Trends and Challenges in the Upstream Oil and Gas Industry

Trends and Challenges in the Upstream Oil and Gas Industry

IBM Rational Systems Engineering Symposium, Apr 2013

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Quiz

Q1: What industry developed anti-corrosive coating?

Q2: What industry has to send slender tools though long narrow tubes, using materials that are compatible with the environment, and where a mistake can cost millions of dollars or even get someone killed?

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Quiz

Q1: What industry developed anti-corrosive coating?

Q2: What industry has to send slender tools though long narrow tubes, using materials that are compatible with the environment, and where a mistake can cost millions of dollars or even get someone killed?

A1: NASA. This material is used in oil rigs and pipes to prevent salt water corrosion.

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Quiz

Q1: What industry developed anti-corrosive coating?

Q2: What industry has to send slender tools though long narrow tubes, using materials that are compatible with the environment, and where a mistake can cost millions of dollars or even get someone killed?

A1: NASA. This material is used in oil rigs and pipes to prevent salt water corrosion.

A2: Medical (Cardiovascular)

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Quiz

Q1: What industry developed anti-corrosive coating?

Q2: What industry has to send slender tools though long narrow tubes, using materials that are compatible with the environment, and where a mistake can cost millions of dollars or even get someone killed?

A1: NASA. This material is used in oil rigs and pipes to prevent salt water corrosion.

A2: Medical (Cardiovascular)

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Focus on Upstream

GAS/NGLs

OIL

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Industry Trends

• Worldwide demand for energy is increasing• But finding energy is hard. And getting harder.• Retiring staff, not enough new grads.• Unconventional Oil/Gas:

• E&P as manufacturing, marginal operators. • Drilling schedules are compressed.• Drilling complexity is increasing.

• Environmental regulations and intolerance.• Domain experts lack time to provide requirements

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Worldwide Energy Demand is Increasing.

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Increasing Demand Far into the Future

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Finding Energy is Getting Harder

• NOCs get to cherry pick the easier projects in their backyard.• IOCs are left with the most technically (or politically) challenging projects.• Unconventional Oil/Gas present new challenges.

Shell’s Perdido platform is 200 miles into the Gulf of Mexico.World’s deepest deep-water project.Arctic may hold 90 billion barrels.

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But Aging Workforce

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And Fewer Industry Professionals

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And Fewer Professors to Teach

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Drillinginfo Analytics – Unconventional Oil/Gas

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Drillinginfo Analytics – The Marginal Operator

Contour geology

data

Establish correlation between

production and geology

Predict production based on

contoured geology for entire play and bin the results A-J

• Divide the play into 1 sq-mi grid• Correlate geology from well logs with production from producing wells• Interpolate geologic model to predict production in any 1 sq-mi cell• Bin predicted production into letter grades. A … J• Test for statistical significance

We want to separate the effects of geology from operations (and operators)

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Drillinginfo Analytics – Eagle Ford Study

Well logs: resistivity,

gamma ray, bulk density, etc.

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Drillinginfo Analytics – Resulting Graded Acreage

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Max IP Correlates with Grades

Grade

Max

IP B

OE

/D (2

0:1)

2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

0

A B C D E F G H I J71 187 565 756 1426 841 225 125 27 13

1056.06 862.947 601.895 407.865 347.27 228.938 171.526 95.9408 40.5263 37.24675 17 9 21 19 30 6 6 3 3

CountMedianOutliers

Color byGrade

ABCDEFGHIJ

Reference points:

Median

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Operator Performance Relative to Group Average, by Grade (A-E)

Deviation From Average Max IP By Grade (Boe/D)

Grad

e

-100 % -80 % -60 % -40 % -20 % 0 % 20 % 40 % 60 % 80 % 100 %

A

B

C

D

E

EOGMARATHON

SM ENERGY

ANADARKO

CONOCO

PETROHAWK

PETROHAWK

CHESAPEAKE

CONOCO

PIONEER

CONOCO

PETROHAWK

MURPHY

PIONEER

EOG

PLAINS E&P

MURPHY

RILEY EXPLORATION, LLC

MARATHON

PIONEER

PENN-VIRGINIA ROSETTA

CHESAPEAKE PLAINS E&P

TALISMAN

EOG

PETROHAWK

PIONEERCONOCO

PLAINS E&P

EOGTALISMAN

MARATHON

Color by% Deviation From Avg

100 %0 %-100 %

Size byWell Count

≥ 100

≤ 2

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Operator Performance Relative to Group Average, by Grade (A-E)

Deviation From Average Max IP By Grade (Boe/D)

Grad

e

-100 % -80 % -60 % -40 % -20 % 0 % 20 % 40 % 60 % 80 % 100 %

A

B

C

D

E

EOGMARATHON

SM ENERGY

ANADARKO

CONOCO

PETROHAWK

PETROHAWK

CHESAPEAKE

CONOCO

PIONEER

CONOCO

PETROHAWK

MURPHY

PIONEER

EOG

PLAINS E&P

MURPHY

RILEY EXPLORATION, LLC

MARATHON

PIONEER

PENN-VIRGINIA ROSETTA

CHESAPEAKE PLAINS E&P

TALISMAN

EOG

PETROHAWK

PIONEERCONOCO

PLAINS E&P

EOGTALISMAN

MARATHON

Color by% Deviation From Avg

100 %0 %-100 %

Size byWell Count

≥ 100

≤ 2

Best operators can produce +50% more

Compared to inferior operators

In the same acreage

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Pad Drilling. More wells faster

Teams are so busy that they cannot update their models or focus on the long term.

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Increased Drilling Density Suggests Manufacturing Model

Year

Acre

Spa

cing

Jan Sep MayJan Sep MayJan Sep MayJan Sep MayJan Sep MayJan Sep MayJan Sep2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

320

280

240

200

160

120

80

BarnettYear

Acre

Spa

cing

Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct2008 2009 2010 2011 2012

1,400

1,200

1,000

800

600

400

200

Eagle Ford

Year

Acre

Spa

cing

Jul Nov Mar Jul Nov Mar Jul Nov Mar Jul Nov Mar Jul Nov Mar Jul Nov2007 2008 2009 2010 2011 2012

1,3001,200

1,100

1,000900

800

700600

500400

300

HaynesvilleYear

Acre

Spa

cing

Nov MayNov MayNov May Nov May Nov May Nov MayNov May Nov May Nov2004 2005 2006 2007 2008 2009 2010 2011 2012

1,400

1,200

1,000

800

600

400

Bakken

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Unconventionals: Operational Excellence is Critical

• Finding (or acquiring) oil is only one core competency.• Drilling and completion engineering is critical.

• Complex fracs, 30+ stages• Water source, disposal, reuse is economic and political issue• Regulatory requirements are changing

• Operational silos cause problems.• Operational geologist has to work with drilling department• Frac engineers now working with microseismic

• New systems to support volume and complexity of drilling• Create repeatable, traceable, automated processes

• Cost controls in the face of commodity price pressure ($3 per MCF)

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Environmental Concerns and Politics

• No room for mistakes in current political climate. • Verifiable traceability is needed at many levels:

• Pretesting of ground water• Contract administration• Remediation plans

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Intolerance for Accidents

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Domain Experts Too Busy to Focus Long Term

26

Asset Design and Operation Life Cycle

Business Goals20% cheaper15% more oil 35% better water reuseProducing in in ½ the usual time

Physical Assets Supporting Business Goals

Too often…. projects are delivered late or miss expectations

Domain experts usually too busy to define requirements adequately

Underutilization of systems and technology to communicate requirements and collaborate across the globe

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Putting it Together

Fewer and more inexperienced professionals will have less time to complete more technically challenging projects in the face of a tougher regulatory and risk environment and facing unpredictable commodity prices.

And the world needs them to be successful as energy demand grows.

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Final Thoughts: Meeting the Challenge• Leverage IT systems better.

• Insist on better integration from vendors.• Understand requirements up front. Processes are not

enough.• Leverage younger, IT savvy staff.

• Leverage the people, experience in other industries.• Aerospace has dealt with mission critical projects.• Medical industry operates under strict regulatory compliance.

Pumps & Pipes, Houston TXMars Curiosity