The Other Middle Man

The “middle man” is often accused of grabbing the biggest share of consumer prices, just by connecting supply and demand markets. But there is another type of middle man – the one who identifies and manages two or more, usually disconnected, worlds. It is this type of middle man who will build a better business in the future. In our industry I have identified 3 important areas of concern: IT, Finances and Engineering. They are broad and complex areas which are each run by experts looking only in their “silo”. Nothing new in this – many industries have been built on hierarchical formats, with units, divisions, etc. and with directors, managers, policies, workflows, etc.

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This model has proved very efficient and still delivers results. But today, those silos of information and processes are preventing further optimization. It is becoming fundamental that each organization should have a well-placed professional with the know-how to effectively harness any combination of 2 of those circles and, even better, engage and manage all 3. The ultimate middle man would have an understanding of the technical limitations of the engineering process, the economic forces behind the technicalities and which IT tools and services are really effective in delivering faster and more accurate decision making. It is those professionals that are a fundamental requirement in Oil & Gas companies in the 21st century.

Oil prices – are we there yet?

There has been much comment and speculation about the oil price; its past and future, its market forces, etc. Obviously the price matters – for Oil & Gas companies it is the cornerstone of their existence.

What has been good for end consumers at the same time has imposed penalties on the industry, reducing new development projects. This will mean less jobs and less tax, which will be bad for the country. There are many details to fully understand the consequences of low oil prices, which vary from country to country. What is clear is that this is not only today’s reality but also a concern for the future. In the long term what matters most is to build a sustainable method for the optimization of running costs and the allocation of resources, just as other sectors have been doing. We have seen up and down cycles many times and should have learned to be prepared. In the next 30 years it will happen again a number of times.

The most capital intensive activity is related to E&P, finding reserves, confirming the value and building the infrastructure to finally produce from such reservoirs. In order to be more efficient there is a need to identify where the expenses and revenue are heading. In terms of CAPEX it is difficult to reduce costs as they are less sensitive to a price drop due to material costs, time to build, etc.

The natural place to look is in OPEX, where we can revise all processes and try to streamline them; making them shorter, faster, cheaper, etc. Over 50 years Deming developed a simple system, which was a revelation for Japanese auto manufacturers and became their way of improving their processes. The original simple method was using PDCA (Plan, Do, Check, Act), which are the four basic stages of the operational process, as shown in the figure below.

PDCA

PDCA was created by W.E. Deming (link to http://en.wikipedia.org/wiki/W._Edwards_Deming). It is designed to lead to continuous process improvement. Companies can use this cycle, for example, to:

  • Plan the next well to drill;
  • Do (execute) the well;
  • Check what went right and what went wrong; and
  • Act with proposed changes based on analysis, so the next well will include improvements.

Planning and Checking play a fundamental role in the drilling process improvement. When planning, operators can use historical offset data from wells similar to the new planned well. Most companies already have suitable data and the implementation of this process is quite straightforward. Setting KPIs, allowing internal and external benchmarking, recording lessons learned, among other simple processes, will assist in improving and streamlining well construction and ultimately save costs on the way.

 

Book Review- Neil McNaughton, Oil IT

Carlos Damski sets out to ‘put drilling data management in a business context.’ He argues against single vendor solutions with a soft sell of Genesis Petroleum Technologies’ toolset.

In the introduction to the Drilling Data Vortex* (DDV), author Carlos Damski (Genesis Petroleum Technologies) seeks to bridge the gap between the physical and digital worlds with a management-level exposé on data and data management. DDV attempts to put data management into a business context, unlike ‘endless self-centric publications and conferences which regard data management as an end in itself’ (who could he be thinking of?). Data gets valuable only when it is leveraged in a business context to influence decision making.

A brief discussion of E&P databases concludes that, ‘No single vendor can provide all solutions in one database, although some are trying to sell this idea.’ It is better to use ‘magic mapping’ techniques such as OpenSpirit. For analysis, Damski deprecates the spreadsheet and advocates domain aware tools such as Spotfire and Genesis’ own iVAQ toolset for statistics and Monte Carlo data analytics.

There is brief coverage of data QC where Damski disses database stored procedures for actions like checking data ranges and validity. Instead we should be using tools like Datavera and (another plug) Genesis XCheck. Data visualization likewise requires its own tools such as Spotfire and Genesis XPlot (and another).

A chapter on drilling data introduces Deming’s ‘plan, do, check, act’ approach. Daily drilling reporting is highlighted as key to subsequent analysis and improvement. Some sections, particularly drilling optimization, the ‘statistical AFE,’ maps and logs do little more than introduce the subject. Rather extensive coverage of Energistics standards is not matched with a brief aside to PPDM. Material in the case history chapter is covered in a superficial manner.

A final chapter on drilling’s future concludes that the ‘future is now’ and offers evidence in the form of digital oilfield-type tools such as ProNova, Verdande DrillEdge to conclude with an introduction to the SPE DSATS initiative.

DDV is an interesting, brief (33k words) and idiosyncratic collection of reflections on drilling data. A companion website is to provide an ‘extended discussion’ of the book’s content. All in all, DDV is reasonable value at $7 in eBook form.

* 2014, Genesis Publishing. 138 pages. Available on Amazon.

by  Neil McNaughton, Oil IT