The next wave of upstream innovation is likely to combine the "push" of science and "pull" by the industry, and will be achieved by companies that hire the best people, according to a panel of industry representatives at CERAWeek 2011 in Houston Tuesday.

Technological innovations will play a critical role in overcoming challenges the industry faces, including increasing energy demands, carbon management and drilling in more difficult locations, said Gerald Schotman, Shell's executive vice president, innovation and R&D.

"Technological development within the oil and gas industry is characterized by what I think is a healthy dynamic between push and pull...many of our current industry challenges are so complex and so big that it's very difficult to do it all ourselves. We need to adopt a new model now if [we] are to have any chance, any hope of addressing the ever-growing and more pressing future challenges." The new model will be based on inclusiveness and collaboration, with investor-owned companies, national oil companies, service companies, governments and universities "working together, playing to their strengths and pushing the technology envelope to provide even more integrated solutions." Schotman said.

Optimizing processes sometimes requires simultaneous pulling and pushing, and collaboration with service companies, according to QEP Resources Inc. CEO Charles Stanley. "I believe that there's a very direct and important correlation between our efficiency as operators, our ability to focus on the well construction process from beginning to end, and the ability for service companies to be profitable and provide services at a lower cost. The technology that we seek and that we pull and that the service companies are pushing obviously drives these efficiencies gains, but more importantly there's a human element to this business that is extremely important in the service delivery business and the optimization business."

Defining innovation and where it comes from is an elusive task, but that human element is vital, according to Schotman.

"I've become convinced that over 50% of the innovation and 50% of the efficiency gains that we have made are [because of] the people that we have in our organization and the people that our service providers have in their organizations. Finding the very best people...encouraging them to task risks, especially early on, knowing full well that in many instances they will fail -- but hopefully they fail very early in the project but not later -- and then allowing these very good people from both the operator and from the service companies to collaborate. And then you get ad hoc innovations; you start to see very bright people working together to identify ways to do things quicker, safer and more efficiently. And there we achieve real innovation."

The service sector is "very much in the push business," according to Jonathan Lewis, Halliburton senior vice president, drilling & evaluation. "But we push on the basis of what we understand to be our customers' requirements."

Ironically, the industry's recent focus on shale plays -- which was made possible by technological breakthroughs -- has prompted more recent innovations, Lewis said.

"While there's always some level of background innovation taking place, it's invariably the technical and economic challenges of the new play types that catalyze the greatest innovation velocity. To meet the innovation requirements of these new play types in particular -- to meet what we call operator need -- service companies have traditionally focused on technology innovation."

The economic challenges of shale plays are forcing the industry to question traditional ways of working, according to Lewis. "Shale gas operations today have unquestionably become something of a crucible for operational process innovation, particularly in the last couple of years. You might argue that typical margins in the oil and gas business for all players -- service companies and operators -- have allowed us to live with levels of inefficiency that would be, quite frankly, unthinkable in other industry segments. We tolerate 20-30% nonproductive time in many of our rig operations today, and we have significant downtime and very expensive assets that would not be tolerated in other sectors. The economics of shale gas assets are unable to support such inefficiency.

"We are seeing a unique focus on operational process innovation as we strive to reduce costs and make these types of assets economic. Twenty-four hour operations are the norm in many basins, and we're moving away from siloed or discreet delivery to integrated work flows that support this concept of systems thinking and the efficiency gains that come from this particularly around the well-construction and well-completion process. This approach to innovation has driven significant reductions in drilling and completion times, particularly here in North America."

Focusing on continuous improvement and operational excellence has helped QEP achieve a low cost structure, according to Stanley. QEP is active in the Haynesville Shale and Pinedale Anticline, as well as the Woodford Shale, Granite Wash and Bakken plays.

"When we started in [the Haynesville Shale] several years ago it took us over 66 days to drill a well from the surface down to about 17,400 feet. During 2010 we average a little under 40 days to drill the same well to the same total depth. This has resulted in dramatic increases in efficiency from not only just well construction but also completion efficiency, and as a result our completed well costs have come down from over $10 million in 2009 to $8.5 million in the latter half of 2010." Similarly, in the Pinedale Anticline innovations including a move to multiple well pads have cut drilling time from 60 days in 2003 to 16.8 days in 2010, and well costs from an average $8 million to just $3.9 million.

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