Utilising Your Knowledge Base to Improve Predictability & Performance in Drilling Operations

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We always hear that Oil & Gas companies are at the mercy of external factors like fluctuating economic conditions, so we could be forgiven if we forget the sheer amount of factors we can actually control internally to operate as efficiently and competitively as possible. A powerful tool to ensure we are utilizing the most out of our internal resources is the Knowledge Base, built out of the drilling operational database maintained by a company.

Sitting as a gateway between the planning and execution of operations, we can utilise a repository of past knowledge to better optimise our use of resources in drilling wells, and predict, identify and evaluate the performance of each operation. By ensuring planning and execution activities flow through the Knowledge Base, we can help ensure our processes are as optimised as possible. In today’s economy, this is particularly important for a company’s capital management.

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Figure 1: Planning and execution cycle of a well

A company’s Knowledge Base is built from the set of operations in their operational database, which have been structured according to some sort of coding system. While it is difficult to compare overall interventions with one another, even if they have the same goals and are executed in the same field, we can still compare individual operations. Overall interventions operate at the mercy of a variety of factors dependent on the time they are executed, while individual operations are simplistic enough to be compared to one another over time.

2016-11-25-3Figure 2: Operations can be compared with each other, but interventions cannot.

To ensure quality coding for all executed activities and the future consistency of coded operations it can be extremely helpful to structure daily data operations using an “Ontology of Operations”. An example structure involving over 200 operations can be seen below.

2016-11-25-4Figure 3: Diagram of other entities related to an operation.

Each box represents an entity and links between it and others to demonstrate their relationships. Terminations with “chicken feet” represent a relationship with many elements of that entity. For example, an Operation is composed of a Sequence of Steps (several steps) and is carried out with one or more Execution Standards. Each Execution Standard contains a List of Resources (several resources) for its execution. Additionally, during the execution of an Operation many Abnormalities can occur.

But with about 200 code choices being made by several different personnel, how can you make sure that the coding quality and uniformity will lead to the desired comparison? We believe the best way to achieve uniformity between the rig and the office is to allow one or the other to take the lead. If both are tasked with coding daily operations the data is more susceptible to a lack of consistency, making it much harder to compare and optimise operations later on. In our own work we found it was best to allow the office to take charge of coding daily operations, freeing up rig operators to focus on the more hands on work. Given the data will be processed and analysed in the office anyway, the added familiarity with the coding procedure helps a lot. How this can work in practice is shown in the diagram below.
2016-11-25-5Figure 4: Flowchart to create and use the Knowledge Base.

Consistently coded operations increases the usefulness of a company’s knowledge base tenfold, especially when it comes to risk analysis and Monte Carlo simulation, and ensuring interventions are informed by this knowledge base allows for more optimal use of a company’s scarce resources.

This can be compared to the business philosophy of understanding a company’s strengths and weaknesses to recognise opportunity. There is no better way for a company to do this than not only monitoring performance over time, but also utilising the latest technology to do this at the micro level. After all, in the high risk, high reward Oil & Gas industry the potential for the smallest of factors to generate a substantial impact on overall operations remains very real.

Make the Knowledge Base the centrepiece of the analysis and planning of your drilling operations.

-Mike & Carlos

A Case for Probabilistic AFE in Drilling

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The current downturn in Oil & Gas serves as an important reminder that things are always changing in our industry. Things are never static. As engineering marvels are achieved out in the field market conditions are changing back home by the hour, inevitably determining what challenges will be taken on next, and which ones will be left in limbo. And then there is the technology supporting our engineers. Equipment, data and analytics…things are changing in Oil & Gas technology at a rate faster than ever before. The cost of operating a drilling rig by the day has dropped a lot compared to only two years ago, for example, allowing us to push the boundaries of where we go and how much we extract.

In an industry of constant change we need to do what we can to manage uncertainty, to consider our everyday operations in this environment of constant flux verses the traditional approach of considering them in more of a static bubble, where we can only reasonably predict the future. The fact that cost overruns are inherent in Oil & Gas immediately places the traditional approach to planning in doubt, but fortunately mathematical and software tools are available to help companies position themselves to succeed in environments of uncertainty like now.

Genesis Petroleum has been creating software, combined with an analysis methodology developed for well operations and a Knowledge Base, to generate a reliable level of predictability in planning operations for our clients. It is also use it to measure and evaluate performance over time.

It is this enhanced ability to predict operational performance that produces the best distribution of allocated funds to competing projects, and maximizes the return on invested capital, contributing to maximized profitability and NPV.

It is important to note that predicting does not mean avoiding the risk or preventing its impact though, but rather it is about recognizing its probability and guaranteeing decision-making conditions in order to keep the effects at acceptable levels for the business.

In our line of work ‘predicting’ means maintaining dynamic processes to analyse, develop, document and maintain different scenarios. One of the most important aspects in the development of an oil field is the analysis of the operational sequence of an intervention in a well, whether drilling, completion or workover, for the duration of the intervention and its impact on the budgeted cost, represented by the AFE (Authorization For Expenditure).

It may come as a surprise but it is still a common practice in the industry to estimate AFE deterministically. That is, without taking into account the full range of events that could change the outcome. This isn’t to say the traditional method is wrong, but it can pay dividends to have degrees of risk where traditionally there is a fixed, limited vision of what lies ahead. Gut feeling or intuition can only take us so far, too!

Given market forces and exchange rates can change dramatically over time we cannot use previous AFEs as a statistical base for reliably determining future AFE. In an operating environment constantly fluctuating there actually is something that remains the same, though: time. Exploiting this fact gives us a way to predict future performance in an environment where almost everything else could be considered unpredictable. So rather than producing an AFE deterministically the basis for AFE should be related to ‘time’, as 24 hours per day is the same in 2016 as it was in 2015 – it is invariant. Therefore, statistical AFE should consider the probabilistic variance of time multiplied by the cost items that are time dependent. Time variance can be obtained by carefully using historical data.

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This produces a sound probabilistic AFE, which finance personnel can use to assess their risk exposure for the project. That is, how much the AFE can be in the worst case scenario due to time overruns versus the average or expected scenario. Companies can’t see the future, even with mathematics and analytics, but they can certainly manage and prepare for it!

Studies that helped shape Genesis software showed deterministic AFEs demonstrating differences of 20% to 35% between the actual cost and the planned costs of drilling operations. While every situation is different, when we consider the enormous budgets allocated to drilling activities a cost difference of 20-35% could be staggering, in any context. The current downturn is tough for everyone involved, but no other time demonstrates the case for managing uncertainty with a probabilistic AFE better than now. In a time of limited spending in an uncertain economic climate, reliable and informed risk exposure assessment can certainly make or break projects.

– Mike & Carlos

Drilling Wells on a Budget: Lessons from Low Cost Airlines

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In the current tough time of low oil prices we need to get creative and think ‘outside the box’, or rather outside our industry, in search of ideas to streamline our processes and save costs.

An analogy to the airline business is worthy of consideration here. From outstanding safety records, excellent maintenance systems to precise logistical operations, these and many other aspects are common to our Oil & Gas industry. If the airline industry is sustainable in a fluctuating, fast paced, high risk environment like ours and can handle 100,000 commercial flights a DAY that move 3 billion passengers a year, I believe we should take a moment to study this industry in depth.

Given our difficult economic environment right now I will draw immediate parallels to the Low Cost Carrier (LCC) or budget airline model. What brought about the rise of the budget carrier, and how did they become so successful alongside their full fare counterparts? They operate the same airplanes as non-budget airlines and also draw professionals from the same pool. The pilots need the same training system, as well as in-flight and ground personnel. Most of them even share the same airport facilities. So where is the actual difference that allows them to lower the ticket price and still be profitable?

The budget airlines began with a different business model. They detected many services that were not fundamental for customers and cut back, while still working to ensure they were able to safely move a person from A to B. Making point-to-point flights reduced the complexity in connection, baggage handling, and connections to other airlines. This basically eliminated the need for travel agents and other resellers. Budget airlines also reduced the amount of different aircraft they utilised (for example Boeing 737 or Airbus A320), so training and maintenance is much simpler. As anyone that has flown with a LCC knows they also cut all non-essential aspects of the flying experience such as lounges, frequent flyer programs and meals; only offering extra features as an ‘add-on’ that would increase the base fare for the passenger. Finally, they streamlined and increased the productivity of all their remaining processes (self-check in systems, no luggage transfers, no connections etc.)

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So what can we learn from this that can be applied to our drilling activities?

While LCCs started disrupting the business model by simply eliminating or charging extra for non-essential services, they also took this opportunity to streamline and optimize the rest of their business operations, which can be an inspiration for drilling in Oil & Gas.

Since drilling can be onshore, offshore shallow, deep, ultra-deep water etc., it is hard to make specific recommendations, and companies do face unique challenges specific to their region and businesses. Despite these varying complexities some general lessons can be passed on from the LCC business to Oil & Gas. I believe the main points to consider are:

• Do the rigs (and other main service providers) have common modus operandi and similar procedures? If not, can anything be done to simplify operations?
        LCC: Flying a single aircraft type reduces the complexity and cost of maintenance. Aircraft manufacturers offer a wide range of aircraft (covering volume, distance, and different purposes), but budget airlines only choose a few of them and assign them to as many routes as possible. In our industry manufacturers build “fit for purpose” drilling rigs, but they could also standardize them in a similar fashion to airplane manufacturers designing their planes.
• Could operators be using no-frills equipment that can do the same job at a lower unit cost?
——LCC: No frequent flyer programs, no seat allocation, no in-flight entertainment etc. included in the basic cost of tickets.
• Do we know exactly which top 20% of operations are taking up the most time and cost? Are these operations under control (execution time has low dispersion from many samples)? Are they benchmarked against other rigs and other operators?
——-LCC: Reducing capital and leasing costs, airport costs, general overheads, ways to reduce fuel costs.
• Is there a very precise plan drawn up before drilling which can be followed up operation by operation? This gives the opportunity to assess the impact of unplanned operations that are executed as well as the impact of planned operations that aren’t executed. These types of operations are anomalies which can have costly consequences, directly or indirectly. They need to be understood and have a root-cause analysis clarified, in order to prevent any ongoing waste of resources.
——-LCC: Keep routes simple and profitable, with regular evaluation of the viability of each; benchmarking each flight for continuous improvement.
• Are the logistics programs kept informed of the latest changes in the well development, ensuring the correct amount of resources are utilised at the correct time? We want to avoid a shortfall (wait on resources) or an oversupply (no space to store) during drilling activities.
——-LCC: Simplified maintenance program, tight integration between operations and logistics; luggage handling, limited connections etc.
• How can we handle an outstanding safety program across the whole industry?
——-LCC: A very detailed safety program; thorough root cause analysis; safety regulation from operators, regulators, government, supplier, etc. The whole ecosystem is prepared to maximise safety. That’s why safety records haven’t been compromised even with the increased number of flights sold and delivered in this ‘budget’ manner. It is worth understanding that the aviation industry as a whole was born with ultimate safety in mind as the failure costs are enormous, affecting human lives directly. Despite their cuts, LCC companies continue to operate on the existing safety paradigm. Oil & Gas started a safety program which is growing in effectiveness and its application, but only the collective responsibility of all parties involved will lead to outstanding results.

These key points, among others, need to be reflected on in order to bring our industry to the next level. Even in the high risk and volatile Oil & Gas industry it isn’t impossible to create an ecosystem that can lead to further savings without jeopardizing safety. That’s what the airline industry, budget or not, has safely and successfully achieved to deliver growth and profit, after all!

– Carlos & Mike

 

 

Big Data – Let’s Put It Into Perspective

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When reading about Big Data it often strikes me how many different industries are championing the buzzword, whether that be companies trying to sell analytic services to said industries or big players trumpeting how they are utilising Big Data to better serve their customers. This is despite the fact that at this point in time the potential impact of Big Data is revolutionary in some circles while in others the tangible benefits are more limited. For example, outside the Oil & Gas industry you might be hard pressed to believe that Big Data is the brainchild of the social media marketing sector. Every day we see new reports tagged with Big Data highlighting the latest trends across the social media platforms. Sure, it sounds impressive when we learn that so many millions of photos are being uploaded to Instagram by XYZ demographic around a certain time, but what tangible, revenue generating good can we immediately produce from this?

Yes, social media produces petabytes of data, and it IS Big Data, but we need to put things into perspective when reporting on the phenomena. Big Data provides some great insights for marketers, but they often struggle to convey the impact of their digital efforts in dollar terms, whereas in the Oil & Gas industry, where companies live and die by the dollar, the impact of Big Data is immediate and clear. According to GE, utilising Big Data to reduce capital expenditures by as little as 1% would save over $90 Billion of accumulated costs over a 15 year period. That is, Big Data has a clear, tangible impact on the goods produced by the Oil & Gas industry; the impact of which is far reaching, as oil and gas currently powers most of the world.

Despite the significant difference in tangible benefits available today, the amount of Big Data generated by the Oil & Gas industry is actually miniscule compared to what social media produces. On one hand this is the consequence of design, as social media by nature is completely virtual and connected, while Oil & Gas operations are essentially physical and only driven by insights from data and other areas. This paradigm will soon shift, though, as the cost of measuring Oil & Gas operations, and thus producing Big Data, is going down fast. According to Goldman Sachs, the price of the average connected sensor for measurement will have dropped from $1.30 in 2004 to nearly $0.50 in 2016. Thus the drop in price enables each and every new operational endpoint to have more sensors, creating exponentially more data for Oil & Gas operators to exploit to drive better decisions.

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I would go as far as arguing that Big Data produced by Oil & Gas is far more manageable in the field, too. For example, in Oil & Gas we know that the reservoir data has a low correlation with data from the refinery processing plant. This means we don’t need to combine them in the same bucket; looking for “emerging relationships” (from data mining and predictive analytics). Therefore, even with the sheer amount of data collected, it can be decomposed into more manageable sub-sets that we can quickly utilise to make decisions. Social media delivers a lot of big data surrounding demographics and behavioural patterns; information which can’t be utilised as quickly as adjusting a drilling operation in the field, for example.

Despite the overarching positives surrounding Big Data in Oil & Gas, I am a little concerned about the popular mindset that we should be rushing to acquire more and more data. Though, this is coming more from technology providers than from the data analytics folks. More data is great, but only if we can analyse and use it to make real operational decisions. Data that is collected and not utilised is simply adding to the noise, and operators shouldn’t be paying to make their own analytics more difficult, costly or time consuming.

In summary, I hope I have demonstrated that there is big data, and then there is BIG DATA. We need to be aware of this and make the distinction in the overall discussion, as right now each industry’s utilisation of Big Data differs too much to be represented or explained by the single buzzword.

Long live Big Data in Oil & Gas!

– Carlos & Michael

Oil & Gas Industry Abuzz At CMP 2016

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The tone of the media towards the Oil and Gas industry has been pretty grim lately, but if you were lucky enough to attend the Mexican Congress of Petroleum (Congreso Mexicano del Petróleo) this past June, in vibrant Monterrey, it would have been easy to think the industry has never been better. I was proud to be representing Genesis Petroleum this year and presenting the paper ‘Opportunities to Improve Drilling in the new model of Subsidiarie Productive Enterprises in Mexico’, which we wrote with our exclusive agent in Mexico, Mr José Abelardo Sánchez Araiza.  I have to say the atmosphere at the conference was amazing. ‘Reforma Energetica’, Mexico’s impending transformation of the energy sector, doesn’t seem to have scared off many new entrants to the field, as I had a great time becoming acquainted with many new industry faces. Of course the ‘who’s who’ of the Mexican industry were all present too, so it was a good opportunity to catch up with some old friends as well.

IMG_1197The Mexican Congress of Petroleum (CMP), organised by Colegio de Ingenieros Petroleros de México, has grown to become Mexico’s largest annual Oil and Gas conference, and is considered to be Latin America’s most important forum for the exchange of technological and scientific trends, strategies and the latest innovations in the field. From exploration and production, gas and petrochemical, geophysical, refining, geology, pipelines and information systems, all aspects of Oil and Gas were represented at a variety of conferences, trade show booths and workshops from June 8th to June 11th. A golf tournament, cocktail evening and a ‘Northern’ themed closing night were some of the official social events on offer for attendees to mingle away from the hustle and bustle of the show floor. Of course I can’t admit that the social events are the real reason GPT comes to the conference each year, but I will say they are the icing on the cake for what was an awesome few days presenting alongside our industry peers. The closing ceremony was a personal highlight of mine this year.

With so many outstanding industry figures in one place, the conference always proves to be an excellent opportunity for networking. For us seasoned veterans of the conference world it is almost second nature to meet and connect with so many people over the course of a few days, but for new entrants I can only imagine how confronting the whole experience must be. No one can tell you who you should aim to meet and how long to chat for, but one piece of advice I will offer to newbies is this: go with a plan, but don’t limit yourself to only those who you think could be potential clients or are operating in your specific field…the next best thing to come to your business might be from the most unexpected place on the showroom floor. The worst thing that can happen from starting a conversation with folks at the seemingly most unrelated booth is the start of a new friendship, right?

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A lot of us went into the Mexican Congress of Petroleum with the oil price and local industry changes at the back of our mind, but those thoughts quickly gave way to what I can only describe as the feeling of one big family getting together. Friends, competitors, nobodies and somebodies, we all connect and learn from each other at conferences like CMP, and together we push our industry forward –  to rise above market volatilities and regulatory challenges, and to cement the industry as a sustainable force that literally achieves the impossible each and every day. I am looking forward to attending CMP in 2017!

– Carlos

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