What would solve the upstream oil and gas industry’s problems? Many might simply respond, “$100 oil.” And they would be partly right. But dozens of challenges plague the industry that have little to do with low commodity prices.

E&P talked to several experts, including many of our editorial advisers, to address the challenges the upstream faces and their potential solutions. While many of the challenges are technical in nature, others are on a larger scale and encompass everything from carbon capture to the crew change. We also asked them to address how far we’ve come technologically and some of the “low-hanging technology fruit” that, with a little tweaking, could address these issues almost immediately.

Tough challenges

Many of the industry’s largest challenges have nothing to do with seismic acquisition or fracture fluid. Larger challenges loom.

“There is a loss of qualified, experienced workforce and attrition in technical expertise within both operators and service companies,” said Olga Koper, energy business development leader for Battelle, pointing to a large decrease in innovation within these companies coupled with the bankruptcies of many small businesses and decreased funding to academia and research institutes.

Many of the industry’s largest challenges have nothing to do with seismic acquisition or fracture fluid. Larger challenges loom.

Dick Ghiselin, a consultant for Qittitut Consulting, added, “The big crew change has always been a threat, but today because of the recession the threat is even more critical. Who are the engineers and geoscientists of the future? Where will they come from?”

Of equal concern is the increased scrutiny of the industry, particularly in light of climate change findings and earthquakes resulting from induced seismicity. This will impact the industry’s “social license to operate.”

"Concerns about climate change are becoming more widespread along with pressure to do something about it,” said Eve Sprunt, a consultant. “The ‘carbon tax’ can take many forms and will increase costs and limit opportunities.”

Koper listed several aspects of this concern, including emissions reduction and the development of carbon capture and sequestration technologies at a large scale.

And all of this leads to increased regulations. Tom Williams, president of RPSEA, said that in addition to the commodity cycle, companies are reeling due to regulations that are politically driven rather than being science-based. “New regulations have contributed to a number of wells never being drilled, or drilled and not completed, or being prematurely plugged, thus losing access to countless millions of barrels of reserves or lost opportunities of wells not being drilled because of regulatory restrictions for adding needed production infrastructure,” he said. “Even proposed rulemaking processes are extremely costly, and the uncertainty adds to the cost to operate.

“I do not believe anyone could have ever predicted the fluctuation in commodity prices or the added regulatory burdens that have transpired over the past eight years impacting the cost to produce fossil fuels.”

Low commodity prices, increased regulations and technological challenges have combined to stymie the industry’s ability to replace reserves. While there have been some incredible discoveries in recent years, overall the discovery rate is down, and operators are being forced to explore in harsher environments. This leads to higher HSE costs and more difficulty in securing acceptance from stakeholders and the public, Koper said.

This is a particular problem in deep water, where low commodity prices have caused several projects to stall. “Deep water needs to get back on track as the world will need deepwater oil production in a few years,” said Mike Forrest, a consultant. “The oil price decline has generally negatively impacted deep water more than the U.S. unconventional plays.” He added that the industry needs a higher success rate for larger fields, innovative development systems in a faster time and at a lower cost, an increase in recovery rates and oil/service company collaboration.

Peter Lovie of Peter M. Lovie PE LLC added, “The prospects are no longer as good for traditional offshore developments as they looked three years ago—the double whammy of lower oil prices and shale competition.”

Biggest advances

“Few will disagree that multistage hydraulic fracturing coupled with horizontal drilling has been the biggest change in the last two decades,” said Don Paul, executive director of the USC Energy Institute, William M. Keck chair of Energy Resources and research professor of engineering at the University of Southern California, noting that the ability to apply a combination of horizontal drilling, hydraulic fracturing and advanced completion technology at scale has had a profound impact on the industry.

Sprunt added that the recognition of shale as a reservoir opened the door to combining these technologies, and Forrest said that overcoming preconceptions about shales was a big step in the right direction.

“Sometimes the best new technologies are considered crazy ideas early in development, and there can be considerable skepticism,” Forrest said. “Ten years ago friends told me oil recovery from tight shales would probably not work. The U.S. is now producing more than 4 MMbbl/d from tight oil plays.”

The changing mix of hydrocarbon resources reflects a new world of technology opportunities as shown by the re-design of successful collaborative R&D management sources such as RPSEA and DeepStar.

But other advances also have been key enablers. When asked, “What have been the biggest technology advances in recent years?” CTO for GE Oil & Gas Kishore Sundararajan simply replied, “The way we use data.” He added that the industry’s ability to manipulate data and architect it has seen vast improvements.

Ghiselin said a greater focus on production data has led to the development of products like Manara, a joint project between Schlumberger and Saudi Aramco that enables real-time reservoir management using downhole data, and ForOil, which provides ultrahigh-speed processing of massive amounts of digital reservoir data and enables operators to predict future events in the lives of their fields.

Greater computational power also has enabled improvements in seismic images in complex plays, according to Forrest.

Low-hanging fruit

While there are some fixes that, with a bit of extra time and R&D, can add extra fuel to the fire, Lovie said, “I question if there are any trees with much of this mystical fruit still around.”

Still, data analytics continues to rear its head as an almost endless opportunity. “Digitization and data processing can shed a lot of light on the future at a relatively low investment cost,” Ghiselin said.

Koper added, “Proven case studies exist on how and in which areas data analytics increase return on investment for oil and gas companies.”

Additionally, the extension of “smart oilfield” technologies will help lower costs and operations, Paul said. “We also are seeing the growth in the application of Big Data and analytics platforms to inform better decision-making in a capital-constrained environment,” he said.

Much of the new data revolution is guided by better sensor technology. Sprunt said a greater use of remote sensing technologies will aid the industry in finding and producing oil and gas. And Sundararajan said systems engineering, which the aviation industry has been using for a number of years, has good value for oil and gas. Already GE is working with Shell and BP to advance this concept.

Another change GE is driving is standardization. “That’s a tougher problem, to bring customers together,” Sundararajan said. “But I’m happy if we can standardize for a single customer.”

Other low-hanging fruit revolves around water and fluids, Sprunt said. Already technologies exist to process produced water and recycle and reuse fracture fluids, and these technologies are likely to gain traction as concerns about freshwater use and disposal wells grow.

Game changers

In addition to the low-hanging fruit, there are some game-changing technologies and ideas that have the potential to revolutionize the industry. Many of these leverage existing technologies from other industries. Koper, for instance, mentioned the use of nano-materials for improved production, stimulation and monitoring as well as general field digitization. There was also a general consensus that the industry could do a better job powering the oil field.

Koper suggested that emissions and heat losses could be converted into value-added applications, and Williams looks forward to the “electrification” of the oil patch. “This will allow us to run our business off of the power we produce; have more efficient power to drill, complete and produce; better monetize our gas, eliminating flaring; reduce truck traffic, emissions and noise; lower our footprint; and improve the net price for oil and gas produced,” Williams said. “We will have to, and we can, improve our power delivery and power storage systems to make this happen.”

Paul suggested the use of robotics to automate operations. “Some engineering and technology companies such as GE are calling on the Industrial Internet of Things paradigm as the way of the future for the upstream,” he said. “We are seeing the same view being discussed in other industries. Given the challenges of implementing such changes for many legacy producing assets, this is likely to take considerable time, but the long trend seems very powerful and could materially reduce costs, increase the reliability/integrity/safety/ environmental performance of our facilities and overcome potential shortfalls in the talent pool.”

Finally, respondents put forward the idea of new ideas and better business models. “We need new business models that give the local population a greater financial stake in the upside of oil and gas operations so that the locals personally benefit from the production and are therefore more tolerant of the impact,” Sprunt said.

Paul added, “The business challenges for the industry fall into three general classes: lower total costs per barrel; sustainable capability by managing the industry talent pool transition; and sustainable license to operate resulting from improvements in operating reliability, asset integrity, safety and environmental impacts.”

But the ultimate game changer might simply be a disruptive idea that tips the industry on its ear. Paul agreed with Sprunt, and Williams added, “Some very smart people will create a disruptive way of using technology for this business: the oil and gas equivalent of Uber,” he said. “I think this is likely and will probably focus on offshore, and many of us in the industry will be asking, ‘Hey, what just happened?’”

Contact the author, Rhonda Duey, at rduey@hartenergy.com.

Read this month's other "Upstream Challenges and Solutions" cover stories:

Diversity in the C-suite

Upstream investment: a contrarian strategy

Offshore rig sector faces long and winding road to recovery

Optimizing production, economics in mature fields

Comments