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DRILLING & PRODUCTION Dick Ghiselin • Houston
Much ado about nothing?
Predicting what will happen in the oil and gas industry over the
next six months or a year is proving to be just as diffcult as predicting which college team will win a playoff berth, or who will win the
next World Cup.
Leading in today’s news and the biggest issue facing producers
is the softness in the spot price of oil. How low will it go? How long
will it last? What will it take to reverse the trend? Can companies
continue to operate high-specifcation or high-risk projects while facing these unknowns?
The vaunted Keystone XL pipeline continues its role as the num-
ber one political football. If it passes and avoids a veto, what effect
will it have on the supply chain? If it fails, will the Canadians lose
patience and launch their “Plan B?”
Speaking of political footballs, what happened to the idea of letting
the individual coastline states decide to permit exploration and drill-
ing offshore from their coasts? That was a bone the administration
threw to the industry a couple of years ago following a general mora-
torium that still affects Atlantic, Pacifc, and some Gulf of Mexico
coastlines. As for Alaska, noise about drilling in the Arctic National
Wildlife Refuge (ANWR) has waned only to be substituted by a great
hue and cry about Arctic offshore drilling.
Is OPEC the paper tiger it has recently been portrayed to be? Or
can it exert control over production as it once did, fooding the market to drive prices down, or holding back to stop the bleeding? Is
Russia still vulnerable to low oil prices as it once was?
As far as offshore is concerned, are price fuctuations infuencing
major decisions? If it takes 10 or more years from discovery of a feld
to frst oil, do operators not set a benchmark price far below the short-
term averages for planning purposes and ignore the fuctuations?
The steady parade of brand new high-specifcation foating drilling
units continues apace. Most are rated to 12,000 ft ( 3,659 m) of water,
and total measured drilling depths of more than 40,000 ft ( 12,195
m). This could herald very deep wells, or very long extended-reach
wells, or some combination of the two. However, it is unlikely that
any of these well construction projects would be launched under iffy
market conditions. Interestingly, drilling contractors are coming up
with ways to extend their market penetration without forking over
mega-bucks for new rigs. The Noble Jim Day, a 9000 Class Bingo
semisubmersible has emerged from the Dalian shipyard in China
where it was upgraded to 12,000-ft water depth capability. It will drill
in the deepwater Gulf of Mexico for Shell, no doubt saving its owners, and possibly Shell, considerable money.
In the service and supply industry, the elephant in the room is
the recently announced take-over of Baker Hughes by Halliburton.
I am reminded of the saying, “When elephants dance, mice run.” It
is early days yet, and the proposed acquisition has lots of hurdles
to leap. Nevertheless, in view of the obvious economic benefts, the
acquisition could be the harbinger of other cost-cutting initiatives by
large and small service and supply providers as well.
It is obvious that the decline of crude oil prices has fltered down
to the gas pumps. A sharp decline in cost of energy for fossil fuel
consumers might affect the renewable energy market. Since consumers are more sensitive to costs than anything, perhaps some
might forgo their purchase of an electric car or the conversion of a
truck feet to natural gas.
At the moment, there are more questions than answers facing the
oil and gas industry. Macro challenges demand macro solutions.
The extent to which today’s falling prices will affect the way the industry adapts to the future is anyone’s guess. We have weathered
price decline storms many times in the past. In almost every case,
the answer has been to cut costs by boosting effciency, and to that
extent, technology has emerged as the hero.
Exploration technology has enabled us to image beneath the ubiquitous salt layers in many of the world’s offshore basins. Drilling technology has enabled effectively and precisely extending a wellbore to
its targeted reservoir more than 7 mi ( 11 km) from the surface location. Modern drill bits are now able to drill entire wellbore sections in
a single trip, thereby eliminating costly bit trips. Formation evaluation
technology has enabled all logging-while-drilling or wireline tools to
be run in combination, reducing total trips into the well to one or two
to acquire all the data needed to complete and produce wells most
effectively. Fast data processing and analysis has sped up decision-making in real-time operations centers staffed 24/7 by experts. Completion technology has equipped wells with smart downhole devices
that provide realistic formation data and possess the capability to act
on the information to manage the reservoir production optimally.
Nowhere has this technology been more warmly received than
offshore. Where costs and risks are amplifed many times over, operators seize the opportunity to use technology to extend their reach
to discover, drill, and produce giant felds using only a few strategically placed wells. Subsea production has been augmented by subsea processing that can separate and re-inject unwanted formation
water. Perhaps most notably, has been the introduction of microbial
enhanced oil recovery (MEOR) that is tackling the most perplexing
challenge of all – exponential boosting of recovery factors. Using
a real-life producing feld as an MEOR lab, Statoil has managed to
boost the recovery factor of its offshore Norne feld to 55%.
Taken in context with solutions emerging from the minds of oil
industry scientists and engineers, worrying about today’s price fuctuations could well be “Much ado about nothing.” •