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Digital innovation, oilfield services M&A are storylines for 2018, Deloitte says

As a year marked by surging crude oil and natural gas exports comes to a close, technology innovations could help the U.S. energy sector avoid negative effects from supply and demand flows in 2018, according an oil and gas outlook paper by Deloitte.

"The digital revolution is here. ... It could mean the difference between thriving, surviving, or just not making it," wrote John England, Deloitte's U.S. energy and resources leader. "Companies that are willing to innovate and invest can unlock tremendous value and may remain financially strong regardless of what happens to global supply and demand trends."

Pushing down costs has been a theme for oil and gas companies since the 2014-2016 commodities price collapse, and management teams are already working with big data and automation to improve operating efficiency.

"I think what we're starting to really see is when IT and operations are combined together, we're getting these transformational changes in our assets," Chesapeake Energy Corp. Executive Mikell Pigott said in a recent presentation. "We can pull in our drilling data, completions data, construction data, the finance, the marketing data, all into one pool of information. Then we have to use our big-data analytics to process and crunch and ultimately drive value for the company."

Robots are also a significant component of the digital push. Advisory firms such as EY are developing automation programs that not only modernize oil and gas production but also decrease the need for human capital in the office.

Deloitte's England also emphasized that more consolidation of oilfield services companies "may be in the cards" in 2018 to support recovering producers. The sector made headlines in 2017 when industry giants Baker Hughes Inc. and General Electric Co.'s GE Oil & Gas Inc.completed their merger in July. In November, however, General Electric indicated that it intends to sell its Baker Hughes subsidiary as part of a plan to shore up share prices and weak earnings.

Oilfields services bore the brunt of the oil price downturn as 36% of companies went out of business and revenues dropped by nearly 55% between 2014 and 2016.