HOUSTON–The ability to create value is what distinguishes the most successful participants in any market. In the oil and gas industry specifically, value creation is an incremental process that typically takes years to materialize and requires significant capital investment at multiple points, from leasing acreage and acquiring seismic data to drilling wells and installing production infrastructure.
The key to driving economic returns throughout the process–spanning the complete life cycle of an oil and gas asset (from discovery to enhanced recovery)–is leveraging technology at each decision point and in every discipline to reduce financial and operational risks.
Consider how much value the industry has created collectively over the past 10 years by applying technological advancements such as rich-azimuth 3-D seismic in deepwater fields, horizontal drilling and multistage completions in onshore resource plays, or carbon dioxide enhanced recovery in mature fields.
It is anyone’s guess what the next significant enabling technologies may be, but there is no doubt they will be applied by innovative companies to help find and develop reserves at lower cost with increased productivities, and enhanced safety and environmental performance.
Volatile product prices only reinforce technology’s powerful effect on the value creation equation for producers and operators. As painful as it has been, the downturn that began in late 2014 has been a reminder that oil and gas commodity prices do not change the need to develop new technologies. In fact, tighter operating margins necessitate deploying new tools and practices to improve efficiencies and reduce costs. Perhaps this explains why the number of oil- and gas-related patents increased in 2015 and 2016, according to the U.S. Patent & Trademark Office.
For a wide-angle perspective on oil and gas research and development in 2017, it is instructive to look to the results of a study the National Petroleum Council completed 10 years ago. The study found that it took 16 years on average for a technology to mature from the concept stage to commercialization.
The study went on to note that because of the declining investment of research-related funds from the federal government, the burden was shifting to the oil and gas industry to efficiently allocate research funds into worthwhile projects. The report encouraged Congress to increase government investments in R&D.
What has transpired since NPC issued that 2007 report is nothing short of remarkable. Research from industry and government did ramp up, the country benefited from increased production and reserves (namely in unconventional and deepwater plays), and the 16-year technology cycle was shortened as the industry embraced innovation.
Today, however, the R&D situation looks similar to 2007, with the same declining investment of research-related funds. What does that mean for technology development going forward and the industry’s ability to repeat the experience of the past decade?
Changing The Game
The technologies, practices and applications developed over the past decade have changed the game. Major drilling efficiency gains give operators the ability to evaluate, analyze and improve wellbore construction processes from spud to total depth. Horizontal sections of wells are being drilled longer, faster, better and cheaper almost by the day.
This illustration shows how multicomponent fiber optics-based seismic sensing technology and acoustic micro emitters can be applied in horizontal well developments for effective and accurate monitoring of unconventional oil and gas reservoirs. Image courtesy of Paulsson Inc.
High-resolution 3-D laser imaging provides comprehensive field surveys and detailed models of subsea assets to support a variety of life-of-field and asset integrity applications, including subsea inspection, maintenance, repair and operations. Images courtesy of 3D at Depth.
The U.S. Energy Information Administration says average U.S. horizontal well drilling costs now range from $1.8 million to $2.6 million a well. This has caused total onshore well construction costs versus completion costs to flip in a relatively short period, from 60-70 percent to 30-40 percent. That is, before the expansion of horizontal drilling in unconventional plays, the drilling component accounted for 60-70 percent of total well cost. Today, completion costs averaging between $2.9 million and $5.6 million a well account for 60-70 percent, with drilling representing 30-40 percent.
In deep water, EIA reports that drilling continues to comprise 60 percent of total well cost while completion activity makes up 40 percent. Even so, costs related to the rig (i.e., drilling and completion operations) account for 90-95 percent of total deepwater well costs.
Per well productivities also have increased at an astonishing pace. New-well oil production per rig jumped by 7.5 times in the Permian Basin between November 2013 and November 2016 (from 79 to 611 barrels a day) while new-well gas production per rig more than doubled in the Marcellus (from 6.038 to 12.290 million cubic feet a day) over the same three-year span, according to EIA data. In the Niobrara, per-well production per rig went from 317 bbl/d of oil and 995 Mcf/d of gas in November 2013 to 1,177 bbl/d and 3.794 MMcf/d, respectively, by November 2016.
As these numbers illustrate, each well drilled today is as productive as multiple wells drilled and completed only three years ago. Even with lateral lengths increasing to almost 7,000 feet on average, the industry has experienced a nearly threefold increase in daily footage drilled. This increased efficiency, in combination with optimized completion techniques, is leading to overall downward pressure on drilling costs, and is allowing far fewer rigs to drill much more productive wells.
Thanks largely to technological innovation, the industry was able to respond to the severe drop in oil prices in late 2014 in a rather remarkable way. In many onshore shale plays, operators have slashed break-even prices by half. In fairness, this was made possible in part by equipment and field service costs falling to levels that likely are not sustainable.