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Data for more effective drilling

Wednesday, November 26, 2014

Offshore oil and gas operators could improve production by learning from how the North American shale industry manages its drilling and associated data, said Fred Kunzinger of Noah Consulting

The US shale industry is seeing a tremendous land-rush with European oil and gas companies taking non-operated and sometimes operated positions, so they can learn how it works, said Fred Kunzinger, Upstream Practice Lead at Noah Consulting, speaking at the Sept 24th Aberdeen conference 'using analytics to improve production'.

North American shale is a launching point for the world.

One example of this is China National Offshore Oil Corporation (CNOOC)'s purchase of NEXEN in Canada, he said.

A lot of this expertise could also be useful in the offshore oil and gas industry, he said. 'What works in conventional offshore [operations] doesn't translate very well to onshore, where it is a factory model. But what works onshore does translate very nicely back to offshore,' he said.

'Efficiencies are efficiencies.'

Making shale oil and gas work is about the speed of the business and the advanced analytics you use, he said.

To illustrate the speed of the business, consider that in the Bakken Formation (North Central US and South Central Canada), production is now 1 million barrels a day, compared to zero production nine years ago. The field is producing oil (not gas) so does not require expensive pipelines to get to market. The business growth was helped by the recent high oil price.

Process improvement
Upstream oil companies are starting to look at process improvement techniques such as Six Sigma, which were previously only used by their downstream colleagues (operating refineries and petrol stations).

For years upstream people have been saying to downstream people, 'we're different, we're special, and we're a knowledge based business. Your business model is closer to Mc- Donalds than it is to us,' Mr Kunzinger said.

But when shale gas came along, the upstream had to get into the same techniques too.
'Operating in shale plays is like manufacturing. Integrating everything, just in time, working with different data sources.'
The overall return on investment for shale wells is actually very low, he said. '40 per cent of all shale wells in N America never made a cent. It became a land rush, people were poking holes everywhere.'

Now companies are making much more effort to make sure they 'poke the holes' in the right place, he said, looking for sweet spots and the best way to fracture.

'How we're going to drill in one shale is not the same as how we're going to drill in an- other shale,' he said.

Cost per barrel
Working on the cost per barrel is a better metric than just focussing on the costs, which get harder and harder to decrease, he said.

Noah did an analysis of 6 onshore oil and gas companies and found that their margins varied by $24 a barrel, although they were working in the same basins. The companies making the biggest profit margin were not the companies with the highest production of oil as a percentage of total production, contrary to what you might expect.

The solution comes to better use of data, he said.
To start with geological data, data analytics can help steer the drill bit better into the formation. The Bakken is often just 75 feet wide. 'It's not all pancake geology where it looks like stacks of plywood at a DIY store,' he said.

You have to manage data about well locations. 'People do actually drill into another well bore,' he said.

You can use analytics to improve your logis- tics, similar to the way that FedEx uses analytics to work out the optimum routing of its trucks, to the point of choosing (in the US) three right turns rather than one left turn, because it works out faster.

You can analyse how often your wells are 'choked down' (closed) because no truck has arrived on time to carry the oil away.

'Analytics is not a tool, it's about an organisational capability, a way of looking at the data,' he said.

You need good data quality. 'You really can't talk about analytics until you have quality data to perform your analytics on,' he said.

Bakken oil wells can each cost $7m to $8m, so a saving of $500,000 per well through better use of data is worth $500m a year.

Shale plays involve very complex data management.
On the ownership side, it is common for one 10,000 foot well to have 97 owners, because of someone leaving land to his children several generations ago, who all left land to their children. 'There's a lot of farmers in North Dakota who spend more time reading statements from oil companies than running their combine harvesters,' he said. 'Entire legal sections of oil companies do nothing but deal with royalty owners.'

There are also enormous logistical challenges for companies which drill 1000 wells a year, including moving rigs, delivering pipe and tubing to well sites, and managing waste water.

You also need to work in different ways. If a company drills 10-15 deepwater wells a year, the drillers and geologists can sit down together in meetings and work out what they are going to do.

But if they are doing 3 wells a day it gets impractical, he said. So you have to develop new ways of working and integrating data.

Not just technology
A common error is for people to believe they can make data better just by buying computers, feeding your data into it and 'out pop all these relationships', he said. But if the input data is poor, you computer will work out many relationships but they won't be any use.

One client recently contacted Noah to say they had bought Hadoop (a software framework for large scale processing of data sets) and 'now we want you to tell us how to use it, because everybody is doing this stuff, and if we don't we'll be left behind.' There needs to be a business reason for using the technology. If you're not looking for ways to solve known business problems, you probably shouldn't be acquiring the technologies.

How many wells
One multinational oil company, which had built up an onshore position through multiple acquisitions, wanted to know how many wells it actually had.

In its annual report, it was quoting data for 'gross wells' (meaning physical wells), and 'net wells' (where if it had a 25% interest in 4 wells, that counts as 1 net well).

In the meeting there were big differences between the number of wells which the subsurface and production people thought they had. 'All of a sudden people got very nervous about what they were reporting,' he said.

'Part of the problem was definition. Are they counting production entities, wellbores, anything they've ever produced, or what they're working on right now.'

Companies typically receive the daily drilling report by fax, and then have to cross reference the information with other systems. There is a lot of interest in GIS systems so you can see it all on a map. Sometimes companies frack wells a second time - and they need to know the best way to do it.

Companies want to have better prediction about stuck pipe.

Client case study
One Noah client wanted a detailed analysis of non-productive time, and whether it was caused by the drilling contractor, geology, the supply chain, or the weather - or the non-pro- ductive time when drilling certain sections of well (vertical, curved part, horizontal).

They recognised that some workovers were more productive than others, and tried to work out why. 'They weren't wasting time on a workover that would only increase produc- tion a little.'

About Noah
Noah Consulting has been building a framework to get the right data to the right people.

Noah works with both the company IT departments and business departments, such as a senior vice president of onshore production, or a technology group.

You can watch a video of Fred's talk and download the presentation at /video/1476.aspx

Associated Companies
» Noah Consulting
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