Oilfield Life After the COVID-19 Crash
This latest crash reminds me of the old R.E.M. song, The End of the World as We Know It (and I Feel Fine).
I have been through quite a few of these roller-coaster rides in my career, and while all have had the same shape, this one is quite different.
For the first time, we in the industry are caught in that “perfect storm” of big players, playing their game of trying to upset the law of supply/demand, and the external imposition of near-complete destruction—albeit a temporary one—of the demand curve.
Never has the entire world been locked down, not able to move about, travel, or conduct business. As a result, and for the first time ever, we witnessed oil futures go negative and the panic of the traders.
While reading many articles and listening in on several earnings calls, I have a few observations about how the world as we know it is at an end … and why I feel fine about it.
I have been involved in heading up small product lines with several of the major oilfield services (OFS) companies, and in that job was responsible for bringing new technology into the market.
It’s a never-ending cycle of discovering what we think the customer not only might want but actually need 5 to 10 years out. That, balanced with the internal fight with other product service lines for limited budgets, leaves each of us trying to make our case for our technology portfolio.
A Different Tone
What makes this crash unique is the tone from the earnings calls, indicating a complete elimination of a layer of management. Based on my experience, this indicates the elimination of that small but dedicated group within OFS companies that develops and builds new technology.
While the executives never completely identified this group, it is safe to assume capital reduction plans and “restructuring” will “save” up to a billion dollars in each major OFS company. The capital outlay is understandable in that the demand—at least for now—is reduced based on the current lack of demand and the pullback from the Permian.
What is disturbing is the indication of the virtual elimination of new technology development.
There is a mix of good news and bad news with this revelation. The good news is, all the major OFS companies for the past few years have put out some amazing technology, bringing their fleet of motors, RSS tools, downhole evaluation tools, and improvements on wireline technology to a place never before seen.
The bad news: operators had better be happy with what’s currently there. This major pullback will result in the elimination of a large number of technologies and a closure in the pipeline of new product development. For that engine to be restarted, a minimum of 2 years will be necessary to rebuild a technology unit, and then at least 2 years for new products to come rolling out of it.
How Is This a Good Thing?
Each time before, each major downturn has resulted in a major reassessment of the philosophy of how we do business.
I do not mean we will start making clothing, but from time to time we need to rethink how we explore for oil and gas. Each of these major upsets has brought some amazing technologies and techniques. For example, the idea of a topdrive, the concept of a rotary steerable system, measurement-while-drilling and logging-while-drilling (LWD) technology, horizontal drilling, and hydraulic fracturing all have been the result of one of these “rethinks.”
How can we take advantage of this cycle?
Perhaps the operators should involve the service side in their plans. Very often, the service company tries to gather information from the operations group of their clients through their business development (i.e., sales) group.
While this communication is vital in planning day-to-day operations, this is absolutely the wrong group to talk to about future needs. Usually what will come out of these discussions is a list of complaints on how a current tool works (or doesn’t work), or what minor adjustment the ops engineer needs for a tool to better meet his immediate need.
Inside product development, we joke that this is an “I want that button moved from here to there” or a “Can you change the color of it?” discussion. While helpful in the sustaining technology group—of course we want to make the customer happy—this is not the right discussion as to where the real R&D dollar needs to be spent.
What needs to happen is a high-level discussion between the asset managers and drilling-engineering managers with the heads of the OFS product groups.
Something To Talk About
Here is where confidential discussions can take place that might indicate technical challenges anticipated in future exploration/development projects. These sessions could revolve around topics such as new areas of drilling involving high temperature/high pressure, different lithology, or unusual formations.
Discussions of evaluation discoveries within the operator’s R&D group might focus on mineralogy, gas analysis, and fluid analysis—all of which might be built into a downhole tool or surface measurements that can be taken at the wellsite.
What drilling problems are anticipated in future programs? Technical challenges (backed with internal data and research) that have been most highlighted in recent years include monobore drilling, reduction in crew size around mechanization and automation, and how the concept of the Internet of Things (IoT) can be better utilized.
And, let us not forget safety. How can better measurements and analytics be used to drill a safer well, more efficiently, and provide a better wellbore aimed at maximized production?
Along that line, a major concern that is often discussed at gatherings of such groups as SPE’s DSATS and the equivalent IADC technology groups is the accuracy of measurement sensors. No standard is demanded by the industry or the governmental agencies that will force this issue. We all know the issue, but we never do anything about it.
If the demand for standards for this were put into place, the cost of the project would increase.
The OFS companies will only provide the bare minimum as required in the Request for Quote (RFQ), and often that RFQ is a copy and paste of an RFQ from 10 years ago.
I have personally seen requests for technology that is no longer available to the industry and doesn’t fit in today’s market. Why is this important? Safety is the primary consideration.
Secondary to that but important is the comparison of results from one well to another. If different measurement types are used and different (or no) calibration standards are used, there is no way to make a proper analysis. Over the years, the major OFS companies were forced into the idea of “bundled” services by the operators. The operators cleverly used the power of the checkbook by having technology bundled into projects that often are provided at or below actual cost.
For example, an expensive LWD operation will be awarded if the service company “throws in” the mudlogging for a major discount or completely free of charge.
The reality is, nothing is “free.” Often the cost of the additional services is hidden in ways that are not as obvious to the operator. If not, the consequence is an inferior service, poorly trained field operations on that loss-leader service, and zero investment by the service company in new technology.
This is not good for the service company, and it is not good for the operator.
Where New Ideas Come From
With all these challenges being put on hold from this major downturn, where can we turn for new technology? Perhaps we have had the answer all along, and that answer is how the industry developed technology in the early days.
We have historically seen small, independent companies crop up with a very specific idea for a need identified by the customer, almost a boutique concept. With proper operator analysis of services that are needed for each particular project, the unbundling of services will be necessary.
In this way, the various suppliers can concentrate on what they do best, and the operator will end up with a much better drilling program.
Another opportunity will be something that has occurred over the years when one technology replaces another.
The topdrive has virtually replaced the rotary table. LWD has pushed wireline into a niche position. The rotary steerable system has revolutionized the directional drilling business.
New ideas such as horizontals and multilaterals have enhanced production and expanded the reach of wells. Combined with hydraulic fracturing, even in conventional formations, that has multiplied opportunities for better draining the reservoir. The industry needs to look at how these specialized companies can develop such groundbreaking technologies to change the way we drill and complete wells.
A Digital Double Down
There is good news here in that this past upswing of new technology has yielded new and innovative concepts that have not been fully utilized.
Most of the new technology released in the past few years has been greatly underutilized. That means there are still opportunities for better operations using this technology.
The problem is that operators will be challenged to move away from the “cookie-cutter” concept of factory drilling. The concept sounded good, but in reality, we have seen many problems that keep recurring.
In several talks I have given, I have congratulated the drilling world on allowing technology to catch up and be utilized--but a Xerox machine is not the right technology. We need to do a better job of understanding our reservoirs. The rock tells the story.
Can we start looking at new methods of better evaluating the cuttings and gas being liberated from the drilling process rather than using LWD? That analysis is a direct measurement rather than an implied measurement.
There are problems with not knowing where that gas or those cuttings are from, but that is a solvable problem. Can new bits be designed to better capture the rock for surface analysis? All of these are solvable problems.
The real excitement is around the digital transformation we are all discussing.
Every operator and service company has ongoing projects around that. We once complained that we didn’t have enough data. Today, we have a firehose of data spewing at us every second.
We all know that if we can properly evaluate that data, we can drill a well that is safe and efficient and one that will maximize production. Much work is going on around artificial intelligence (AI), machine learning (ML), and neural networks. The exciting thing about data is they provide the greatest opportunity for automation as opposed to mechanization.
Automation should be aimed at how decisions are made, how data are efficiently gathered and analyzed, and how we can start taking the activities off the person and allow the systems to act and react to current operations. We need to look at closing the loop between measurements and control, building the model, and refining the model based on the comparison of the model to real-time measurements.
Digital transformation is just barely underway; operators and service companies will need to double down in their efforts. Reduction in headcount will drive the digital tech; this will result in the need for fewer heads on the rig and thus will increase safety and reduce costs.
|Duncan Blue is the owner of Duncan Blue Consulting with 45 years of experience across the globe with several major service companies working in new product development and product management. Along with several published papers and articles, he also holds several patents, most notably one that led to the Baker Hughes Rig Count revamp. He can be contacted at firstname.lastname@example.org|
Oilfield Life After the COVID-19 Crash
Duncan Blue, Duncan Blue Consulting.
05 May 2020
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