Friday, June 18, 2010

oilfield and technology adoption

Technology in the oilfield is a curious thing. There is a broad range of technological sophistication within the industry. It ranges from a "if it ain't broke, don't fix it" mentality all the way to "we're going to use underground sensors and satellites to monitor what is happening a few miles beneath the ground in real-time from an office thousands of miles away and adjust the program on-the-fly." It is hardly surprising to have such a wide range since the work and intensity runs such a large gamut.

Some fields are simple for various reasons like they are some combination of being shallow, low-temperature, low-pressure, older (which usually implies better characterization and understanding and thus fewer unknowns), and within easy reach of people and equipment. Many places like that are also in field development, which typically means drilling lots of the same wells over and over again with little variation. This means high-frequency, repeatable tasks that usually results in relatively few problems as the objective is a type of factory-drilling that tries to produce wells the way a factory might make, well, whatever it is factories make.

Some fields are more complex, but still going through field development. (Really, all discoveries need to be developed to ever be commercial). Conditions that are the opposite of the ones I mentioned before can make drilling more difficult. (There are many more conditions that influence drilling, completion and production, but this is not about getting bogged down in a discussion of industry jargon). Nonetheless, these fields can still be developed, albeit with more sophisticated tools and techniques, more money, usually more time, and thus the expectation is of a better pay-off. More risk should generally not be undertaken without more potential reward. Even in complex field development, you can get repeatability of certain operations but variation within a field or difficult conditions make it riskier.

Exploration work is a potentially tricky and dangerous beast. Deepwater Horizon was not drilling in a mile of water because it was convenient. With NOCs controlling somewhere between 75-88% of proven oil reserves, the IOCs are increasingly drilling in more difficult operating environments. The technology required to operate in such environments often did not exist ten or even five years ago. Leading edge technology is expensive and my employer spent more than $800 million on research and engineering last year (will open .pdf). Admittedly, the figure is pretty silly without context, but it’s not free. Technology is also frequently difficult to sell within the industry. Many operators, especially the large ones, fancy themselves as early technology adopters, but the reality is quite different. Corporate culture and the very nature of individuals’ experience with past field development often makes getting people to change very difficult. Why use a new tool if the old one worked last time? Why use a new and little-tested system if the old one worked in the past? Conditions change, technology improves and we can do a better job. That is why, but the convincing is usually quite costly. The joke (which seems very dark after Deepwater Horizon) is that there is always enough money to do it wrong three times before spending the money to do it right.

Semi-related note: I was tempted to make a comparison to Apple products like the iPhone, but it would not be apt. The iPhone was a "game changer" (whatever that means) and many companies tried to emulate and/or surpass the iPhone with their own products and touch screens and whatever. (Personal opinion: A phone must be a phone first before it can be considered a useful tool.) The reason the analogy is weak is because technologically, while the iPhone did many unique things when it came out, much of it was riding on somewhat older technology. Apple's big focus was on form and user experience. Both of those are significantly less important in the oil and gas industry. (I am referring to the upstream oil and gas industry). The oil and gas industry very rarely sells to end use consumers. Instead, it is mostly sales from one company to another company. Thus, marketing and advertising, while not useless, is less critical. Additionally, cute and magical are not adjectives used to sell products in this business. Despite this, selling technology to corporate customers can be difficult, perhaps it has something to do with the lack of fan-boys in the corporate world.

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