Sustaining Economic Operations With Low-Price Oil

What does USD 60/bbl crude mean to the oil industry? We all know that oil prices are volatile and that we have seen oil in the USD 60/bbl price range before, but not since 2008.

Fig. 1—The three-tier pyramid models depict the maturity levels of the people, process, and technology elements of a digital oil field.

What does USD 60/bbl crude mean to the oil industry? We all know that oil prices are volatile and that we have seen oil in the USD 60/bbl price range before, but not since 2008.

How did the upstream industry respond then? The short answer is that it did what it is doing now: Projects were canceled, drilling and production were cut, petroleum revenue taxes declined significantly, and many staff in operator, service, and supporting companies left the industry through redundancy or early retirements. In short, the industry felt extremely sorry for itself.

The big difference between 2008 and 2015 is the state of the global economy. In early 2008, global demand for oil had been growing rapidly as countries such as China and India were evolving as major consumers and starting to add significantly to the traditional demand from highly developed countries. By the middle of the year, the world oil market was thrown into financial chaos as many global economies fell into recession. There was suddenly a glut of oil as consumer demand plummeted. OPEC, which at the time controlled about 40% of global oil output, responded by implementing its deepest ever cut in supply but even this did not protect the price. There was just too much oil available compared with global consumption requirements.

By the end of 2012, statistics from the US Energy Information Administration confirmed that the picture of global oil consumption had changed significantly. By this time, China had grown to be the second-largest consumer of world oil with Japan in third place and India in fourth. This was a turning point as the new world oil markets could no longer accept major cuts in global production to bolster prices. So in 2015, it looks as though the oil industry will have to sustain production at a lower revenue price, which means that it will have to work smarter.

An important innovation since 2008 is the growth of integrated operations, also known as the “digital oil field,” which enables increased efficiency in operator companies. Integrated operations allow businesses to optimize their resources of staff, money, and facilities through enhanced collaboration, improved workflows, and remote monitoring of critical operations in drilling and production.

Adoption so far has been patchy: Some companies have taken integrated operations fully on board while others have made only partial use of it and some have not adopted it at all. In this new low oil price climate, we believe that integrated operations could be the critical factor that enables sustainable economic operations.

How Does Integrated Operations Enable Success?

To function as a major enabler for USD 60/bbl oil, an integrated operations strategy must be engineered for success right from the beginning, which means following industry proven best practices. They should include

  • Clear deliverables with realistic financial targets
  • Technology definition based on the corporate operating philosophies
  • Smart workflows to make the best use of the technology
  • A transition management plan to define the people transition process

The starting point is always a digital oilfield strategy document. This is an open and flexible document that companies should expect to be constantly updated as new technology is identified and operational priorities evolve. There is rarely a clear endpoint to a digital oilfield project because the factors are continually changing with time. It has been said that “a digital oilfield project starts but never ends.” Once an operator is committed to integrated operations, it is constantly seeking new ways of increasing its efficiency in more challenging environments.
Alongside the digital oilfield strategy document, there should be three important project initiation documents as follows:

  • Maturity assessment. It defines the current position of the client organization in digital oilfield adoption. The maturity assessment should be repeated at various intervals in an implementation project to measure progress. It takes into account the human factors and workflow issues in addition to technology deployment.
  • Information technology (IT) readiness assessment. All digital oilfield implementations depend on the corporate IT infrastructure and this assessment is a measure of the degree to which the current IT infrastructure will support the digital oilfield implementation goals.
  • Digital oilfield project road map. It is a detailed definition of how the digital oilfield project will be delivered. It covers technology deployments, workflow requirements, and people transition management. The road map must be based on the client’s functional requirements and accounts for corporate priorities, goals, and objectives.

It is widely accepted throughout the industry that the three elements of people, process, and technology are all critical to a successful digital oilfield implementation. Fig. 1 above shows these elements as three-tier pyramids, with each layer having a defined level of maturity. An effective digital oilfield strategy should aim to advance the maturity of all three elements in parallel; any imbalance is an indication of a weak strategy.

Geologix Systems Integration uses the maturity assessment to build an understanding of the maturity balance in the pyramid model by interviewing operator staff and documenting “as is” work processes and installed technology. We then conduct a gap analysis to transition the organization to a balanced maturity including required people development, “to be” work processes, and appropriate technology. This enables a strategy to be developed based on a process of continuous improvement, thus avoiding sudden major changes to the organization.

The following case studies show the results of stable and unstable maturity pyramid models.

Case Study 1

In this case, all three areas were well balanced: The company understood its work processes and had begun the process of updating them to meet the new technology that would be introduced. Staff were well engaged, recognized the potential benefits of the digital oil field, and were willing to adapt to new ways of working.

Here, it was easy for us to implement integrated operations and move the company forward. The improvements in efficiencies took place in a relatively short time frame and the company was able to see a productivity benefit in fewer than 2 years.

Case Study 2

In this case, people, process, and technology were not in balance: The company had invested in expensive technology but only some staff were on board with it; others were either wary of it or saw it as a threat to their jobs. The management had a poor understanding of actual work practices and consequently had not worked out how the new technology would be used.

It is not uncommon for operator companies to demonstrate a much higher maturity in the technology pyramid than in the people and process pyramids and, as could be predicted, this company was struggling to deliver the expected value from its digital oilfield strategies.

In this case, we had to begin by working with the company to get it to understand its own work processes. We also ran workshops to explain to the staff the benefits of the digital oil field and also to bring together different disciplines so that they could begin to see how effective a collaborative way of working might be.

Although it took a little longer, we were eventually able to achieve a maturity balance and the company was not only more profitable and efficient, but also the staff were happier with how things were being run.

Digital Oilfield Change Requirements

The digital oil field has become a generic term for the application of smart information technology to improve the safety, efficiency, and productivity of oil and gas operations. It can deliver benefits in many discipline functions including reservoir characterization, well production, facilities optimization, and export systems.

However, many oil and gas companies have failed to realize the true potential of the digital oil field because they have overlooked one or more of the following prerequisites:

  • The right staff for the job. Digital oilfield processes require people with different skills from traditional oilfield operations. There is a strong focus on IT but the critical factor is to merge IT skills with discipline knowledge. Experience has shown that it is relatively easy to hire personnel who are experts in IT or are experienced in oilfield services, but it is much more difficult to find experienced oilfield workers who have a mastery of IT.
  • Appropriate training. A consequence of the above is that many oil company personnel will have to undergo training to help them adapt to new ways of working. For example, the role of a site drilling manager is very different from the role of a drilling expert supporting many drilling operations in a remote collaboration center. Digital oilfield implementation projects must include a significant element of training and coaching of staff.
  • One size does not fit all. The design of a digital oilfield solution must be matched to the economics of the operation. In a deepwater, tight gas well in the US Gulf of Mexico, where labor costs are high, it is easy to justify smart well technology because the additional investment is relatively small and the costs can be recovered quickly. However, in an onshore drilling operation on a conventional well in an area where labor costs are relatively low, it becomes much more difficult. It may be that the investment is still economic but almost certainly, it will necessitate simpler technology.
  • Internet access. It is easy to assume that low-cost, high-bandwidth access to the Internet is readily available on a global basis, but this is often not the case in areas where oil and gas resources are now being developed. Poor communications will degrade the value of digital oilfield technology. This has frequently resulted in the need to develop a regional communications infrastructure, a time-consuming and very expensive project in its own right.
  • New work processes. Implementation of a digital oil field requires new work processes. There are many cases in which significant investment has been made in technology such as smart instrumentation in the field, good communications, and a well-designed collaboration environment. But the implementation is not a success because the work processes are not adapted to the technology. Using good design practices, changes in well performance can be relayed to a collaboration center on a continuous basis. However, if support teams are not organized to analyze this information and take action with minimum delay, the value is lost totally. In fact, the situation may be worse than not having the technology at all, as field personnel may make incorrect assumptions about the level of remote support. The danger is that they do not pay the same attention to the operation that they would in the absence of remote support.

Transition Management and Training

The greatest challenge that most operators face in implementing a successful digital oilfield strategy is effective people engagement. Many staff will not have considered the consequences of the digital oil field such as increased collaboration, remote working, information sharing, and “out of hours” decision making. It is important that staff personalize the digital oil field and view it from their own perspective, which will probably be very different from the company’s perspective.

  • Normally, this transition is more significant for more experienced staff than for younger staff. They should be asking
  • What does my job look like in a digital oilfield environment?
  • Will I feel satisfied or will I feel as though I am losing control?
  • How will I relate to younger staff who are likely to adapt much more quickly?
  • Will I be giving away personal power by sharing information so widely?
  • Is this transition necessary as I have been doing my job well for the past 20-plus years?
  • Am I willing to be a strong advocate of the digital oil field or will I take every opportunity to show that it was the wrong decision?

Training is a key component of all digital oilfield implementation projects and should be planned carefully. If an operator company is new to digital oil field, then the following topics must be addressed in an introductory course:

  • How do I start a project and who will be involved?
  • How do I engage all critical levels in my company from senior managers to field technicians?
  • Does my company have the necessary skills to support the technology?
  • Is my company prepared to suffer reduced performance initially for better returns later?
  • Will the staff be responsive to new work processes that may be very different from the work processes today?

Once the digital oilfield project is established, the training requirements shift toward design and operational requirements. These may cover a broad spectrum of knowledge depending on the scope of the digital oilfield project and the number of functional areas that it will touch.

Can We Function Profitably at Lower Oil Prices?

The next 2 years may present a more financially challenging environment for oil and gas operators. However, it does provide an opportunity to smarten our operations and to focus on increased drilling and production efficiency, as well as long-term recovery. This in turn will help us to build a sustainable industry exploiting both conventional and unconventional reserves and technologies for the benefit of all our customers and future generations.

If we can start viewing the digital oil field and the smart operations it brings as “business as usual,” then the low oil price environment could be much less threatening.

Julian Pickering is the chief executive officer of Geologix Systems Integration, a nonexecutive director of Geologix, and managing director of Digital Oilfield Solutions. He has overseen the development of real-time operations centers and digital oilfield workflow and transition management projects in several major oil and gas companies. He was chairman of the Digital Energy Subcommittee of the 2014 SPE Annual Technology Conference and Exhibition and formerly the chairman of the WITSML Executive Team. He previously worked for BP for 32 years and was the head of the global digital drilling and completions program and the head of BP’s Field of the Future facilities program.

Samit Sengupta, managing director of Geologix, has more than 30 years’ experience in the upstream sector of the oil and gas industry. He worked in the subsurface data acquisition and analysis industry in Australasia, the US, Africa, and Europe with Schlumberger, Gearhart, and Halliburton before creating Geologix, an international company providing integrated software and services that include well log authoring, data management, and real-time monitoring. He holds a degree in civil engineering from the Institute of Technology Bombay.