SPE Annual Conference Confronts the Future
SPE held its first Annual Technical Conference and Exhibition in the Middle East in September, as 7,500 industry professionals from 94 countries met to discuss topics under the theme of “E&P 2.0: Transforming and Shaping the Future.”
The event took place at the Dubai World Trade Centre under the patronage of the Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai, His Highness Sheikh Mohammed bin Rashid Al Maktoum, and drew senior speakers from operators, service companies, and academia.
The conference opened with addresses from the leading executives of two of the region’s oil giants. Amin H. Nasser, president and chief executive officer (CEO) of Saudi Aramco, delivered the conference opening keynote address, and the welcome keynote speech was given by Abdul Munim Saif Al Kindy, director of exploration development and production for Abu Dhabi National Oil Company (ADNOC).
Both Nasser and Al Kindy struck similar themes about the need for both the industry and their respective state oil companies to change strategy in light of the oil and gas sector’s current economic challenges.
Despite growth in alternative energy sources, hydrocarbons will supply the world’s energy needs for years to come, said Nasser. He called the current oil industry in recovery mode but still weak. “Despite recent oil price volatility, the market is reaching balance,” but likely will remain volatile in the near term, he said. Firms with both upstream and downstream businesses will remain in better shape, he added.
Nasser laid out Saudi Aramco’s four-point framework for the future, which has similar applications to the broader industry, he said. The plan focuses on resilience, innovation, managing talent, and collaboration. Noting that many smaller companies have filed for bankruptcy because they were overleveraged, he emphasized that a strong financial position, and diversity beyond just the upstream, will help companies survive in times such as these. It also allows for continued investment in technology and building capable human resources.
Saudi Aramco is “pushing the envelope” with additional emphasis on R&D, opening satellite research centers, pursuing venture capital, and putting renewed effort on increasing recovery factors. Despite tough times, “now is the time to reboot our approach to human resources,” he said, including establishing a professional development center, strengthening ties at the university level, and bringing more women into key positions.
Similarly, ADNOC is rethinking strategy to position itself better for the future. In the past 6 months, the state firm has adopted four pillars that will mark its priorities going forward, said Al Kindy. “We are going to become a smarter, more agile organization,” he said.
He also emphasized the importance of developing staff, adding that the company is committed to developing the next generation of leaders judged on merit and will work to empower women, a neglected human resource in the industry.
ADNOC will focus on four strategic areas, he said: enhancing the company’s performance, increasing profitability, optimizing efficiency, and investing in people. It wants to speed up time from discovery to first production and will invite partners to help it achieve this goal, and will increase R&D in upstream to develop new sources of production.
Nathan Meehan, 2016 SPE President, closed the opening session by noting the visionary leadership in the UAE that has developed many world-class facilities over the past several decades. The oil and gas industry needs similar vision, and its younger leaders must “stand on the shoulders of giants” in able to “see further” and succeed in supplying the world’s energy, no matter the oil price.
Service Company Viewpoint
A common theme running through the conference was how the current downturn is reshaping oil and gas industry operations. There is a growing consensus that while oil prices remain depressed, the supply glut is giving way to market balance. But if non-OPEC production continues to decline as it is, the new concern is that any equilibrium between supply and demand will be short-lived.
Paal Kibsgaard, CEO of Schlumberger, said the industry has reached the bottom of the downturn cycle and must begin investing again in order to keep the pendulum from swinging too far the other way.
“There is no way you can maintain medium- and long-term supply capacity with half the investment—it just doesn’t work,” he said, adding that oil markets are facing a supply crunch within 2 years if the industry does not increase spending quickly. Kibsgaard gave his remarks during a panel session on the future of E&P.
As more money comes off the sidelines and into play, Kibsgaard emphasized that it needs to be spent more wisely than before. That will require service companies and operators to form tighter relationships when it comes to designing new technologies that will substantially lower finding and lifting costs.
Kibsgaard said greater collaboration must also involve moving away from the practice of developing individual technology components and “toward developing complete technology systems, including all aspects of hardware and software.”
As examples, he cited Schlumberger’s development of a new integrated land rig system and its recent acquisition of Cameron International, a deal aimed at marrying the two firms’ surface and subsurface capabilities.
Also on the panel was Martin Craighead, CEO of Baker Hughes, who echoed the need for increased spending, which he said “will allow the industry to maximize growth opportunities and become more resilient in the downturns of the future.”
He highlighted several technologies that will benefit from a new wave of investments, ones that he said also will define the future of his company. Those technologies include 3D printing, material sciences, automation, and sensors.
He said of the latter, “Advances in sensors and networking are embedding intelligence into every piece of hardware, creating a new metasystem that is changing the way tools, as well as materials, interact with each other.”
Craighead also discussed the importance of investing in new mindsets. He said in an effort to capture some of the inspiration that has driven the rapid growth of the US software sector, the company opened a technology center in Palo Alto, California, USA—aka Silicon Valley.
“You have a Baker Hughes office in Palo Alto and nobody knows what the heck that is, certainly none of the Google, Apple, or Yahoo people,” he said. “But it was about embedding our folks out there in that culture to experiment fast, learn fast, and fail fast.”
That willingness to fail and move on, he noted, is what made the US shale revolution possible and is now what the rest of the oil and gas industry needs to embrace if it is to become a more sustainable business.
Greater Efficiency Across Operations
During a session on the second day of the conference, both service providers and national oil companies debated what is required to increase efficiency in E&P operations.
National oil company executives on the panel called for greater standardization of materials and processes, increased automation, more effective use of data, and greater collaboration across the industry. The oil and gas industry needs efficiency solutions not just for the short term but for the next decade, said panel moderator Amran Marhubi, technical director for Petroleum Development Oman. “Lower prices are going to be with us for quite some time,” he said.
Despite the downturn, Saudi Aramco is not slowing its initiatives but is continually trying to increase efficiency, in rate of penetration, decreasing unit costs, limiting nonproductive time, and in other areas, said AbdulHameed Al-Rushaid, executive director, drilling and workover, Saudi Aramco. “We are at a historical level in our E&P activities,” he said, adding that the company has introduced “more stringent” key performance indicators to wring more value out of its operations.
ADNOC is also paying more attention to how it can improve costs and operations, said Mohamed Al Mutawa, manager of production and facilities engineering for the company. It now examines each cost factor in several categories—including rigs, drilling, workover, logging, and fluids—in every project, looking for potential savings.
During a question-and-answer session, some in the audience asked whether operators were “squeezing” service companies and drilling contractors to improve their bottom line in the short term. “Operators are also sharing the pain” caused by lower oil prices, said Al-Rushaid of Saudi Aramco. But he acknowledged that the industry needs positive working relationships among operators, contractors, and the service sector. “Some drilling contractors have gone out of business and this is not healthy for the industry,” he said.
There is a distinct danger when the industry equates value just to unit cost, said Jim Friedheim, marketing and technology manager with M-I SWACO and a Schlumberger scientific advisor. Increasing value is not just about decreasing costs, it is about becoming more efficient and improving overall returns. “Raising efficiency raises value,” he said, adding that sometimes increasing efficiency requires spending money.
If the industry puts a larger economic burden on the service sector during this downturn, “we will be killing the golden goose, killing the future,” he said, because it inevitably will slow technology innovation.
Friedheim and Mette Munkholm, director of logging-while-drilling with Baker Hughes, said the current environment has forced their companies to cut some research and to focus primarily on potential high-impact technologies. “There is no doubt that when you have less revenue, it affects what you can do,” Munkholm said.
Roles of Humans and Machines
A session promising radical new ideas for “Innovation Beyond Limits” provoked questions about whether there is a limit to the degree that digital intelligence can supplant human decision making.
The panel began with presentations that predictably played up how analytics and big data will shape the future of the energy industry. Machines were celebrated for their ability to create value from the exploding volume of data in this wired world by speakers who warned workers of the jolt of change to come.
“The next wave of big data and analytics will lead to the next wave, which is artificial intelligence, and that will lead to machine-to-machine learning,” said Alisa Choong, executive vice president of competitive and technical IT at Shell. “For every science we have, there will be an element of computing and algorithms in there. Data science will be like reading grammar, and coding like reading and writing a foreign language.”
Jobs titles will change and “people will need to be reskilled” for jobs such as coordinating and maintaining robots, she suggested.
Panelists described how machines are becoming increasingly able to “learn” and automate processes, which raised questions about what humans would be doing. “We want to maintain the experience of people by putting it into machines that can learn from it and make it better,” said Mahmoud Kassem, executive vice president, surface, at GE Oil and Gas.
The comment cards from the audience, many of whom identified themselves as previously working for a company in the oil industry, pushed back at those comments, prompting the moderator, Khaled Nouh, founder and managing partner of Eternal Consultants, to ask about the downside of a world in which machines talking to machines will play such a large role.
“My wife, who is an economist, said we will destroy the economy of the world because we will have machines doing everything,” said Nouh. He asked the panelists to discuss “what are the humans doing here?”
“In every industry revolution, you see more jobs created than job losses, but the jobs of the future many not exist today,” Choong said, adding that a new generation of workers who grew up with digital technologies will have different expectations about the role of computers in the workforce.
“If we do not inject new technology, we will become an unattractive industry to work in,” Kassem said, adding that E&P “will always have the human factor.”
Additional Conference Highlights
Saudi Aramco has begun moving toward the production phase of its ambitious plan to develop its enormous unconventional gas resources.
Khalid Al-Abdulqader, general manager unconventional resources for Saudi Aramco, said it is currently letting contracts for development drilling in North Arabia. That is one of three areas where Saudi Arabia is focusing on developing gas from reservoirs where fracturing is required to produce gas to replace oil now burned for power generation.
Commercial-scale production of gas from the three areas could come as early as 2021, he said during the session. After the session, he clarified that while that is a reasonable estimate, it is too soon to be making commitments.
The unconventional potential is enormous, with a resource 10 times the volume of the conventional oil and gas in the ground there.
Driven by the need to boost oil reserves, Dubai Petroleum announced that it completed its first multistage, hydraulically fractured, and propped horizontal well from an offshore platform in April.
The government-owned oil company, which primarily operates offshore wells, reports that because the project targeted an unconventional formation, known as the Shilaif, with completion techniques used almost exclusively onshore, it may be the first of its kind for the offshore sector.
“We believe this will be part of the future for Dubai as an oil-producing country,” said Frederic Chemin, a general manger with Dubai Petroleum, adding, “because of the size of the reserves we will be working very hard on this.”
The company has not disclosed production rates but said the well was successfully propped and is flowing oil with only a 3% water cut. The Shilaif formation is estimated to hold 22 billion barrels of recoverable oil.
Saudi Aramco’s first test of using carbon dioxide (CO2) injection to extend the life of a field resulted in a fourfold increase in oil production in the first year.
“The response has been very positive,” said Sunil Kokal, a principal consultant for Saudi Aramco on enhanced oil recovery (EOR), who presented a paper on the project (SPE 181729) at the conference. As a result, the water cut dropped significantly from about 98% water produced to 90%.
The jump in production came by using a type of EOR that often takes years to show its full benefit. In this case, the injections only lasted for about half a year because of shutdowns for maintenance. Kokal cautioned that it is too early to judge the results of the pilot project, pointing out that “the next year will be critical.”
On a panel discussing megaprojects, Faud Al-Azman, the general manager of area projects for Saudi Aramco, said that addressing human-related problems is the key to making these multibillion-dollar developments economic.
He said that 65% of megaprojects miss their original performance goals, and that the root cause is almost always the decisions made by employees, corporate management, or government regulators.
Al-Azman explained how this pushed Saudi Aramco to adopt new management strategies for the development of its latest refinery and power generation megaproject—the Jazan Complex.
The project involves more than 1,110 contractors and supply vendors, along with 70,000 construction workers. To avoid costly mistakes, the company is using an automated management database to track the progress of all its contractors and holds regular mini-conferences to scrutinize agendas.
To ensure the project moves in the right direction, “we must strive to continue to learn as individuals, teams, and as organizations,” Al-Azman said. “Projects by their nature are very dynamic and they will not stand still—why should we?”
While analytics are required for decision makers to make use of masses of data—Choong calls it “augmented intelligence”—there will remain uncertainty and unknowns, which is something that humans are uniquely equipped to handle.
“Our industry has utilized big data since the beginning,” said Roberto Dall’Omo, senior vice president of upstream R&D for Eni. The volume of data gathered and processed for seismic imaging has long made the industry a leader in supercomputing, “but in the end a human decides what is the best structure.”
Innovation is another area that humans can do, but computers cannot. At the current low oil prices, it is essential for E&P companies for survival. But in that line of work, a traditional degree in petroleum engineering is no guarantee of success.
`“During the last growth spurt in the industry from 2010 to 2014, two-thirds of the people hired [in Halliburton R&D] were from companies outside oil and gas,” said Greg Powers, vice president of technology at Halliburton. “Our patenting went up nearly 400%. The people who say you cannot hire people unless they are from oil and gas, I would tell you they are completely wrong.”
And with the industry struggling to adapt to continued low oil prices, top people remain an essential commodity.
“The longer oil prices stay this low, the greater the challenge to sustain production, putting a priority on human capital investments to ensure people with new skills are there when needed,” said Waleed Al-Mulhim manager of Saudi Aramco’s EXPEC Advanced Research Center.
JPT Editors John Donnelly, Stephen Rassenfoss, and Trent Jacobs contributed to this report.
SPE Annual Conference Confronts the Future
10 October 2016
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