in energy that you will see SAP adopt and support. This ties back to the economic factors impacting the industry and the sustainability conversations leaders are having. For SAP, as our market share grows, our capabilities will increase as well to support these transformations and the unique requirements of companies operating in this industry. One example unique to the Oil and Gas industry is shutdown, turnaround, outage (STO), a critical period where companies bring in specialists to implement critical technology upgrades. SAP is making investments to improve this technology upgrade period by helping customers find the right person with the right training and certifications to get the job done, reducing downtime and costs while improving core processes along the way. Another example is commodity trading risk management. For commodity-driven companies in the Oil and Gas industry, market volatility poses both a risk and an opportunity, making the effectiveness of its trading function more critical than ever. Full transparency of trading contracts, risk, logistics, inventory, and financial performance helps enable prepared organizations to take advantage of this opportunity. In summary, we have to prioritize cloud innovation that supports the back-office and industry-specific business process needs of oil and gas companies.
ASUG: Is there anything that will come forth regarding the industry’s cloud strategy in 2022?
John: To date, we’ve seen tremendous acceptance and adoption of industry-specific, cloud-based offerings in the Oil and Gas sector, including liquified natural gas trading, people logistics, rig scheduling optimization, truck distribution networks, and many others. As we look forward, we will focus on a few key priorities, including innovation, quality over quantity, ecosystem support, and digital channel delivery. From an innovation standpoint, we will deliver against our road map by co-innovating and co-developing solutions and compelling user experiences—in collaboration with our customers and partners. We’ll make the SAP Store the place where customers can easily discover, explore, try, and purchase industry cloud solutions. With that said, there are certainly more value streams we’ve identified in the areas of well operation, predictive and preventative maintenance, retail network operations, transport planning, plant integrity management, and terminal operations. Partners will be crucial in many of these areas.
ASUG: What is the outlook for partners? Will more partners be cultivated in this sector?
John: Partners are key to our success, especially with our Oil and Gas industry cloud efforts. More than 80% of industry cloud solutions and apps will ultimately come from our partner ecosystem. Working with our partners and customers in a modular way will be critical to ensuring that our customers deploy cloud solutions that quickly solve industry-specific challenges. Cloud will only challenge SAP to continue working hand-in-hand with our partner ecosystem to support the incredibly complex challenges that companies in the energy space will face in 2022 and beyond.
ASUG: Are there gaps or missing links in the industry that SAP and/or partners will step up to in 2022?
John: Obviously ESG is the most telling and most pressing requirement in the industry. You’re seeing a lot of leadership from energy companies in and around the topic of ESG. They are developing capabilities and plants to address ESG in a more physical way. That then has to be supported by accounting standards—those capabilities are incumbent upon us to support their business. ESG is a trillion-dollar market opportunity for energy companies. SAP will be their partner to support those business initiatives. That industry will create numerous opportunities for ecosystem partners to play significant roles in helping to enable those business models. SAP intends to be a foundational part of the infrastructure behind those companies as they continue driving sustainability-focused business models.
ASUG: Are you talking to customers in this industry about the SAP “Green Line” strategy?
John: Absolutely. What I’ve learned in serving this industry over the last 25 years is that this industry is often a leader. And carbon is a business imperative that companies are undertaking regardless of industry. I don’t think anyone is more sincere or diligent in evaluating how carbon is affecting their core business or creating new business opportunities than energy companies. So, for SAP, as a trusted partner, how do we support these initiatives? If one of the global players in energy needs to account for carbon, if they need to understand their carbon impact across the supply chain, the conversation they are having with us is: “SAP, we need your help to both develop the standard and develop the software that allows us to provide, with full transparency, the impact that carbon is having on our business and how we are offsetting that with all the investments we are making around the globe.” SAP is actively investing to co-develop solutions with large energy companies like Shell, Exxon, and Chevron in areas including sustainability, well profitability, carbon capture, and sequestration. For example, Oxy already shows success in its cement line of business since it has the infrastructure to help companies store CO2. We will be there to support our customers in this journey.