Technology

Innovation, development and application of new technology are making a continuous contribution to lowering costs and risks during the development and production phase. Deep water programs benefit from long distance subsea tie-backs enable small reservoirs to be tapped from existing platforms or even onshore facilities. Emerging technologies include reusable flexible pipe for small fields, electric subsea trees and electric heated lines to improve flow and using drilling rigs to install subsea equipment rather than expensive heavy lift or pipe laying vessels. Rigless workovers are on the horizon. Specific issues requiring improved technologies in oil sands programs are to lower steam requirements for thin zones and deal with the effect of steam on shale layers, as well as address carbon emissions and steam sourcing.

A shared enabling technology is horizontal drilling, though the motivation differs for each resource. For deep water programs, horizontal drilling allows multiple targets to be accessed from a single (expensive) drill ship; some tight gas resources are most effectively tapped through horizontal wells that track natural fractures; and SAGD oil sands extraction depends on pairs of horizontal wells in which steam injected into the upper well heats the bitumen which drains into the lower well bore.

Information technology is an enabler of more effective and efficient workflows speeding cycle times from small contributions such as invoice approvals through to what Chevron sees as the vital function of making information available and transparent through the full supply chain. HighMount finds there are good opportunities to improve production performance through technology. In Sonora, all producing wells have full telemetry, offering the opportunity for the field to become a "real time asset" rather than a "month-time asset". Employees can now go to an underperforming well early in the day when a problem starts rather than whenever their schedule takes them there. With better more timely data, corrective action can be taken immediately rather than the next day or a week or month later. This allows less manpower and quicker response, benefiting both the top line and the bottom line. The company is convinced the investment in telemetry will provide a high return. ConocoPhillips also accepts the importance of real time information, but notes the high failure rates of fiber optics devices in the harsh conditions encountered in oil sands projects including high pressure steam, corrosive bitumens and frigid surface temperatures.

The industry is experienced in "Coopetition" through joint technology partnerships, either between two parties or with multiple collaborators such as DeepStar. SAGD, for example, was a joint development supported by the Canadian oil and gas industry and the Alberta government through the Alberta Oil Sands Research Authority

(AOSTRA).

Summary

Oil and gas companies are being driven to find and develop resources that are intrinsically higher cost than those that were accessible a decade ago. They must face the challenge of lowering full cycle costs so that they can provide their shareholders with the returns that they have become accustomed to in an environment of volatile and unpredictable commodity prices. In this paper, we draw on the experience of practitioners in US and international deep water exploration and development and unconventional resource plays as well as consultants active in developing strategies and performance improvement programs for high cost resources, to uncover common themes in moving toward low costs for high cost resources.

In the view of the authors, three key themes emerge in the effort to lower costs: scale, excellence in execution and controlled experimentation. Scale is a prerequisite for lowering unit costs and leveraging lessons learned; excellence in execution extracts the full value embodied in scarce skilled employees; controlled experimentation is by definition necessary to continuously rewrite the rules of the game in producing high cost resources and progressively drive costs down. This system, once created, can be deployed in new fields and basins to build profitable growth from high cost resources (See Figure).

Creating scale requires the patience, selectivity and conviction to capture large resources; the ability to leverage economies of scale and of learning; and the ability to define tasks as programs of work embodying continuous improvement rather than a series of independent projects. Excellence in execution requires the design of processes and business models to let "the right people do the right things;" the application of performance management practices to solidify gains; and a commitment to learn from Supply Chain Management (SCM) best practices across industries. Controlled experimentation relies on transparent information throughout the supply chain coupled with objective, clear decision rules and an emphasis on innovation through applied know-how more than proprietary technology to minimize risk.

Critical to that effort will be the ability to get the most from the scarce resource of skilled personnel - by clustering them in centers of excellence to stimulate innovation, by deploying them as coaches and teachers for the emerging, more diverse next generation, by augmenting their experience and knowledge with strong information systems, and by leveraging them with well organized, well trained supplementary workers. Technology has an important role to play in each of the sectors represented by the authors; although the specific physical technologies of importance differ for each type of asset, the emphasis in each case is on innovation through application and adaption by skilled personnel.