Volume: 5 | Issue: 2

Dialogue Takes Aim on Project Costs, Schedules

Topics

Thinkstock

The collapse of oil prices has sent a shudder through the industry over the future of high-capital, major projects. However, red flags over capital expenditures (capex) had already been waving, and companies began attacking the problem several years ago. At a strategic dialogue on technology, major projects, and raising capital efficiency at IHS CERAWeek in Houston on 23 February, panelists discussed the numerous steps their companies are taking to achieve large-scale permanent, in addition to cyclical, capex reductions on major projects.

Panel chair Judson Jacobs, senior director of upstream at IHS, noted that market forces in the low oil-price environment are bringing capex down and that operating companies are taking steps to lower costs and increase returns by looking closely at each well before justifying a drilling decision and high-grading their well portfolios—efforts he labeled “just good practices.”

As a business consultant, IHS is examining the role that technology can play in reducing capex and gave several examples of how companies are doing so.

The examples are among a number of successful cost-reduction strategies implemented within industry “pockets of excellence,” Jacobs said, “but by no means are these standard practice. The challenge that the industry faces is how do you get to widespread adoption of some of these?”

Staying Competitive

Margareth Øvrum, executive vice president of technology, projects, and drilling at Statoil focused on the need for innovation, simplification, and improved technology for companies to stay competitive. She said the company examines the options for simplification, standardization, and the incorporation of new technology in every project before beginning design. The approach has helped Statoil reduce the breakeven point for offshore projects by almost USD 30/bbl since 2013. “We have turned every stone,” Øvrum said.

A major technology innovation has been Statoil’s design and installation of the world’s first subsea gas processing facility at the Åsgard project in the Norwegian North Sea. The facility is “running like a Swiss watch,” Øvrum said, and could become a standard for the industry.

In addition, Statoil is striving to establish a consistent practice for safely handling plugging and abandonment, with the goal of reducing a process averaging 35 days to one that will take less than a week. Øvrum also cited the potential of drilling automation, which she said is “just getting started.”

Lowering Cost of Supply

Steinar Vaage, senior vice president of operations and project services at ConocoPhillips, addressed the company’s efforts to lower the cost of supply in unconventional operations within the contiguous 48 states of the United States.

“The winners ought to be those who produce at the lowest costs,” Vaage said.  ConocoPhillips is doing well on costs when benchmarked against competitors, but on a breakeven basis, the company and its competitors are all challenged. Breakeven costs for most range from USD 45/bbl to USD 60/bbl. Even companies at the low end of the range are not breaking even, and these prices are at the wellhead, which excludes certain costs.

In the Eagle Ford Shale of Texas, “we’re really challenging everything we do,” Vaage said. With the repetitive nature of the development program, in which hundreds of wells are drilled and many similar facilities built, the company is focusing on standardization of wells and facilities, and adapting the procurement process, to lower its costs throughout the supply chain. It is not necessary to optimize every next well or to re-engineer on a continuing basis, he said.

In hydraulic fracturing operations in US shale development, ConocoPhillips has more than doubled the amount of proppant it uses by weight per site, while cutting costs by 30% and reducing cycle time, Vaage said.

“A Project Crisis”

Jim Nyquist, president of PlantWeb solutions at Emerson Process Management, discussed project failures and potential remedies. “Not only do we have a price crisis in this industry today, but we think we are in a project crisis,” he said.

Nyquist estimated that oil and gas industry projects have a 65% failure rate based on budget overruns of 25% or more and schedule overruns of 50% or more. He presented an analysis of 400 projects completed in the last 5 to 10 years that have been statistically normalized to the USD 1-billion level.

Projects in the first quartile were executed for an average of USD 750 million in 27 months. Projects in the fourth quartile were executed for USD 1.6 billion in 53 months. “So it’s half the time and half the money to complete the same project, first quartile to fourth quartile,” Nyquist said. “That is quite a separation.” Within these projects, the critical-path process of commissioning and startup averaged 2 months for projects in the first quartile and 20 months for those in the fourth.

As project consultants, Emerson has developed an innovative-technology- and engineering-based approach to improve project capital efficiency, Nyquist said. The approach comprises some 30 elements, about half of them transformational technologies and half of them processes or methodologies. They focus on three areas.

Some technologies with major potential for reducing project cost and execution time, Nyquist said, are wireless instrumentation; electronic marshalling to connect field devices to process controls; and auto-commissioning for instruments on a production facility, which can reduce an average 2-hour-and-20-minute commissioning process to 26 minutes, and within 2 years to 10 minutes. OGF