Move beyond information technology for field management.

Many confuse the digital oil field as simply the use of information technology (IT) to manage field operations remotely. While IT is critical to asset management in all industries, this is not an IT solution - it is an economic solution.

Digital technology has been used in the oil field for more than 30 years and enables certain behavioral changes. High-bandwidth, low-cost communications to oil and gas assets provide the ability to remotely manage facilities and realize specific savings; however, there is a greater value proposition. A more apt name for the broad economic solution that includes linking digital acquisition and monitoring systems to control room facilities is integrated operations (IO).

The road ahead

One approach to manage and visualize very large complex sets of information is the Mind Map developed in the 1960s. This tool facilitates problem solving by presenting new and creative pathways from the holistic perspective of the total operational environment.

The IO Mind Map provides its user with two focal areas: economic concerns and process assimilation. Both regions and their intersecting planes are information-intensive. Timely and more complete data and information is required if the full economic value from operations is to be realized.

However, decisions must be made regarding what data is required and the frequency of its sample rate. The Mind Map provides the road map to assure that all aspects and their information requirements and interdependencies are addressed.

Petroleum production is the integration of business and physical processes as a function of economics. The optimization of production to changing conditions is economic in nature. Operators attain operational excellence when this complex set of interdependencies is managed to the economic efficiency frontier - essentially the limit of a group of practical portfolios that have a maximum return for any given level of risk. This approach is consistent with the way most petroleum firms manage their set of revenue-producing oil and gas assets.

Moreover, the commodity markets provide the incentive to produce at a given rate. Operational processes need to be directly and electronically tied to the price point that buyers are willing to pay. Intuitively, this is done, albeit in some cases this linkage is weak and slow to respond to changing conditions.

The goal of upstream operators implementing IO scenarios is to maximize the economic value of the enterprise from the sand face to the refinery as a function of commodity market constraints. Timing is critical to accomplishing this goal.

Velocity of information

According to the EIA, in December 2004 the United States Spot Oil low (end-of-week) price was US $30.30/bbl. The September 2005 peak of $59.84 was followed by an early December 2005 price of $48.08. Price volatility is typical for this commodity as it is for natural gas.

Traditionally, the upstream segment has responded to strong demand by "pumping" more oil and by shutting in production at the bottom of the cycle. But what if field operations could be tuned to weekly and even daily fluctuations in the commodity price?

Most manufacturing sectors seek to maximize profit through the aggressive management of the demand cycle. The concept of lean management or an adaptive system to immediately respond to changing market demands was developed by Toyota based on the scientific management principles put forth by the American Frederick Taylor in 1911. This methodology has catapulted this one-time second-tier automobile manufacturer to the threshold of displacing General Motors as the largest global firm in that sector.

An adaptive system is driven by new updated data and information made available at the process-relevant cycle time. For instance, it is not necessary to measure some physical processes continuously, nor is it appropriate to control the flow of oil in response to hourly changes in the commodity prices. The decision-maker, whether human or computer, need only respond to new data that is harmonized to the decision cycle, and any other data can be safely treated as noise. The trick is to understand what the optimum decision cycle time actually is.
Real-time operations centers are acquiring large volumes of field data and providing geoscientists and engineers with the ability to make rapid and effective operational decisions more efficiently. Required reporting is subsequently filed with the home office. Procurement processes, health-safety-environment and human resources control is largely electronic for those firms that have fully implemented enterprise resource planning (ERP) solutions.

Often, there are delays in the information flow among these functions as well as discontinuities. Moreover, continual mergers and acquisitions limit functional seamlessness.

This need not be the case as it is now possible to employ the rapid application development (RAD) techniques used to develop commercial off-the-shelf (COTS) software to implement IO solutions quickly. Finally, if one thinks of the process from a systems perspective, information feedback loops need to be established to provide the field with a clear understanding of enterprise needs in process-relevant time.

When the decision cycle time is aligned with the needs of the business to have a flexible response to rapidly changing market situations, then the impact of IO can realize its high potential. Operators have a wide selection of readily available cost-effective IT tools to implement this solution, and the use of RAD provides the ability to capitalize on the value of IO in a very cost-effective manner.

Measuring the value

It is often difficult to measure the value and assess the risk associated with IO implementations. Soft benefits are difficult to understand, and direct benefits have been elusive. The value proposition for implementing IO solutions has been articulated by several pundits, including this author, and they can be quite substantial.

The IO solution is emerging and as such there is not yet a track record of best practices that document value realized. However, there is an assessment process that develops a project risk profile as one of its deliverables.

The expected value of marginal information (EVMI) metric is developed from economic utility theory and states that within a documented level of uncertainty, if the expected or statistical value of the project exceeds its economic cost then the project adds value to the firm. This metric is consistent with the portfolio construct that operators use in the asset management process and thus aligns IT spend with the business needs.

Emerging functionality

One observer has noted that approximately 40% of $1 billion-plus upstream infrastructure projects have cost over-runs. According to the International Energy Agency (IEA), $5.7 trillion will be invested in energy between 2003 and 2030. This translates into a very large number of major projects, and if the current trend continues, the cost of delays and overruns will be significant.

In a recent refinery upgrade project a total savings of 17.5% (12% reduction in project duration and 5.5% human resources savings) was accomplished using project management process simulation. Using Project Management Institute (PMI) techniques, efforts to integrate this capability are underway in drilling, facilities engineering, design, and fabrication as well as major disaster planning and recovery. Initial estimates suggest that the value proposition for the upstream sector is at least equal to that already proven downstream.

Even greater value will be realized when IO and project management simulation are incorporated into a concurrent process approach toward maximizing the asset performance. This will provide management with a level of field intelligence into operational processes that has not been available. Armed with this new insight available from a dashboard or even cell phone, executives will have the flexibility they will require to be competitive in the more intensive business environment of the 21st century petroleum industry.

IO is enabled by IT just as other oilfield operations are enabled by other technologies. IT-enabled projects can add significant economic value and should be considered from that perspective. Finally, as a mature and available solution, the decision to invest in an IO merits deliberation on par with other major strategic revenue enhancing projects.

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