Fracking with Digital: Big Bets in the Cabot Oil & Gas Value Chain
Fracking with Digital: Big Bets in the Cabot Oil & Gas Value Chain
Ali Gur GuvenilirSenior Consultant
Digital Transformation, Other

Fracking with Digital: Big Bets in the Cabot Oil & Gas Value Chain

Fracking with Digital: Big Bets in the Cabot Oil & Gas Value Chain
Ali Gur GuvenilirSenior Consultant
March 23, 2021 -

In our Digital Shift series, we showcase companies that transform their business through digital transformation. This month, we shed some light on Cabot Oil & Gas – an 80% shale gas focused producer deriving their product from the Marcellus Shale, a shale formation in the Northeastern United States.

Cabot Oil & Gas is a US-based independent upstream oil & gas industry producer. Established in 1989 with $2.19B in revenue in 2019, the company operates 2 production rigs in northeastern Pennsylvania, producing shale gas from the Marcellus Shale in the USA.

Cabot Oil & Gas (COG) has achieved 45.5% growth in earnings per share (EPS) within the last 5 years (2014-2019). This growth is 4.5 times the Fortune 500 median from the same time period (%9.9). Showing profit growth and business resilience in the recent years of drastic hydrocarbon price shocks, the firm has been outperforming its peers in the United States, as well as international oil companies (IOC) and national oil companies (NOC) in the Asia-Pacific, European and South American regions.


Differentiation from the Industry

COG began their corporate journey as an independent, conventional oil and gas exploration and production company. In the aftermath of the 2008 financial downturn, COG sold its oil reserves and slowly begin transitioning into unconventional gas reserves. The company began transforming its business model in the early 2010s toward fracking, with a high debt-to-equity ratio similar to other incumbents in that era. COG's effort to differentiate and create positive cashflow began after rapidly targeting inefficiencies and risks in its operations and business model. 35% of energy generation in the United States is significantly dependent on natural gas. Therefore, COG strategically positioned itself to focus solely on natural gas. Then, the company began to utilize digital transformation initiatives – specifically horizontal drilling and hydraulic fracturing operations – to support its long-term big bet on natural gas.

COG began to realize to execute this long-term strategy, the proper infrastructure must be set in place. Since the company had been operating under their newly commercialized fracking operations, they had to reduce inefficiencies and enable robust control over its natural gas generation and exploration processes. To achieve this, they concentrated digitalization efforts toward core operations and the company began building resilience over short amount of time.

The Oil and Gas industry, especially the US-domestic fracking market, due to its high debt ratio and the capital expenditure in drilling and exploration operations, was highly susceptible to the price shocks of oil and gas. The frequent and drastic price shocks in the last 10 years pushed Cabot to prioritize resilience and operational excellence as a critical focus.

In a volatile era for oil and gas giants, COG managed to structure their new technology and operations toward success with positive cash flow and consistent dividend return to investors.

The Digital Edge

COG has developed profitably, without having to make huge CapEx cuts to exploration and well preparation activities among the sharp 2020 prince drops. The company owes this successful operation to its rapid investment and deployment models; focusing on operation & asset management digitalization projects. The Company employed a production management tool to seamlessly and directly integrate production variables in its accounting processes. These initiatives helped COG manage operations in a data-rich environment. With a transformative approach to their key cost drivers via recycling and circular economy, Cabot realized that water feed and equipment fuel were the prime suspects in determining key cost and waste items. Cabot decided to recycle its feed water to be used in a closed loop inside their fracking operations, partnering with Caterpillar to implement natural gas motors. These initiatives dramatically reduced Cabot's carbon footprint and environmental impact, while benefitting their cost optimization efforts.

Cabot understood the necessities of this risky and costly operation. To accelerate towards its vision, Cabot decided to modernize its legacy technology stack and infrastructure. Cabot modernized their core enterprise system and integrated crucial systems such as accounting, finance, delivery, and well production. Cabot also optimized its IT infrastructure by utilizing NetApp and F5 storage solutions to optimize and monitor on premise systems. This is a significant step. Maturing storage and critical systems for cloud deployment strategically requires extensive planning and rigorous redesigns. It seems clear that Cabot is moving forward with revolutionizing its corporate back-end, so that it can become a major cloud benefactor of the oil and gas sector in the coming years.

Cabot had primarily been modernizing its operations and technology to build resilience and acceleration, thinking transformation in governance was a target necessity. The company deployed robust analytics to track and control its well production, fracking operation, and employed transformation managers to continuously challenge process optimizations wherever possible.

Incumbent stance on COG Journey

Before becoming an incumbent itself, COG was not satisfied with its risky and slow building operation. Therefore, they decided to transform their business model from the ground, up. The company caught the headwinds of the fracking boom and digitalization, executing without hesitation.

The company has clarified their long-term vision; prioritising and executing the low-hanging fruit projects in their value tree.

Cabot Oil and Gas proves that, no matter how much of a "legacy laggard" the industry may be perceived to be, or how much riskier its business is than other sectors, it can excel and ascend their barriers effectively with digital transformation.

Cabot has tackled bold decisions, and it seems they have succeeded in building competitiveness and profitability in a newly revolutionised market. Incumbents of the oil and gas industry can find inspiration and strength in Cabot's story, enabling them to take their initiatives one step further into the digital future.

The Digital Maturity Connection

This is just one example of how digitalisation can skyrocket the Oil and Gas industry into the success of the future. As we witness industries continuously improving  quality of life through digital for CEOs, employees, and customers alike, industry simultaneously improves itself through new inventions, optimization, and persistent quests for better innovation through digital maturity. As we see in Cabot's example, ingenious engineering has improved the field process, tank farm operations, logistics, and supply chain.  Do you think Cabot could have achieved such success without their digital capabilities?

With the six dimensions of our Digital Maturity Index, Digitopia measures companies' operations (simply one dimension out of six) to provide a digital maturity score and invaluable consulting insight to accelerate your digital transformation.

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