How can we make crude oil production smarter?

Oil bumping along between $50 and $60 a barrel is good news for prices at the pump but not for offshore oil producers. In regions like the North Sea, for example, a price point of $55/bbl means only half of existing operations are profitable.

Low oil prices are clearly a problem, but narrowing profit margins were already an issue a year ago when crude prices were firmly anchored north of $100 a barrel. Part of the reason is an increase in operational costs of offshore production, which, on average, have surged 200-250% since 2007, according to McKinsey. Another key challenge is the transition into ever-deeper and more complex oil-bearing geologies and the associated increases in necessary exploration and development expenditures, including cost overruns and project delays.

Faced with little prospect of oil returning to $100/bbl anytime soon — both the IEA and the EIA expect it to remain below $80/bbl for the next three to five years — producers will have to find ways to reduce operational costs, and fast.

“Where the focus is at the moment and where the quick wins are is in tackling what the industry is doing but in a different way,” says Steve Robertson, director at Douglas-Westwood, a research consultancy firm and producer of the Deepwater Market Forecast.

Mr Robertson picks up on standardisation as a key emerging trend, illustrated by a DNV-GL/Statoil development programme launched last autumn that focuses on standardisation in subsea processing technology. Statoil, which is expected to claim a world first with its subsea compression system due to start later this year, suggests standardisation could halve the five-year development time for uncomplicated subsea fields.

Ahmed Hashmi, head of upstream technology at BP, also highlights the role of innovation in yielding significant cost savings. “Emerging as a very enabling lever is digitisation,” he says. Mr Hashmi points to growing sophistication in the analyses of new streams of data derived from the fibre optics that are increasingly found in drill bores.

Companies like Baker Hughes, Reliance Industries, and Meridium, for example, have been using this information to help producers improve drilling performance. “With greater availability of big data and connected assets, there is a complete picture of plant operations waiting to be tapped by organisations from the plant floor to the corporate office in order to stay competitive on a global scale,” explained Bonz Hart, Meridium founder and CEO. Last February, his company announced the joint creation with GE of an integrated asset-performance-management tool for the oil and gas industry.

In addition to more sophisticated analyses, the next generation of technology will likely move from an advisory domain — warning operators of potential problems — into more of an autonomous-control domain. “If you introduce more automation in the equipment, you can scale it across a variety of applications,” says Mr Hashmi, who concludes: “The role of digital technologies is really here to stay, and it is driving both operating and capital efficiency.”

This post first appeared on GE LookAhead. Publication does not imply endorsement of views by the World Economic Forum.

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Author: David Appleyard is a contributor at GE LookAhead. 

Image: An oil pump jack pumps oil in a field near Calgary, Alberta. REUTERS/Todd Korol.