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High Tech Move to Oilfields Improving Production, Efficiency

Hydraulic fracturing coupled with horizontal drilling proved to be a game changer for the oil and natural gas industry, and today, operators are harnessing digital technologies that are improving their prospects even more.

Mukul Sharma of the University of Texas at Austin and Ken Evans, Vice President of SAP, who is head of oil and gas for the global software company, recently discussed how exploration and production companies are using technology to change the energy investment game during a webinar by Privcap LLC. Sharma, an oil and gas entrepreneur, now holds the Tex Moncrief Chair in the Department of Petroleum and Geosystems Engineering.

"Operators working the various shale plays and conventional plays, particularly in the U.S., have done a remarkable job of reacting to this very difficult price environment," Sharma said.

How remarkable? He said it's visible when reviewing data between 2009 and 2014 for average production rates per well during the first 48 months of operation. "What it shows is the remarkable increase in well productivity that has been achieved through the application of various technologies, going from about 25 barrels a day at about 30 days of production, to almost 10 times that amount in the last year that reporting is available."

In that same six-year period, the cost of the wells has dropped by a factor of two almost every year, "which is why even at $45 oil, many of these operators have been able to stay in business and actually make money," Sharma said.

Technological advancements in drilling, including fracturing and horizontal drilling "remind me of Moore's Law, that computing capacity was going to double every few years," Evans said. "We're finding that exact same trend applying here. It's the application of digital technologies that's largely at play in allowing the operators to do that experimentation to find where their optimal fracturing volume should be."

Multi-pad drilling is at the top of Sharma's list of technological innovations. Drilling more than one well per pad has been standard for at least five years, but the number of wells per pad has increased -- at lower costs.

"We now drill anywhere from four to 16 wells in a single pad," he said. "And that allows a tremendous amount of cost savings as a result of doing almost an assembly-line operation where you're drilling several wells from a single location on the surface. This has significant cost benefits, but it also has significant environmental benefits, because the pad that you have on the surface has a very small surface signature.

"This technology has essentially dropped the cost of drilling and fracturing these wells by a factor of two. Wells that were drilled over a period of 30 to 45 days can now be drilled in a matter of a week."

Many wells that have been producing for three to five years still have a lot of potential, Sharma said.

"Within these unconventional reservoirs, particularly the oil reservoirs, we only produce about 6% of the oil in place and leave behind about 94% of the oil in the ground. There's a tremendous opportunity to go back in and refracture these wells."

The digital oilfield has proven its worth, said Evans.

"The digital oilfield has been around for about 15 years, but now we're finding opportunities to really leverage that data," he said. "What comes with that is also an increased complexity around the supply chain that has to be managed."

He pointed to the disruptions in the taxi, travel and music industries, which are similar to the digital technology that has disrupted oil and gas.

"As we think about the digital economy, it's pretty interesting to think that the world's largest taxi company today, Uber, owns no vehicles," Evans said. "The world's largest hotelier, Airbnb, owns no hotel rooms. The world's largest music distributor, Apple, owns no music, and the list goes on and on. Could there be an Uber-like service that supplies something to truck dispatching in the downstream space?

"You could think about an Uber for hotshots in an upstream type of scenario. They can actually make that movement. It could have a dramatic impact on the overall supply chain."

A recent analysis by IHS Inc. found that technology and innovation are key to reducing costs and improving capital efficiencies.

"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," said IHS Energy's Paul Markwell, vice president of upstream oil and gas consulting and research. "Technology helps on two fronts. 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."

Investing in technology should be viewed as a long game, Markwell said. Producers have to commit to "unwavering innovation" through the price cycles to meet demand safely and at competitive costs through to 2050 and beyond, he said.

Markwell and IHS Energy's Judson Jacobs contributed to BP plc's first-ever Technology Outlook published in November (see Daily GPINov. 3). The Outlook suggests that digital technologies have more potential than any other technology area to reduce risk, optimize production and contribute to more efficient operations. "Digital" includes includes sensors, telecommunications networks, robotics, and simulation/optimization, coupled with advanced condition monitoring and computational power. Like Evans, the IHS experts said  automating and mechanizing high-cost, repetitive oil and gas activities, such as drilling, are key to cost improvements.

Operators are "looking 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," said Jacobs and Markwell. "In still other instances, operators are increasing their use of mobility technologies to improve the efficiency and effectiveness of their field workforces."

Operators also are adapting technologies initially developed for the defense and manufacturing sectors. For example, oil and gas operators now deploy robots into hazardous areas to inspect difficult-to-access elements such as offshore risers. Unmanned aerial vehicles (i.e., drones) also are being deployed into dangerous areas.

IHS identified several "pockets of technological excellence” that may offer the most potential to impact near-term oil and gas industry costs. Among them is multi-pad drilling, which Sharma said was a game changer. "For example, "drilling efficiency in the Eagle Ford play increased nearly 150% from 2010 to 2014 as an increasing number of wells drilled provided an opportunity to apply these principles," Jacobs said.

"For operators that get it right, the rewards can be substantial," according to IHS. In shallow-water gas projects, researchers identified a reduction in lifecycle costs of between 9% and 32%, resulting in a savings of $3.00-11.00/boe. For deepwater oil projects, technology innovations yielded a 2-7% reduction in lifecycle costs, or a savings of $1.00-3.00/boe.

Energy technology specific to the natural gas industry is expected, as gas replaces coal in transportation fuels and generating electricity, Sharma said. "This move towards natural gas will spawn new technologies."

Overall energy demand is increasing, which means technology advancements also have to move forward, Evans said.

"The real question is just how sustainable and competitive the oil and gas industry is going to remain in that overall energy mix. There are huge opportunities."

Sharma, who has started and sold two oil and gas companies, remains bullish about the future.

"Anytime you have a challenging environment, with the way the prices of oil and gas have been, there are tremendous risks. But there are also tremendous opportunities. Longer term, there is no question that oil and gas prices will recover, and it's a matter of taking advantage of the right opportunities."

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