Deploying technologically innovative solutions to lower costs in the oil industry

Is this the start of a new era for technology-enabled cost-management innovation in upstream oil and gas? The potential exists for significant cost reductions in selected assets. The challenge now is to apply them more widely.

While oil companies continue to be pressured by the oil price downturn, opportunities also exist for more adroit ways of cost management via technologically savvy solutions, according to a team of IHS experts.

In the latest instalment of a webinar series on the global energy market, IHS analysts said companies need to emphasize technology and innovation efforts on key cost categories, such as drilling and completion, in order to reduce costs because of the lower oil-price environment.

But even in the face of ongoing hardship, the confluence of operating and financial pressures might also be creating the right conditions to build on existing pockets of industry excellence. This could usher in a "new era" of cost-management innovation, the IHS experts said.

Case examples that illustrate the potential for a step-change in performance through technology enablement include, for instance, manufacturing-style drilling in unconventional wells that can be expanded to also cover conventional assets; reduction in capital and operating expenditures through extreme "de-manning," for example a deep-water or remote site with minimal or no on-site staff; and opex reduction through technology-enabled remote operation centers.

IHS Energy analysis demonstrates there's real value associated with cost-management solutions enabled by technology. In shallow-water gas, a 9-32% reduction in lifecycle cost can be achieved, amounting to savings of $3-$11 per barrel-of-oil-equivalent. For oil sands, that percentage could be 4-12%.

In particular, applying technologically driven innovation found in unconventional plays could produce dramatic improvements in the cost management of conventional drilling. In the area of standardization on well and completion design, costs could be lowered by boosting bit performance, drilling efficiency, and drilling rig or crew efficiency. Repetitive tasks associated with drilling high-cost, one-off wells can also support these forms of "high-iteration learning," if the technology can be deployed to enable it.

Meanwhile, capital spending can be made more efficient in the industry in several ways. Extreme de-manning can reduce capex by 2-15% and opex by 20-70%. In subsea development, shifting well heads and processing from platform to sea floor can also slash both capex and opex. For remote support of on-site construction staff, capex can be decreased by 7-15%, according to IHS.

Overall, upstream capital costs are expected to decline globally by approximately 19% on average between 2015 and 2017. For onshore environments, technology-enabled models can reduce operating expenditures by 5-15% while increasing production by 2-6%.

Analysis and other information on this subject was presented in the webcast "Will Technology Bend the Cost Curve?" which is part of the series "Energy: A Turning Point, the Industry Resets." Paul Markwell, vice president, IHS Energy; and Judson Jacobs, senior director, IHS Energy, presented on the webcast.

IHS Staff Writer, June 17, 2015 for IHS Upstream Technology and Innovation

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.