Federal Spending Cuts Test Appetite for Exploration and Production Research
Last year, lawmakers in the United States sent a blunt message to the oil business: If it wants new exploration and production technology, it will need to pick up more of the cost.
Last year, lawmakers in the United States sent a blunt message to the oil business: If it wants new exploration and production technology, it will need to pick up more of the cost. Specifically, federal budget cuts eliminated further funding for the technology development organization known as RPSEA (Research Partnership to Secure Energy for America).
While outside observers have talked about the end of RPSEA, those inside have been seeking new sources of support. “You might consider it a turnaround situation,” said James Pappas, president of RPSEA. “We are continuing to manage current projects. As we are closing the books on those, we have a couple of different avenues” to replace them.
The effect of the federal cutoff will not be immediate. The last payment to RPSEA was USD 3.8 million covering administrative costs through 30 September 2014. Another federal agency, though, will pay it to manage the technical aspects of projects already under way over the next 2 years.
In July, the small RPSEA staff was busy winning US Department of Energy approval for the last 19 contracts to do research and development (R&D) work valued at USD 32.7 million: USD 18.5 million in federal funding and USD 14.2 million in corporate matching money. That will give it nearly 79 projects to manage, but the total dwindles rather quickly and runs out at the close of 2016.
RPSEA is working on finding other sources of government-funded research, with much of it related to safety and the environment, Pappas said. It will be using its membership base and industry connections to put together privately funded projects, such as joint industry research projects.
It will be a tough test. RPSEA is seeking new sources of funding at a time when aggressive US federal spending cuts have reduced support for research of all kinds. One sign of the times is the growing number of oil industry research consortia appearing at major universities, where academics run R&D programs addressing member company problems. Others doing oil industry technology development work are the Southwest Research Institute in San Antonio, Texas, and industry-supported research groups such as DeepStar, which focuses on deepwater technology development.
Compared with the industry’s exploration and production budgets, the money spent by RPSEA is not large. Its total annual budget is generally about USD 50 million, with one dollar worth of corporate support in cash or in-kind for every two dollars of government support.
That total represents about half the cost of a single deepwater well spread over many companies, but RPSEA’s budget was more than seven times what DeepStar had for its latest round of research grants. Raising money for cooperative technology development in the oil industry can be a tough sell.
“Even though they (oil companies) have all the money in the world, they are populated by people who are risk adverse,” when it comes to new technology development, said Bill Head, senior manager of ultradeepwater projects for RPSEA.
The number of cooperative research topics that will attract industry support are further limited by competitive concerns. A lot of work related to finding and developing oil deposits yields information that companies do not want to share. Safety and the environment are expected to be keywords in RPSEA’s future. Rules governing RPSEA research that were put in place after the 2010 Macondo accident require that projects address safety and environmental concerns, though they frequently offer a commercial benefit as well.
With the loss of federal support, those limits no longer apply, but Pappas said that focus is not likely to change. “The stuff we are talking about is likely to be related to environment and safety and will be based on technological advances,” he said. “We look at what differentiates us. It has to do with safety aspects of development of new technology.”
These issues also lend themselves to cooperative efforts because the problems are shared, and the information gained can reduce the risk of events that could cause trouble industrywide. Pappas said RPSEA can lead “an unbiased review of the options, with environmental groups working with us and industry working with us, and everyone sitting down at the table.”
One possible source of work is the Advanced Research Projects Agency-Energy (ARPA-E). The federal program is looking for advice on how to commercialize its research, Pappas said. ARPA‑E’s work includes sensors, which can analyze water quality and emissions as well as monitor system performance.
RPSEA has a contract to evaluate technology and help develop new devices for the Ocean Energy Safety Institute, which was created to advise the US offshore regulator, the US Bureau of Safety and Environmental Enforcement (BSEE), Pappas said.
“The initial project provides a road map to get to the real meat of the issue, which is what do we need to do and where do we find money?” Pappas said.
On the plus side, RPSEA has long experience in applied technology development and support from a pool of member companies that supply experts to mentor and advise those persons with projects backed by the organization. It has used its budget to turn engineering plans into prototypes that have been tested. Pappas said that out of 28 recently completed projects, 11 were ready to commercialize.
One of them is a new in-well seismic receiver system built using fiber optics. Two rounds of RPSEA funding paid for the years of work needed to engineer a tough, reliable device combining a flexible metal casing that protects cables gathering enormous amounts of data, which required new processing techniques to analyze it.
Now RPSEA is raising money for the next generation of the device with a joint industry project (JIP). Head said strong early interest from oil companies led to a push to fund an offshore version of seismic testing, and an onshore version for passive monitoring during fracturing. More such work could be part of RPSEA’s future. Pappas said JIPs will be used when companies show an interest in supporting development of a promising technology.
There is no shortage of promising ideas in the grant applications. “There are a lot of research ideas and a pent-up need” for ways to improve onshore operations, said Kent Perry, vice president of onshore programs at RPSEA. One of its programs received 100 proposals seeking USD 250 million worth of support. Due in part to the federal spending cuts, it was only able to fund four of them for a total of USD 6 million to USD 8 million. Perry said there were many worthy ideas among the unfunded projects.
RPSEA’s mission has been to support promising ideas that otherwise would not be funded because they are technically risky or really early in the development process.
The last round of grants included two that might lead to profitable products: a new sound source for offshore seismic, which is supposed to lessen the effect on marine mammals, and a new membrane designed to resist fouling when treating produced water.
Others would have been difficult to privately fund because they address pressing questions that offer no obvious avenue to profit from the effort. The last round of contracts includes two investigating the industry’s environmental impact: monitoring the source of methane emissions that have been blamed on natural gas operations, and a second creating a model to predict if industry activity is likely to cause seismic activity.
Past projects in the onshore programs investigated whether hot water flowing from a well can be used to generate power, and whether drilling more wells on a single pad site would ultimately mean more production. Perry said the work demonstrated that it is possible to save money on power by equipping wells to generate power with hot water, and that in some well pads, more wells did not add more production.
For RPSEA, continued government support is desired because it magnifies what can get done. “The pace of work is slowed by a factor of 10 if you have to raise money from 20 entities and put together a JIP,” said Perry.