Unconventionals, Technical Challenges Highlight Offshore Technology Conference
The impact of onshore unconventionals development on the offshore sector, safety and environmental protection, and new opportunities and their technical challenges highlighted sessions and discussions during the annual Offshore Technology Conference (OTC), held 5–8 May in Houston. The broad program and exhibition, which attracted a record crowd, featured operators, independents, service companies, academia, and government officials weighing in on some of the most complex and pressing challenges facing the offshore industry.
The surge in North American shale development has brought major portfolio changes to E&P companies. This was the focus of one session in which six panelists discussed the impact of the unconventional “revolution” on the offshore deepwater industry.
Darrell Hollek, senior vice president for deepwater Americas operations and development at Anadarko, noted the huge change in his company’s production mix in the past 4 years. “If you go back (only) as far as 2010, we really had not drilled any horizontal wells,” he said. From that base of virtually no shale production, Anadarko has ramped up to production of 370,000 BOE/D from unconventional resources in 2014, and unconventional plays represent about 70% of the company’s capital budget, Hollek said.
Nonetheless, Anadarko’s mid-cycle and long-cycle projects—chiefly offshore activity, including deepwater projects—play a crucial role through generating high cash flow that has financed the company’s entry into onshore unconventional development, Hollek said.
Lee Tillman, president and chief executive officer of Marathon Oil, said that unconventional plays have shifted the balance in his company’s capital spending from less than 10% in 2008 to about 60% this year. The current budget for unconventionals exceeds Marathon’s entire 2008 E&P budget, he said.
Marathon’s capital allocation, Tillman said, “has been driven by profitability, not geography or play type.” Like Hollek, Tillman said that portfolios need to strike a balance between onshore unconventional development and offshore and deepwater projects. “It is not an either/or proposition,” he said.
The two panelists from supermajor companies, David Eyton of BP and Greg Guidry of Shell, did not break down the percentage of their companies’ capital budgets devoted to unconventional plays.
“It depends how global you are,” said Eyton, head of technology at BP. As the industry’s current unconventional activity focuses heavily on North America, the portfolios of companies such as BP and Shell, with many large, long-term projects worldwide, are less weighted toward unconventionals. But Eyton and Guidry both dwelt on the importance of unconventionals in project portfolios.
The benefits of deepwater projects, Eyton said, stem from their scale, which brings higher capital requirements but provides longer paybacks and bigger margins. Unconventional resource opportunities vary worldwide but have high global potential, he said. “The modular nature of unconventional wells and the scope for experimentation within the fields have driven down—and we expect will continue driving down—costs faster than in deepwater,” Eyton said. Technology challenges remain, including the need for continuous improvement in hydraulic fracturing, he said.
Getting it Right
Guidry, executive vice president for upstream Americas—unconventional at Shell, said, “Getting it right in terms of public perception” is the industry’s most important requirement in onshore shale development, just as it is in offshore activity. “If we don’t get it right in terms of acceptance of our activity, then it gets very, very tough for the technology to be able to have an opportunity.”
From the standpoint of a company’s reputation, offshore and onshore are linked. “I can’t think of any major incident in deepwater that would not have a dramatic impact on what we are doing onshore,” he said. “And I can think of a number of incidents that would happen onshore that would have an impact on what we do offshore.”
Guidry noted Shell’s establishment of five global onshore tight oil and gas operating principles, published in 2011 and updated since then. They include
- Safe and responsible design, construction, and operation of wells and facilities
- Protection of groundwater and reduction, as reasonably practicable, of potable water use
- Protection of air quality and control of fugitive emissions
- Reduction of operational footprint
- Engagement with local communities regarding potential socio-economic impacts of operations
Supporting these is a series of 59 “proof points” that provide specific examples of how the principles are met. “We’ve found that it’s an incredible dialogue tool,” Guidry said. He also cited the Rational Middle Energy Series, published by the Environmental Defense Fund (EDF), and the University of Texas-EDF methane emission studies as important dialogue resources and praised the Pittsburgh-based Center for Sustainable Shale Development for its public engagement work.
Offshore Experience Taken Onshore
Torstein Hole, senior vice president of development and production North America at Statoil, noted his company’s entry into shale development in the Eagle Ford, Bakken, and Marcellus plays in the United States. Unconventional resource projects make up 10% of Statoil’s capital budget. While the unconventional sector differs from the company’s traditional offshore development business, Hole emphasized the centrality of safety and understanding risk to operations in both sectors.
Statoil has long experience in dealing with small Norwegian communities making the transition to oil production, which should be helpful as onshore unconventional resource development expands in North America and elsewhere, Hole said. The company has smoothly taken its offshore experience to onshore activity, he said.
The future demands greater efficiency throughout Statoil’s operations. The opportunity to use and develop new technology and standardize and simplify shale projects can increase efficiency and benefit other operations, while the onshore unconventional plays diversify Statoil’s portfolio risk, Hole said. Learning from North American shale operations will help the company in future opportunities elsewhere, including Australian and Russian shale acreage, he said.
Policy and Technology
James Slutz, president and managing director of Global Energy Strategies, a consultancy based near Washington, D.C., addressed issues of public policy and the industry’s technology development. In the policy environment, the industry is viewed as a whole, rather than as separate segments such as offshore, deepwater, onshore, or Arctic, he said. “A failure in one area will impact other parts of the industry.”
Slutz emphasized the industry’s need to obtain or sustain public acceptance, or social license, to carry on its activities. Quoting a recent remark from “a senior official,” Slutz said, “We have adequately defined the fringe, but there is a lot of work to do in the middle.”
There are very few multistakeholder organizations that focus on science and future technology development related to oil and gas industry activities, and more work of this type is needed, Slutz said. Outstanding examples that he gave are the Canadian Oil Sands Innovation Alliance and the US-based Environmentally Friendly Drilling Systems Program.
Policymakers tend to think statically, while technology development is a dynamic process, Slutz said, and the industry must do more to convey the likely future direction of technology and the projects that will use it.
Learning From Megaprojects
The continually increasing complexity and difficulty of large projects was examined in another session. Titled “A Look Back at Offshore Megaprojects,” the session included senior project management and production engineering officials looking at past and current projects to identify critical areas for improvement. Among them were operator-contractor integration, risk assessment, project standardization, and stakeholder engagement.
“Owners and contractors, we are in this together,” said Gary Fischer, general manager of project consulting services at Chevron. “We need contractors to design, to fabricate, to install, to drill and complete (wells).” For today’s projects, “I think we have to be able to manage the work, not the contractor,” he said.
An issue that has come to the forefront is “how important the engineering schedule, the engineering planning is to the overall success of a megaproject,” Fischer said. “We have found something like 60% of projects, big projects, had very significant schedule overruns.” The main reason has often been that “we lost the schedule in engineering, and it was unrecoverable,” Fischer said. “I’ll be really provocative now. I don’t think we know how to measure engineering progress any more.”
Contracting Strategy Critical
Thomas Ayers, chief operating officer for the offshore business unit at Technip, said, “One of the things that’s critical on making these projects work, and work with the cooperation between the company and contractors, (is) it starts with the contracting strategy. You’ve got to have a contract that allows the project team to work together. …. You have to live by the contract. If your contract is not flexible to provide to do that, then you’re almost doomed to failure from the very beginning.” Before the project starts, the parties must have a common understanding of what the contract means, he said.
Ayers added, “You can’t focus enough on the risk and what you are going to do about it. Gone are the days when you can throw money at something and have it go away. Our margins are razor thin.”
Fischer said, “We as owners need to be careful and thoughtful about how we allocate risk in the bigger picture so we can set up a successful project environment, which is in our own self-interest, to have our contractors win. We want them to win. We want them to be incredibly successful, and we want to win together.”
Regarding the allocation of owner/contractor responsibilities, Fischer said, “Do the best fit you can between the work that needs to be done and the people that really know how to do it right.”
Bob Buck, production engineering manager for Gulf of Mexico (GOM) deepwater operations at Anadarko, discussed the key elements of his company’s strategy for managing major offshore projects.
It is important to develop long-term relationships with contractors, Buck said. “We even go as far as introducing our contractors to our relationship-based safety program called Rig Safe, which is about improving safety through improving relationships,” he said. “And so, by doing that, we demonstrate to contractors that we value them and esteem them, that we empower them to do the job. We listen to them; we have comments and suggestions. It makes our employees think of their employees as well.”
Anadarko also tries to standardize as much as possible, including controls, equipment, and processes, which provides helpful continuity for contractor employees, Buck said. In addition, he stressed the need to engage all project stakeholders. “Get them involved early,” Buck said, which helps to clarify what is expected. “As a company, we push the decision making down closer to where the work is actually being performed,” he said.
Discussing facilities design, Buck noted Anadarko’s decision to design and construct duplicate truss spars for the Lucius and Heidelberg deepwater projects in the GOM. Lucius is expected to begin oil and gas production this year. But building identical facilities will enable Anadarko to start production at Heidelberg in 2016, compared with 2018 had individualized facilities been designed and contracted.
“We know it is a bigger design than what we needed,” Buck said. “But with the time value of money, it made the project come on line 2 years earlier …. It’s not fit for purpose. It doesn’t have to be. It makes economic sense.”
Funding E&P Technologies
Collaboration between oil and gas companies, universities, and service providers is critical to address common challenges facing the oil and gas industry as well as to finance new exploration and production (E&P) technologies, according to panelists during the session titled “Funding New E&P Technologies.”
The industry should move forward with deploying new technology because new technology is valuable only if it can be successfully deployed, and this requires operator uptake or pull. While established service and manufacturing companies supply the bulk of new E&P technology, a number of different organizations provide alternative funding mechanisms. The panel session examined six existing organizations that help finance new technologies and promote collaboration among industry peers.
Brad Burke, managing director of the Rice Alliance for technology and entrepreneurship at Rice University, said that universities play a critical role in developing and sourcing new E&P technologies. Burke said that his university is one of the leading players in this domain and helps in promoting newly developed E&P technologies through a series of events it hosts that allow meetings among developers, investors, and end users.
Burke said that since its inception in 2000, the Rice Alliance has assisted in the launch of more than 250 start-ups, which have raised more than half a billion dollars in early-stage capital. More than 1,000 companies have presented at the 125-plus programs hosted by the Rice Alliance.
Greg Kusinski, director and advisor at the global deepwater technology development consortium, DeepStar, at Chevron, said that significant new oil production is needed to meet world energy demand. “New oil production will come from increasingly complex resources, which will require additional investments between USD 7 trillion–10 trillion,” he said.
Kusinski said collaboration is key for oil and gas companies mainly in deepwater R&D. “Collaboration in certain projects can be very beneficial for companies rather than competition, mainly in the areas of health and safety and environment,” he said. “DeepStar is a recognized industry voice, where there is an opportunity for members to further benefit by participating in fewer, but larger projects,” he said. DeepStar is an operator-funded global research and development collaboration among oil companies, vendors, regulators, and academic/research institutions that began in 1991, Kusinski said.
DeepStar’s current Phase XI program is focused on global deepwater development in water depths to 10,000 ft and deeper. “Its mission is to facilitate a cooperative, globally aligned effort focused on identification and development of economically viable methods to drill, produce, and transport hydrocarbons from deep water,” he added.
Patrick O’Brien, chief executive of Industry Technology Facilitator (ITF), said that since the inception of ITF, it has managed to launch more than 200 joint industry projects. “Currently, we have just over 30 ongoing joint industry projects with direct member investment of circa USD 27 million,” O’Brien said. “Our mission is to identify the best available innovators from the global research and technology development community.”
O’Brien also said the E&P trend is to find new ways to operate in frontier environments, which means moving to ultradeepwater and developing the technology to not only drill but develop the fields in an economically effective manner. Making a discovery that cannot be developed for 10 years does not make sense, he said.
Panelists agreed that the presence of organizations such as ITF and DeepStar are critical to financing new E&P technologies, as they play the role of facilitator among different parties including operators, service companies, and developers. “The main purpose of organizations like these is to create stakeholder value by focusing on common industry challenges, and opportunities,” O’Brien said.
Unconventionals, Technical Challenges Highlight Offshore Technology Conference
01 July 2014
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