Can technology make $20 oil profitable? Technology-based improvements in time efficiency have already made oil production at least sustainable at $50 per barrel. Could further improvements drop the break-even level to even lower prices?
Firms who are leaping forward to fully embrace oilfield technology—both providers and end-users—point out that the “old ways” of doing things are grossly inefficient.
Time wasters would be a good term, they say, and they have a point.
Pumpers driving for hours across windblown prairies to check wells that are humming merrily along, only to finally stumble across a location with a problem that has been going on for days; frac truck drivers waiting in long lines to load or unload; equipment that fails due to a missed PM; all these things and more could be avoided by proper use of technology.
In the technology sector the goals are threefold, according to Dave Lafferty, president of Scientific Technical Services, who spoke in November at an oilfield technology conference in Midland: Reduce overhead, boost production, and improve safety—all of which can make oil and gas production profitable at lower price levels.
“Really, it’s quite easy” to be profitable at $20, “when you sit down and add up all the ways there are to save money in our industry, and how much waste there is,” added Blake Burnette, CEO of IoT-eq (pronounced I-O-Tech), at the same conference. “Through automation, I think $20 a barrel is quite feasible.”
Burnette says the oilfield is 20 years behind industry-in-general in adopting the efficiencies of technology, and he believes he knows why. It’s the bucking bronco ride that is the oilfield economy. “One of my theories about our business is that the shortness of the business cycle makes us stay 20 years behind other industries” in technological advances. In down times companies feel they can’t afford to invest in new technology, whereas in boom times they don’t have time to adapt to changes—and the economic need is not perceived.
Still, a growing number of companies are embracing technology in several categories.
Efficiencies in production
Perhaps the first and most obvious benefit of technology is in remote monitoring and control of pumps and facilities. With remote monitoring, properly functioning wells are bypassed and field technicians go only to problem spots—and in most cases are ready to deal with the exact issue when they arrive. This saves tens of thousands of miles of driving, hours behind the wheel, and thousands of dollars in fuel costs. It also minimizes downtime because problems show up on an exception report as soon as they happen.
The savings here are really obvious, says Burnette. He recalls being on a job site in early 2017 when times were still tight for producers. “One company was charging the customer $8,000 a day to have a guy sit there and adjust the pop-off pressure a few times a day. That’s a function that’s easily, easily automated.” A quick thumping of the calculator gives an annualized figure of $2.92 million for that one function.
Even with wastefulness like that $8,000 ding still happening in some places, monitoring and drilling do lead the rest of the industry in tech advances so far, Burnette says. “Drilling has made huge advancements over the past few years in the amount of hole made in a day, which has drastically changed shale plays, and other efficiencies have come on the scene, too.
“But I think completions is where the opportunities lie to make greater strides in lowering the price per barrel,” he added.
Burnette sees multiple opportunities in this category, including the potential for improving frac sand truck logistics and handling, along with advancements in frac pump design. Better logistics would eliminate long lines of trucks burning time and diesel while waiting to load or unload, which also incurs standby charges passed on to producers. GPS devices tracked by software could arrange just-in-time arrivals and departures. “Also, there are other ways of handling the sand and touching it fewer times in the hydraulic fracturing process, which can help drive down the price.”
According to Burnette, no one has significantly updated the design of frac pumps in 50 years. Attaching sensors to these pumps and tracking failure data over time could lead to improved designs and reduced failure rates.
Taming Big Data
Putting sensors everywhere and monitoring everything is a great start—but at some point an untamed avalanche of collected data would overwhelm everyone. “Big Data” strikes fear in the hearts of some and joy in others. After all, Barnette estimates, by 2030 there will be 1 trillion IIoT (Industrial Internet of Things) devices. “That’s a staggering number,” he says.
Adds Dave Lafferty, “You have to somehow put it into a container. What I mean is context. You have to have a way to take the data from various sources and match them up into a coherent view.”
Analytics options range from the simple—a dashboard—to rocket-science-level predictive analytics.
Then there’s managing by exception.
“Making sense of the data, giving visibility to your operations, understanding where the pain points are,” eliminates the need to keep up with every detail, Lafferty says. “This whole management-by-exception is a key.”
How does that work? After sensors are installed and data is captured, it becomes easy to spot the outliers—the highs or lows, for example, that can be matched up with actual failures. In some cases, a closer examination of broader data reveals a previously untraceable trend that starts days before an actual failure. This kind of information can be used to send technicians to the site to perform preventive maintenance or to spot an impending part failure.
This information can fulfill two legs of the technology trio in one shot—increasing production by reducing downtime, and reducing expenses by catching problems while they’re still small.
Power by the Hour
Vendors, especially equipment manufacturers (OEMs), are using big data to better serve customers and to create ongoing revenue streams, while still saving money for those customers.
Lafferty noted that sensors installed in power equipment can track hours of usage, alerting the OEM to notify the end user when it’s time for an oil change—which the vendor can offer to do—or for an upgrade or replacement of equipment. It also helps those manufacturers find weak spots where their equipment can be improved.
The more radical business model changes are in equipment as a service. Software-as-a-service is already a thing where, instead of buying Excel, for example, it is rented by the month so that it stays current all the time.
Now there is data-as-a-service, where not only the software is rented but so is the data. Companies like WellAware offer this, says Lafferty.
Under “power by the hour,” Lafferty points out, “I don’t buy compressors, I don’t even lease compressors. What I buy is compression. It’s up to them [the OEM] to figure out how to get that compression to you at a price you can agree on.”
This saves producers money by shifting the risk to the supplier. Burnette says, “Under this scenario, $1 million in equipment costs goes away.”
Repair or replacement costs also shift to the supplier. When needs go up, the end user has an incremental expense for horsepower, not a huge capex for a compressor. And when needs go down, he’s not stuck with a million-dollar dinosaur.
Clothes Make the Man Safer
Keeping people safe is the third leg of the technology stand, and improved logistics do play a role in that. But there is a whole new industry on the horizon that could take safety up to an entirely new level.
It’s called wearable technology, and it goes way beyond an Apple Watch. And by boosting safety, it can be another chink in the armor of $20 per barrel oil.
Mark Bernstein is founder and CEO of Wearable Technology, LTD, based in the UK. He says that the development of washable electronics was the key to allowing sensors to be placed in clothing, such as the FRC clothing worn by field techs.
“We learned how to put washable electronics into consumer cycle garments to make people more visible,” he said. The garment, called VisiJax, has sewn-in lights that activate when a bicyclist lifts an arm as a turn signal. These garments can also connect with a cellphone to allow hands-free calling.
The company has yet to actually enter the Oil Patch, but Bernstein has been successful with a safety jacket marketed in the UK. A recent encounter with a major producer in Houston opened his eyes to the possibilities for oil and gas safety.
They are looking more to license their technology to existing garment makers than to make the garments themselves for the U.S. market.
What could be of special interest to the oilfield would be what Bernstein calls “SOS/man-down environmental sensors,” especially useful in the crushing heat of a Permian Basin summer or the bitter cold of a Bakken blizzard. These sensors could alert someone else at the site, or someone in the office, that a worker may need help.
Sensors for dangerous gases such as H2S could be sewn in, detecting dangerous gases in an employee’s immediate location. They can monitor for excess noise as well.
Proximity sensors, like those in the latest vehicles, could be synchronized with onsite vehicles. “We work with a garment company that puts a unit in a vehicle. It creates a zone around the vehicle, and if our smart garment penetrates the zone, the garment alerts, and the vehicle alerts,” he said.
And, Bernstein says, Big Data arrives even here. Collecting the data over time tells management if the driver is in those situations more often than the norm, or if it’s the pedestrian, or if it’s the location itself that needs scrutiny. So the people can be retrained or the location can be inspected to reduce visual obstructions. In all cases, there would be an ongoing reduction in workforce accidents.
The Moral Argument for $20 a Barrel
One reason Burnette seems to be obsessing on the idea of oil at $20 per barrel is what that does for the rest of society.
“It’s important to understand that, when we’re able to produce at $20 a barrel, which I believe we are, it actually benefits everybody,” he said. “Seventy percent of the price of anything, by some studies, is energy.”
“Most importantly, the price of food goes down. You can imagine who benefits the most from lower food prices, especially healthy foods.”
How to Get There from Here
“I wish it need not have happened in my time,” said Frodo.
“So do I,” said Gandalf, “and so do all who live to see such times. But that is not for them to decide. All we have to decide is what to do with the time that is given us.” ―J.R.R. Tolkien, The Fellowship of the Ring
The Borg, in Star Trek, the Next Generation, would say, “Resistance is futile.” That may be so, but in the case of technology coming to the oil patch, resistance is pretty strong.
The best suggestions regarding ways to promote adoption of technology are twofold:
First, focus on the benefits. Don’t say, “Let’s install monitoring equipment in field X.” Say rather, “How can we save money/boost production/improve safety in field X?” This is actually a cardinal rule in convincing anybody of anything. Ask any good salesman.
Second, go all-in if you’re going at all. Just installing sensors and buying software doesn’t work if no one thought of setting up a network to transfer the data. A bad experience the first time could set progress back for years.
Change never comes all by itself. It is promoted and adopted first by leaders, then by early adopters, then by the general public. In other words, people make the changes.
And it is indeed getting late very soon.
“They always say time changes things, but you actually have to change them yourself.” ―Andy Warhol, The Philosophy of Andy Warhol
Paul Wiseman is a freelance writer in Midland.