Another major round of layoffs hit exploration and production workers late last year, as companies came to the painful conclusion that a recovery is not coming any time soon. The cost pressures behind those cuts are also a force for more positive changes in the industry, such as simplified project designs, revised completion designs, and the application of unconventional innovations to conventional exploration and production.
The seven technical directors on the SPE Board of Directors are concerned about the long-term impact of this wrenching period. They addressed the issue during a panel discussion on “Managing the Future Impact of Current Cost Cutting” at the 2015 SPE Annual Technical Conference and Exhibition. And it was on their minds as they talked about the industry’s future for this article.
One danger they cite is that money saved now by reducing the number of experienced petroleum engineers could have financial consequences later in the form of more expensive wells that are less productive, or shortages of skilled professionals.
“It is very hard for any professional in the industry to lose his or her job,” said J.C. Cunha, SPE’s technical director for Management and Information, adding, “These people are capable of doing a lot of other things. They will not sit and wait 2 to 3 years when the industry begins to look for them.”
The industry is cutting expenses, but lasting productivity will depend on how it measures costs. “We have to make sure that the drive to cut costs doesn’t impact the cost-effectiveness of wells,” said David Curry, the technical director representing Drilling and Completions. Rather than focusing on the number of days it takes to drill, the industry should design and build wells to maximize profitable output.
“We need to have closer alignment of everyone making the wells,” he said. “We are still not consistently at a point where all the contracts around well construction encourage and reward that cooperation.”
The number of college graduates being hired by oil and gas firms is down at a time when enrollment in many petroleum engineering programs is still near record levels. The days have passed when a petroleum engineering degree promised a high-paying job. Dan Hill, the director for Academia, said graduates now have to adjust to find work.
“We are telling students that the easy times are over,” he said. “You have to work at it to get a job, like students in any other discipline. You will need to knock on doors, be willing to go to geographic locations that were not your first choice, and maybe take a sub-engineering position to get started.”
One piece of advice offered to graduates, as well as professionals in the field, is that they should not limit their options by sticking to one category, such as unconventional engineering, said Tom Blasingame, the technical director for Reservoir Description and Dynamics. For example, innovations used in unconventional developments could be valuable for companies developing conventional fields.
“There will be a critical need for those who can cross-pollinate ideas, concepts, and practices across the different reservoir domains,” he said.
There is also powerful economic motivation for completion engineers to stop and take a look at their current methods, and for operators to scale back complex project designs. The goal needs to be “a design that is as simple as it can be that accomplishes your objective,” said Howard Duhon, the director for Projects, Facilities, and Construction.
In this period, faster information uptake is a competitive necessity for professionals in this business. “A lot of them are losing jobs and want to get rehired. A lot want to improve their skills so they will be more valuable to their company,” said Jennifer Miskimins, the director for Production and Operations.
The downturn has affected many of SPE’s member volunteers. Budgets for training, travel, and conferences are limited, and job cuts have hit some sectors hard. Those with jobs are busier and have had more demands placed on them, cutting their time to volunteer. “But some people have been laid off and are volunteering (more). They are stepping up because they have more time and want to stay connected,” said Trey Shaffer, technical director for Health, Safety, Security, Environment, and Social Responsibility.
J.C. Cunha, SPE Technical Director, Management and Information
More job cuts hit exploration and production operations late last year as operators and service companies reduced costs for what looks like a long downturn in oil and gas prices. Cunha said he understands the short-term financial pressure, but based on the cost of talent lost during past downturns, “we should be a little smarter.”
“When you do these layoffs, you lose expertise that takes years to produce,” he said. “Later on, when the industry gets on its feet again and it wants to get that expertise, a lot of times it will no longer be there.”
Cunha’s comments are based on his experience during the downturn that stretched from the early 1980s until early this century. During that period, fewer college graduates were hired, leading to a workforce where most exploration professionals are either near retirement age or early in their careers, and companies have again slowed college hiring.
This downturn could accelerate the generational change in the industry. But a rapid shift to younger workers would require more training and experience, both of which are in short supply. Deep cuts have slashed spending for training. Cunha spoke to one training company operator who said his business was off 80%. Reducing training at a time when workers are being asked to do more, and do it better, adds risks, he said.
When asked if it is possible to accelerate the development of key technical leaders, Cunha responded, “Do you know how long it takes for an engineer to get 10 years of experience? It takes 10 years.” While he recognizes that career paths are not as absolute as that quip, there is a limit to how fast even the brightest hires can acquire experience and expertise.
Another worry is large reductions in research and development budgets at service companies, which have been cradles of innovation.
The risk in all of this is that, 5 years from now, a company might be spending USD 100 million more for a deepwater well “because it does not have the right people or has not developed the right tools,” Cunha said.
Jennifer Miskimins, SPE Technical Director, Production and Operations
As exploration and production has slowed, those still with jobs in drilling and completions are trying to find ways for their companies to drill fewer wells without producing less oil. Financial pressures demand rethinking well-established systems.
“People are stepping back” and reconsidering how things are done, said Miskimins, who is a completion consultant for Barree & Associates. “We get requests from companies: ‘We are shut down through the end of the year. We are going to pick up in February or April. What can we do differently? What can we learn?’”
One thing to consider is whether less is just as good as more. She has been involved in studies based on completions data from operators using meter-by-meter data gathered using fiber-optic cable. Often when a tightly spaced series of spots is fractured in a stage, many will not produce. That may be because of the stress created in the area by fractures so close to each other.
“We are getting one contributing fracture out of three or four in a cluster. How can we fix that? How can we do it more efficiently down the road?” she asked.
Fixing that within a company requires convincing field operations teams that they should break from what was working when oil and gas prices were higher. And there are wide divides in how things are done among completion companies developing similar formations.
Sometimes engineers follow different paths because they are not all looking at the same sort of data. Fiber-optic monitoring is a powerful analytical too, but the cost—about USD 1 million plus the people, equipment, and software to interpret it—limits its use.
There is a lot more data being employed by companies to find drilling sweet spots and, in this economic climate, Miskimins sees more sharing as pressure increases to optimize assets.
“The industry is past the point of a land rush where everybody is working on leasing” and not wanting to reveal their plans, Miskimins said, adding, “Now there are people with established positions starting to share data more so than in the past.”
Howard Duhon, SPE Technical Director, Projects, Facilities, and Construction
When Duhon joined the SPE Board of Directors, oil was selling for USD 100/bbl. The industry’s focus was on producing more oil at almost any cost. Projects be-came more and more complex, as did the organizations designing and building them. Now with oil selling for less than half as much, the cost and time added by complex designs and organizations is a pressing issue.
“There is a focus on doing things more inexpensively on several fronts,” said Duhon. This requires rethinking how projects are designed and built, in part to reduce the cost of complexity. One major oil company is developing a new deepwater discovery by copying a simple design and fast-tracking it. “I am not sure they would have gone that route when oil was USD 100/bbl,” Duhon said.
To better understand how complexity magnified the time and cost of megaprojects, Duhon created an SPE Work Study Team to examine the problem. Low prices have made addressing complexity an industrywide concern.
“There is some inherent complexity. It is complex business, a complex environment, and we will never have simple projects,” he said. But the industry needs to reconsider how it designs and manages construction projects to make them “as simple as it can be and still accomplish the objectives.”
While the oil industry is inherently global, spreading a project over multiple time zones to tap experts and lower-cost labor in distant places comes at a cost.
“Engineering is now frequently being done on four different continents and with many more subject matter experts,” Duhon said. “It is hard to get decisions made, it is hard to know who gets to make decisions, and we have important decisions being made by MBAs who have never been on a platform,” he said.
Part of the problem is the steady addition of engineering studies, which are often poorly integrated into design work. Often these are safety reviews of what is considered the completed design that add complexity by creating late changes and out-of-sequence work. One goal of the complexity study is to consider how to better integrate safety studies into the design effort. Another is to look at a project that was done 20 to 30 years ago, and compare its deliverables and management with a current project to understand why cost increases have outstripped the general inflation rate.
“That certainly resonates now, and will hopefully resonate when the price of oil is back up to USD 100/bbl,” he said.
Tom Blasingame, SPE Technical Director, Reservoir Description and Dynamics
Blasingame sees the lines between unconventional and conventional reservoir technologies blurring, and then disappearing. Methods developed to extract oil and gas from a virtually impermeable source rock can be extended to more profitably develop marginal, near-conventional reservoirs that would not have been considered for development 20 years ago. New approaches can also be used to get more out of high-quality conventional reservoirs.
“We will be able to deploy reservoir characterization and reservoir stimulation methods from unconventional reservoirs that will substantially improve our understanding as well as the reservoir performance of such ‘conventional’ reservoir systems,” he said.
Cross-pollination of ideas is a technical opportunity and an economic necessity.
“We are working at the molecular level on the problems related to unconventional reservoirs and it has to have an effect across the board for conventional and near-conventional reservoirs as well,” Blasingame said. “Work at the nano-scale to the operational domain of oil and gas production will significantly improve our ability to model and optimize well and reservoir performance for all reservoirs.”
Those skills are valuable in this time of low prices as investor-owned oil companies seek reservoirs with better rock that has more production potential at a lower cost. Increasingly, unconventional reservoirs will be competing for limited development dollars with conventional and near-conventional reservoirs.
Low prices are challenging the limits of technology, services, and operational practices for unconventional reservoirs. The effort has taken a toll on many of those still working to eke out profits from difficult reservoirs.
“I think people have unconventional fatigue,” he said, explaining that “the speed and breadth of change and the steepness of the knowledge curve have really challenged many people and companies.”
In this brutal job market those who have mastered the physics and chemistry of unconventional reservoir systems will have gained a unique edge in the form of a fundamental understanding of all reservoir systems.
“I have been advising people who want to work on unconventional reservoir systems to think about using such skills to move between unconventional, conventional, and deepwater reservoir systems,” Blasingame said. “Individual engineers will have to manage their careers through continuous education as well as deepening and sharpening their skills.
“The current downturn has provided an opportunity to focus on both the science and the practice of well and reservoir performance in unconventional reservoirs, but many, many questions remain,” he said. “Frankly, people need time to think about how to adjust their priorities to the realities of unconventional reservoir systems. Just focusing on operations and production is no longer sufficient.”
Blasingame’s objective is to ensure that advances in reservoir description and dynamics have a broader impact, touching areas ranging from conventional and deepwater development to operations and logistics.
“I want to engage with anyone who has an interest and aptitude to help build a framework within SPE to establish the role of reservoir description and dynamics as a central theme in reservoir development, management, and exploitation,” he said.
Trey Shaffer, SPE Technical Director, Health, Safety, Security, Environment, and Social Responsibility
The importance of considering the impact of a project beyond the fence line is a priority for Shaffer. The aim is to make managers see that success requires more than achieving technical goals.
“Sustainability and social interaction are some of the most difficult things to address for our engineers,” said Shaffer.
Digital tools are being employed to expand the reach of the HSE technical discipline. Using USD 50,000 in grants from Schlumberger and the SPE Foundation, Shaffer is spearheading an effort to produce a series of compelling video presentations, called SPE PetroTalks, which will offer presentations by experts in sustainable business methods and positive social interaction programs.
The discipline also has begun holding virtual workshops with online participation that reached more than 500 members this year. The first virtual workshop discussed reducing workplace injuries and fatalities. The meeting drew 75 persons in Kuala Lumpur, and another 100 online from places as far away as Russia and the United States. Remote participants were able to comment and vote on questions raised during the “Getting to Zero” workshop discussion.
“The topic, Getting to Zero, looms large because over the past decade the number of on-the-job deaths in this industry has been unacceptable,” Shaffer said.
To improve safety systems, SPE has been working with the US Bureau of Safety and Environmental Enforcement and the Center for Offshore Safety to create a near-miss reporting system. The long-term effort has led to a summit planned for 2016 on how best to gather data on near misses in offshore operations and apply what has been learned to reduce risks on the job.
“The goal of that collaboration is to look at determining how offshore operators in the Gulf of Mexico can begin to voluntarily share near-miss data that are related to safety,” Shaffer said. “Having quality data could reveal trends and issues to help the industry operate more safely.”
The meeting should result in a technical report, and Shaffer is hoping that gathering new data leads to lasting changes. “We have to be careful not to get trapped in the mode of data for data’s sake,” he said. The data need to be used to review operations because “a lot of time the behavior of people is at the heart of the problem,” he added.
David Curry, SPE Technical Director, Drilling and Completions
Factory-mode drilling can slash the time needed to build a well. Whenever it is mentioned, the industry thinks of many identical wells. But Curry says it is time to revise the model based on modern mass-production methods.
To succeed, automakers and oil companies need to employ manufacturing systems that balance cost, quality, and design. The totally standardized assembly line literally went out with the Ford Model T. The low-cost cars that were sold only in black were a huge success until customers turned to more appealing models from competitors offering options on their mass-produced machines.
Now the auto plant making the Mini Cooper line near Oxford in the UK is able to mass-produce cars with so many options that they are unlikely to make two that are identical. All those different vehicles are made on the same production line. The plant epitomizes the auto industry’s trend of flexible manufacturing, which mixes standardization and customization, requiring both well-trained workers and automation.
Curry sees some companies using analogous advanced well-manufacturing approaches as a way to reduce costs.
“They are combining standardized well types, modular completion components, and a clearly structured decision-making process,” he said. This allows the completion design to be finalized in more or less real time based on the environment encountered while drilling.
Designs with the flexibility to adapt to changing downhole conditions and functional demands as a well ages could reduce its lifetime cost.
It may seem odd to raise questions about short supplies in the future during a period of massive overproduction. But the International Energy Agency reports that the current global oil surplus is a relatively slim 1.5 million B/D, and global demand growth should outpace oil production growth this year. While prices may not rise, inevitably more drilling will be needed to fill the gap as production from current wells declines.
Large-scale staff reductions and early retirements will have thinned the pool of skilled drillers. More automated drilling operations could help compensate for that, but the industry has to make the investment in automation now to ensure it will be there when needed.
“If we are not careful, we will not be able to safely and efficiently build the wells needed to deliver the amount of hydrocarbons the world will need 5 or 10 years from now,” Curry said.
Dan Hill, SPE Technical Director, Academia
Petroleum engineering schools too often lack the real-world well data needed to prepare students for a competitive job market. It was a common theme heard by Hill when he visited petroleum engineering departments over the past year.
“They all use data from wells and reservoirs in their courses and research,” he said. The schools need actual well logs, production data, and core descriptions and “some programs have a lot of difficulty coming up with this sort of thing.”
Often the data on hand are limited to formations found near the university so students may become familiar with permeable sandstone but lack any data from a shale play. The goal is to create a central online repository of shared data administered by SPE. To begin with, Hill, the petroleum engineering department head at Texas A&M University, said the school would offer its data sets on the Gulf of Mexico and unconventionals.
Hill is also seeking data donations from companies. To protect proprietary information, data that could identify a particular field can be removed. Data from older fields that are no longer critical assets can be valuable to students.
Over the next year, SPE’s Education and Accreditation Committee has been asked to turn this idea into a reality. He said SPE is the logical choice to create this online resource because it has so many connections in academia and industry. “To me it is the obvious organization to do something that will benefit students around the world,” Hill said.
More field data are needed because a common part of most petroleum engineering programs is the senior project, which tests a student’s ability to do an in-depth analysis. The quality of the work and the presentation can have an impact on a student’s job prospects because industry people often attend.
“It requires students to bring together everything they have learned. It is much more meaningful when a project is done with actual data,” Hill said. “If anyone can help with a data set, contact me.”
Technical Directors Outlook: Doing Better in Bad Times
Stephen Rassenfoss, JPT Emerging Technology Senior Editor
01 January 2016