Despite the down market of the past several years, technology research and development (R&D) remains critical to the future of the oil and gas industry, said researcher Erika Biediger of ExxonMobil in a presentation to the SPE Gulf Coast Section R&D study group in Houston. Some important technology advances have emerged in past down markets, and some potential advances may be well-suited to down market conditions in which even small cost savings are important, she said.
Biediger gave a wide-ranging presentation, in which she engaged her well-informed audience with back-and-forth discussion throughout.
While oil prices have been down since mid-2014, she noted that rig activity presented a mixed picture. Rig counts declined sharply in North America but in international markets remained relatively stable. Still, R&D budgets in general have been cut and remain under pressure as a result of the price decline.
Past Advances in Down Markets
Examples of Technology Breakthroughs During Down Markets |
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PDC Bits SPE-14075-PA. 1998. PDC Drill Bit Design and Field Application Evolution,JPT, 40 (3). |
Topdrives |
The modern 1,500-hp land rig |
Notwithstanding budgetary pressure, R&D has shown an ability to make important advances in previous down markets.
Biediger gave an example from her own company, in which researchers in the late 1950s and early 1960s began a detailed study of the physics involved in cutting rock with a drill bit. Based on the use of mechanical specific energy equations and eventually furthered by high-powered computer technology, ExxonMobil developed a workflow that in recent years has enabled it to improve penetration rates on similar wells with similar architecture by more than 50%.
Audience member Jeff Moss, drilling adviser at ExxonMobil and SPE drilling technical director, pointed out other drilling technology breakthroughs that likewise emerged from down markets, including polycrystalline-diamond-compact drill bits, topdrives, and the modern 1,500-horsepower land rig.
A Focus on Physics
With the cost pressures exerted by down markets, Biediger said that two R&D areas stand out for their potential to drive down costs: a better understanding of the physics related to processes in operations and issues connected with supply chains.
“You can reduce costs by having better models, better simulation techniques, better workflows that enable you to understand what’s going on in your systems,” she said. “Then there’s also supply chain cost reductions, so if you can optimize through data analytics or through looking at the larger system as a whole, [you can] reduce your costs in that way.”
Biediger stressed the advantages of R&D collaboration between operators, service companies, academics, and institutions—including arrangements such as consortia and joint industry projects—that can leverage the knowledge of multiple parties to improve the return on research investment.
‘Skin in the Game’
For the collaborations to work best, “everyone needs to have a bit of skin in the game,” whether money or another stake of importance, she said.
She also recommended an increased focus on advances in other industries, such as medicine, the airlines, automotive, information technology, and leading companies such as Google, Amazon, and IBM.
“The reason I think it’s important, particularly in a low-price environment, is that we’re actually able to let other industries pay that significant investment in developing the opportunity,” Biediger said. “And then we get to pay an incremental cost for manipulating it or changing it into something that’s applicable to our industry needs.”
Try To Keep Spending Stable
While a down market can require tough budgetary decisions about R&D priorities, Biediger emphasized the need to maintain as stable a spending pattern as possible. To ensure that technologies will be ready when market needs pick up, a policy of turning off spending and turning it on again, she said, “is very challenging to do” and not likely to succeed.
“To be truly successful with innovation,” Biediger said, “you have to maintain your discipline. And I know that gets very challenging, particularly when we’re cash-strapped. But if you can maintain your discipline and maintain your patience, you’re going to see it through the technology development cycle that you need in order to deliver something. ….
“R&D isn’t easy,” she continued. “It certainly takes time, and I think for many of us there is a tendency to cut back on our budgets. And I think to be successful you can’t skimp on the cash.”
Although some programs may need to be cut or placed on the back burner, it remains important to keep a balanced portfolio of technologies in development, rather than focus exclusively on huge breakthroughs. “Because saving a penny when you’ve got to drill 10,000 wells,” she said, “is going to add up to a significant amount of money.”