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February 2016 Exclusive Story

The Case for Innovation

Technology Enabling Business Success

HOUSTON–Investing in oil and gas technology should be viewed as a long game, and producers must commit to unwavering innovation through oil and gas price cycles if they are to meet demand safely and at competitive costs to 2050 and beyond, suggests an analysis from IHS.

“Rapid changes in price, such as the halving of the oil benchmark between 2014 and 2015, naturally bring into focus the need for oil companies and their suppliers to reduce costs to maintain viable returns. Technology helps on two fronts,” reflects Paul Markwell, vice president of upstream oil and gas consulting and research at IHS Energy. “The first is in raising short-term production, the key denominator in the cost-per-barrel equation. The other involves attacking capital costs and operating expenses head on. Both place an emphasis on efficiency.”

Markwell, along with Judson Jacobs, director of upstream oil and gas research at IHS Energy, was a contributor to BP Technology Outlook, which features their external perspective titled Prioritizing Technologies through the Oil and Gas Price Cycles.

To meet demand and remain competitive, the IHS authors note in the BP report, operators are pursuing a range of cost-cutting and efficiency initiatives, including automation and mechanization of high-cost, repetitive oil and gas activities such as drilling. They are looking also to apply data-driven analytics to draw key insights from high-volume data streams, such as detecting when a piece of equipment is going to fail or identifying sweet spots in unconventional oil and gas plays, the authors observe.

In still other instances, they add, operators are increasing their use of mobility technologies to improve the efficiency and effectiveness of their field workforces.

These same operators are adapting technologies developed in the defense and manufacturing sectors to address oil and gas requirements, IHS continues. Applications include deploying robots to inspect difficult-to-access elements such as offshore risers, and piloting unmanned aerial vehicles (i.e., drones) into areas that are dangerous for human intervention.

Another area is process control optimization, IHS comments, which applies sophisticated modeling and simulation tools to increase production regularity, and run equipment and facilities closer to their designed capacities.

IHS says it has identified several “pockets of technological excellence” that it believes offer the greatest potential to impact near-term oil and gas industry costs. One such pocket has been exploiting shale-gas and tight-oil resources by applying manufacturing-style continuous improvement technologies and techniques to drilling and completion activities.

For example, the firm says, drilling efficiency in the Eagle Ford play increased nearly 150 percent from 2010 to 2014 as the increasing number of wells drilled provided an opportunity to apply these principles.

“In a lower-price environment, we see an opportunity for producers to mirror these approaches across their broader portfolios by adapting a continuous improvement mindset to their global operations,” Jacobs states. “We believe that elements of these same manufacturing concepts can be applied in more conventional oil and gas settings. The keys for producers are to target repetitive tasks associated with well construction, and with other field development and operational activities that have these forms of ‘high-iteration learning,’ and to deploy the technology (e.g., real-data systems and advanced analytical tools) that can enable it.”

Digital Technologies

Another pocket of technological excellence IHS identifies involves realizing substantial capital- and operating-expenditure reductions through extreme “de-manning,” or operating oil and gas facilities with far fewer staff than is standard today. By leveraging both higher levels of automation and robust communication networks to operate their facilities remotely, IHS says oil companies can reduce OPEX by up to 70 percent and CAPEX by 3-15 percent by designing facilities upfront to reflect these lower staffing levels.

IHS says it has documented several impressive cases of oil companies shifting toward this extreme minimum-manning operating philosophy in their oil and gas assets, and that it sees an opportunity to apply this approach more broadly.

A common thread running through all these areas, IHS says, is the increasingly critical and enabling role of digital technologies. IHS says its analysis during the past decade confirms that digital technologies applied in practice can improve oil field performance on several fronts, including by increasing oil and gas production by 2-8 percent, reducing facility capital costs by 1-3 percent, and lowering operating costs by 5-25 percent.

As Markwell and Jacobs reference in the article published in BP Technology Review, IHS says the new emphasis on efficiency places high demand on a digital infrastructure that is able to collect, transmit, analyze and act on data acquired through asset operations. It also is setting oil and gas companies on the path to becoming true digital organizations, thereby accelerating a movement that was under way already.

Beyond these digital efforts, the IHS contribution notes a host of upstream technology innovations in the areas of seismic imaging, drilling, and enhanced oil recovery that will help to unlock additional oil and gas resources. However, the industry will need to be nimble to prioritize different technology elements throughout the price cycle, the firm advises.

IHS says the key to driving the greatest potential return on the types of technological innovations it has identified is for companies to focus their efforts on the most substantial cost categories (e.g., drilling and completion, and other CAPEX and OPEX) within their asset portfolios, and on those technology projects that best target them.

For operators that get it right, IHS insists, the rewards can be substantial. In shallow-water gas projects, IHS says it has identified a reduction in life-cycle costs of between 9 and 32 percent, resulting in a savings of $3-$11 per barrel of oil equivalent. In oil sands projects, it says similar efficiencies enable a 4-12 percent reduction in life-cycle costs, resulting in $2-$6 per boe savings. For deepwater oil projects, technology innovations yield a 2-7 percent reduction in life-cycle costs, or a savings of $1-$3 per boe, IHS says.

“These standout results are generating high levels of interest as companies look to dramatically reduce life-cycle costs to allow their projects to move forward,” Jacobs comments, adding, “Our analysis, coupled with actual industry case studies, demonstrates that real value is associated with technology-enabled cost management strategies. These cost savings are impressive numbers at a time when the pressure is on to dramatically lower costs in order to allow a range of upstream oil and gas projects to move forward.”

The challenge, he concludes, is for operators to apply these techniques more widely across their portfolios to drive learning and to leverage economies of scale.

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