SPE Technical Directors’ Outlook: The Industry’s Transformation in 2020 and What It Means for the Future
The oil and gas industry, which had begun showing signs of recovery from a generational downturn, was brought to its knees by the COVID-19 pandemic in 2020. SPE’s technical directors reflect on the pandemic’s impacts and share their outlooks going forward in this annual roundup.
For an industry in which terms like “first ever,” “unparalleled,” “unprecedented,” and “novel” are often overused to the point of losing their meaning, 2020 hit hard with the true meaning of those words as the COVID-19 pandemic exploded onto the world and disrupted almost everything about life as we knew it.
The oil and gas industry, which had begun showing signs of recovery from a generational downturn, was hit particularly hard. Jobs were lost, companies shuttered, and supply chains upended. But the same combination of audacity and ingenuity that has driven the industry for over a century took hold quickly.
Oil and gas people love—and need—to network, share ideas, transfer and apply technology, and gather intelligence. So, when in-person conferences, workshops, and tradeshows were suddenly canceled or indefinitely postponed, entities such as the Society of Petroleum Engineers scrambled to use digital technology to take those events online and make them virtual. While not a perfect replacement, virtual online events offer some unique advantages, as SPE technical directors pointed out in their annual roundup.
Digitalization, long a controversial topic among many in the upstream sector, is now being called essential by the directors across the six SPE technical disciplines they lead. Automation is mentioned frequently in the directors’ comments as a growing contributor to efficiency and risk reduction.
Capital discipline, balance sheet management, and cash flow are seen as crucial, as are collaboration (both internal and external) and value—ranging from core values to value-driven data, to provable, value-based outcomes.
Agility and the ability to comply with environmental, social, and governance (ESG) criteria have taken on new importance. So has work—how and where we do it, and how we balance it with other aspects of life. Knowledge dissemination is considered more important than ever.
Uncertainty continues to characterize the upstream sector, even more so than before the pandemic, but at least one thing is certain: The work of the industry, and the way in which people who comprise it work, is forever changed.
The SPE technical disciplines and the directors who lead them are as follows.
- Completions—Terry Palisch, CARBO Ceramics
- Data Science and Engineering Analytics—Silviu Livescu, Baker Hughes
- Drilling—David Reid, NOV
- HSE and Sustainability—Annamaria Petrone, Eni
- Production and Facilities—Robert Pearson, Glynn Resources
- Reservoir—Erdal Ozkan, Colorado School of Mines
Here, they reflect on a truly unprecedented year and share their outlooks for their disciplines going forward.
Terry Palisch, Completions
In early 2020, operators just stopped drilling and completing wells. Service providers laid off or furloughed crews and employees. Some went out of business. Some consolidated. Investment in new technologies was reduced, with many companies just trying to hold on. We all learned how to function virtually and, in many cases, work from home. I think we are still steep on the learning curve, but we are a “can-do” industry and discipline, so I am confident we will continue to improve.
As an industry and a discipline, we are now having to navigate a new way of working without networking. This, maybe more than anything, has made this downturn different from those of the past. SPE conferences, workshops, and other events stopped, and then quickly converted to virtual settings. Workshops were delayed. The good thing is that some members have been able to “attend” events and technology has been disseminated, but not to the extent we have come to expect.
Completions technology offers an excellent example. The issues haven’t changed. As I mentioned last year in this column, one of the key challenges in the unconventional world is how completions technologies—including optimally completing “child” wells in previously developed areas—can drive increased recovery. Despite the downturn, we’ve continued to make progress in using existing and new fracture diagnostics and modeling technologies to better understand the issues and find ways to mitigate them.
Far-field diversion techniques such as pumping particulates at the beginning of fracturing a child well to prevent the fracture from growing in the direction of the parent well continue to be worked, as does the use of various diagnostics and modeling. We continue to learn and exploit ways to analyze and process completions data through the increasing use of data analytics and machine learning. A search of OnePetro will reveal that the 2020 Unconventional Resources Technology Resources Conference and the 2020 SPE Annual Technical Conference and Exhibition (ATCE) offered numerous papers and discussion on these and other methods of mitigating issues, ranging from pressure monitoring to refracing parent wells and mixing various technologies. What is difficult is getting that information out to other people without traditional networking at conferences and workshops.
As oil and gas activity has returned, so has work in the service sector, but we are still well below pre-COVID activity levels. I suspect this will continue into 2021, but operators are going to be cautious about ramping up too fast, as investors are more focused on capital discipline and proper balance sheet management. In-person events and networking are still on pause for at least one to two quarters (if not more), likely pending the success and deployment of vaccine(s).
I haven’t talked much here about what advancements have occurred this year in offshore completions, but moving these high-cost developments to reality in a lower-price environment will necessitate new technologies and advancements. I’m confident we are ready for and already meeting this challenge. Key aspects of this include multidisciplinary work among completions, drilling, and production engineers to keep wells economic in areas where we are spending more per well, and stacked frac packs packs and multizone completions to complete larger intervals for lower cost.
Looking forward to a year from now, I suspect (or should I say, hope?) that we will know a lot more about what the “new normal” might be for our industry as we emerge from the pandemic and see where the supply-demand curve sits and what impact that has on our activity.
Events such as in-person conferences and workshops will eventually return. In the meantime, I encourage all SPE members to continue to leverage virtual and on-demand events. While I missed networking and not being able to attend exhibits at ATCE, the combination of real-time and on-demand programming made it possible for me to see every paper presentation I wanted to. I didn’t have to pick and choose. That was a first, and a nice one.
Finally, I’d like to remind everyone of how our industry is proving once again the old adage, “Necessity is the mother of invention”—and innovation. We typically react to downturns with increased technology development, because we must, to survive. Now that we aren’t spending the bulk of our energy managing operations, we can apply what we have learned from experience. Because we must move forward and can’t spend money, we don’t do some things we’ve previously done—and that sometimes leads to doing things better.
Silviu Livescu, Data Science & Engineering Analytics
Digital and data-driven technologies have now become ubiquitous in our industry, as data-related studies are reported at all conferences, workshops, and webinars and most of the SPE technical section events. The continually growing popularity of data science and engineering analytics topics is reflected in the many articles appearing in JPT and Data Science and Digital Engineering (DSDE). Those editors are working tirelessly to keep our members well-informed about the latest and greatest news and developments. In addition, during the last Regional Directors’ survey in June 2020, more topics and activities related to data science and engineering analytics have been specifically requested from all SPE regions around the world.
The impact on our industry of the global COVID-19 pandemic has been profound. There is a very complex balance between an immediate need for safe and efficient operations and cost cutting, and the long-term focus on energy transition with emerging technologies into a digital ecosystem. While many companies started their digital journeys earlier, the 2020 disruption has elevated digital transformation from priority to essential status. There is a huge opportunity for our industry to reinvent itself in the digital space, focusing on integrated business transformation and finding agile ways to work.
In the near term, according to an IDC-IHS Markit global survey of 100 upstream energy executives conducted last year in July and August and published in DSDE in October 2020, the goals of our industry are to be agile, trustworthy, empathic, informed, responsive, resilient, innovative, and connected. The top five data-investment priorities until the end of 2021 are centralization, consistency, integration, quality improvement, and governance. I expect that data-driven analytics advancements will become more strategic and will influence business decisions such as coping with volatility, reducing risk, addressing sustainability, and enhancing technical innovation. However, the digital transformation journey is complicated as the industry moves from its current state of data comprising ownership and silos within multi-product-line companies operating across national borders to advanced technologies consisting of cloud-based networks, drones, robots, and automation.
While different companies are in very different digital transformation stages, more collaboration is needed both internally, among different product lines within the same company, and externally, among different companies. To create an efficient digital ecosystem, our industry must be radically open, just like the tech industry became more open and collaborative after the financial crash in March 2000.
However, our digital models are traditionally based on closed-source software and limited data sharing. As a Linux and open-source software enthusiast using all Fedora and previous Red Hat versions since RHL 6.2 Zoot, I believe that opening data to everyone will be critical to adding value from data science and engineering analytics in our industry. As of 2020, many operating companies must still pay attention to file formats, depending on their vendors’ proprietary applications, instead of taking advantage of data access through the latest application programming interfaces (APIs). Thus, in the future the industry should focus on providing data through APIs, allowing all operating companies and vendors to compete for the latest best-in-class applications and data services in an evolving, innovative, open-source ecosystem.
The year 2020 also shaped the work environment of the future. It remains to be seen how working remotely, connecting virtually to everybody across the world, and the work/life balance in the new digital work environment are going to shape our industry’s culture, appeal, and retention of employees. With pre-pandemic work habits disrupted, our industry, like all its counterparts, faces new patterns of working individually and collectively. The companies embracing digital as an opportunity to reimagine themselves are building significant competitive advantage and will be better positioned to adapt to and benefit from the digital transformation journey.
David Reid, Drilling
The main impacts of COVID-19 and the 2020 industry price crash on drilling have been the exodus of experience and the keen focus on core values of execution. Massive budget cuts hurt an already-shrinking pool of revenue. Operations continued where they were planned, but the demand shrinkage did not help the overhang of production. Unchanged was the focus on value-driven data with specific and provable, value-based outcomes. The level of collaboration has continued to become critical to produce value. We all anticipate some minor relief but are not planning on a different 2021. The oil companies are facing the cuts that the service and supply sector have been wading through. The optimistic hopefulness that started to bite into the reality of budget strain at the end of the year will continue into 2021.
For the most part, those who are surviving because of healthy balance sheets are collaborating more closely. Others in the heavy-capital work of drilling contractors are mostly depending on Chapter 11 bankruptcy protection to survive the crippling debt burden. We anticipate more consolidation in 2021. Survival is key.
There were some high points in 2020. Operations efficiency has improved as a result of top performers remaining in the market. Adoption and use of automation continue, and applications have been spreading across the North Sea, Middle East, and Argentine markets. Differentiated technologies are key to being justified for purchase. Automated managed-pressure drilling and other automated drilling operations, as well as advancing use of shaped polycrystalline diamond compact leached cutter technologies, keep pushing the technical boundaries of the technology.
Looking forward to the end of 2021, I am hopeful that the use of digital keeps spreading globally and that collaborative strategies are successful in the supply chain and with operators. Data communications and integration between systems help us improve and deliver on the anticipated exponential value case of the industrial internet of things. The ability of all our technologies to communicate faster and better will be critical, as will everyone playing their part in delivering value to the bottom line. It is evident in the digital community that many are not integrating as well as they should, and a number of factions are growing that need to be integrated to serve the greater good of lowering the cost of operations.
The emergence of new technology in geothermal should attract finances and interest, if any of the shale-like breakthroughs prove out. These all remain, frustratingly for many, hidden inside private labs and test wells across the R&D projects of startups, newly focused array of operators, and service companies. The existing geothermal business is heavily regionalized business and has room to grow with the size and global focus of its oil and gas cousins, who are hungry to impact a business for which they have assets and resources to impact. This is oil and gas I am referring to, all looking at addressing the geothermal opportunity. Like a well-played poker game, we will see how those cards unfold in 2021. I, for one, am hopeful that we may be early on a journey of finding a “new shale” for the future. At a minimum I think some dollars will be chasing what will become either a gold rush or an expensive run for fool’s gold.
Annamaria Petrone, Health, Safety, Environment, and Sustainability
The disastrous spread of COVID-19 across the globe has hit all industries. Oil and gas has not been spared, and it is possible that the Health, Safety, Environment, and Sustainability (HSE&S) discipline has been impacted more than others.
Historically, HSE&S has been perceived as representing cost more than providing immediate benefits. In recent years this misperception has been progressively abandoned. However, the biggest risk after the pandemic is that the progress in the mindset shift of people and organizations around HSE&S might be nullified, and we might go back to the perception that production and revenues are the primary drivers of the business. Unfortunately, we may see a lot of cost savings in how HSE&S-related areas negatively affect not only jobs, but also initiatives such as conferences and other networking opportunities.
I believe the SPE HSE&S community can emerge from the 2020 challenges through a number of initiatives started in recent years that will be progressed and strengthened going forward.
- Safety leadership. Working with regional sections to facilitate the desired mindset transition from “leaders” to “leaders in safety and agility” to drive and sustain changes in their regions’ health, safety, and social responsibility areas. The SPE Safety Leadership Academy will certainly play a critical role in this respect.
- Risk normalization and risk appetite. Working with international organizations to develop initiatives to avoid risk normalization and enforce risk appetite.
- Digitalization. Working at the SPE regional level to identify the potential of digitalization applied to HSE&S.
- Local content, inclusion, and diversity. Developing local content to its full potential to promote diversity and inclusion.
- HSSR professional network. Creating HSE&S professional networks by geographical area and identifying technical authorities and knowledge owners.
- Competency and career development. Creating a portfolio of standardized training courses that are internationally recognized by professional bodies.
- Cooperation with other professional bodies and industry associations. Maximizing cooperation with professional organizations such as the International Association of Oil and Gas Producers, the American Institute of Chemical Engineers’ Center for Chemical Process Safety, and others.
- Sustainability. The pandemic has demonstrated that we need more sustainable development of our resources. The SPE Gaia Sustainability Program has been created with this specific objective.
The most significant 2020 breakthrough for our discipline probably relates to digitalization and understanding the potential of working and networking remotely. This new approach and mindset will survive the pandemic, and despite some drawbacks, will offer new opportunities to involve those previously left out of the picture. If, as HSE&S professionals, we strive to develop the areas mentioned above with passion, compassion, and resilience, we will be able to make a step change in our industry by the end of 2021.
Robert Pearson, Production and Facilities
The 2020 “world war” on the SARS-CoV-2 virus and the resulting COVID-19 pandemic and travel restrictions during a period of oil, gas, and LNG oversupply changed everything. Investment, workover activity, contract work, and employment stability and opportunities for new grads were the first casualties.
The blow was softened somewhat for project management teams involved in installation or commissioning phases. Several offshore construction spreads had already been redeployed to install offshore wind farms and solar arrays or were already contracted to major decommissioning projects that had previously been scheduled for Q2 or Q3 2020. Therefore, the impact continues to slowly grow as these projects terminate.
While drones, robots, unmanned vehicles, and remote-sensing systems have achieved greater acceptance, R&D on the next generation of autonomous vehicles has slowed or been transferred to other industries such as military services.
A downturn always has a somewhat more positive impact on production and operations (P&O) as operators refocus on production and waterflood optimization and low-cost improved oil recovery (IOR). Cash flow is now king and is driven by lower-cost production.
How will we recover from 2020? I believe there are three key factors: value creation, good ESG practices, and knowledge dissemination. Many economists believe that lower commodity prices as a result of the pandemic and increased competition from other sources of energy supply will extend well into this decade. Underinvestment in the near term, together with increasing world population and the slow return of gross domestic product growth, may lead to further mini upswings in 2022 or 2023. However, there is little doubt that we have returned to conditions like those we saw from 1986 to 2004, when the focus was on value creation and return on investments rather than rapid production growth. Not such a bad thing for those in the P&O community.
To maintain or strengthen our social license to operate against mounting pressure, we need to more clearly demonstrate our commitments and achievements with respect to good ESG practices. Expanding the affordable supply of energy while decreasing its carbon footprint is a spectacular engineering and commercial challenge that will create all sorts of new opportunities, especially for the projects, facilities, and construction community.
Knowledge dissemination and exchange demands are now enormous, going far beyond the traditional demands of continual professional development. To assess the requirements, the Production and Facilities Advisory Committee has a work group looking at the nature of our discipline beyond 2025 and the skills that will be required at that point. We are hoping to schedule a special session at 2021 ATCE to discuss this issue. As in the other disciplines, the technical sections have been working hard to transfer knowledge to those regions where activity remains strong and to develop in-line training materials.
I love the virtual conferences. Although I miss the face-to-face networking opportunities, the knowledge-transfer efficiency is greatly increased. The pre-recorded presentations seem to be of higher quality. The ability for attendees to vote up good questions is great. Theoretically, the ability to go back to the recordings for 30–90 days should also be a significant benefit from going virtual, if I can find the time and discipline to do so. However, I did use that function to attend several Offshore Technology Conference–Asia sessions in a more convenient time frame for me in Calgary—it beats getting up and trying to focus at 0300 hr MDST.
The Production and Facilities group successfully launched the Artificial Lift and Gas Well Deliquification Technical Section, and the membership has grown to more than 350. Similarly, our Flow Measurement Technical Section, launched last year, has thrived through this downturn.
Wartime also accelerates technological and operational change, so we have seen greater commitment to remote operations as well as broader acceptance of virtual teams and off-site service support from subject matter experts and equipment maintenance experts. Consequently, trends toward demanning facilities, advanced automation, and improved communication systems were accelerated in 2020.
I am super-excited about the possibility that blue hydrogen with integrated carbon capture, utilization, and storage will reinvigorate not only the nonassociated-gas business, but also CO2-based enhanced oil recovery (EOR). Carbon dioxide is truly a magical fluid with so much upside potential. However, the economics need the emerging incentives and fiscal levers to make IOR/EOR projects fly under the lower-for-longer pricing scenarios.
I anticipate seeing numerous field development and LNG projects that are currently on hold at project management planning stage gates 1, 2, and 3 being successfully recycled with more creative concepts, new materials, and more attractive development costs. Deepwater and frontier exploration also should be picking up by that point. And I am excited about the prospects of electrifying everything in the field and the potential that offers for advanced control systems and automation.
Research and development should also get back on track this year. I am really looking forward to seeing the next generation of drones and robots with mind-boggling capacities to significantly reduce HSE, technical, and commercial risks.
Erdal Ozkan, Reservoir
Oil price and general economic environment affect the reservoir discipline differently than they do disciplines such as drilling and completions, which show clear symptoms. This, however, does not mean the discipline is less impacted. Long-lasting industry downturns and global economic crises such as those experienced in 2020 can be detrimental to the longer-term health of the reservoir discipline. The subject of the reservoir discipline is mostly intangible and requires broad knowledge and critical interpretation skills gained through many years of experience. In 2020, the biggest impact of the industry downturn and COVID-19 on the reservoir technical discipline was the accelerated erosion of experienced professionals before their individual and collective knowledge and experience could be properly transferred to the next generation. This problem is not unique to the reservoir, but because of the nature of the technical subject, the loss of expertise affects the reservoir discipline more severely, and somewhat irreversibly.
Crew change is inevitable in all disciplines and is not necessarily an unhealthy phenomenon. What converts crew change from a natural process to a catastrophe is the loss of control of the pace and the inability to manage knowledge and experience transfer between generations. Because the impact of the crew change becomes more visible in the long term in the reservoir discipline, we can expect an increase in loss of confidence and growing uncertainty and risk in reservoir management decisions in 2021 and beyond. Considering precarious relations with the investment community and the loss of trust of investors, increased uncertainty in predicting the investment return may further endanger the vitality of smaller operators, particularly in unconventional plays.
In the current state, the factors driving the crew change are mostly exogenous and not easy to manage from within the discipline. However, a more systematic, sustainable, and impersonal approach to maintaining critical knowledge and experience is separating it from other aspects of the crew change problem. The advisory committee of the Reservoir technical discipline has been working on a project to define the reservoir technologies of the 21st century. The goal of the project is to capture the critical knowledge and experience to be preserved, identify the obsolete concepts and technologies to be discarded, and highlight the new understanding and technologies to be developed. The outcome of the project is expected to redefine the functions and needs of the discipline, lead the conversion of as much useful experience as possible into learnable knowledge, and guide the education and training of new and existing reservoir professionals with the new perspectives.
The above portrayal of the state of the industry and the reservoir discipline should not imply negativity or discouragement; we should trust our demonstrated ability to survive worse challenges by creating new technologies and adapting to the new rules imposed on us. Breakthroughs, however, do not come at once, and what is usually not highlighted enough is the long progress leading to the breakthrough. Although we may not have seen a specific breakthrough in 2020 and it may not be possible to predict one at this point for 2021 and beyond, there is no doubt that progress is being made.
The reservoir discipline does not go through step changes in short periods of time. It is safe to predict that, at the end of 2021, the discipline will look very much like it does today. As in the entire industry, improving efficiency will continue to be a major concern, and the use of artificial intelligence, machine learning, and data analytics will continue to be enthusiastically tested for their promises. The interest in transferring the North American unconventional experience to other parts of the world and to more conventional resources will continue. EOR/IOR applications in unconventionals will be a hot topic with the execution of more pilot projects. We may employ more consultants and retired professionals to cover the loss of internal experience in smaller operators and independent companies.