Neil Poxon, CEO of ProSep looks at the spur to innovation created by a low-price environment and what it means for the global oil and gas industry worldwide.
On May 25, 1961, President Kennedy announced to the U.S> Congress that America would land a man on the moon and return him to Earth before the end of the decade. Eight years and two months later, Neil Armstrong stepped out of the Apollo Lunar Module and made his famous giant leap for mankind.
The average R&D cycle in space exploration might have slowed since then, but it’s still around three to four years. In contrast, typical R&D cycles in the oil and gas industry are between 15 and 17 years.
However, as successful executives and recent business school graduates know, smart companies are born in a crisis. The industry’s well documented caution in the face of new technologies gets damped down once oil prices start to fall and the rate of innovation accelerates.
If we look at the late 1990s— the last prolonged period of significantly lower prices— we see plenty of efforts to maximize oil production by extending recovery taxes and prolonging field life, with a view to extending the producing life of existing equipment. The global technology facilitators, some owned by oil companies, some by governments, were all born during this period.
So it is not surprising that the five major trends highlighted in the recent DNV GL report, A Balancing Act: The Outlook for the Oil and Gas Industry in 2015, include the need for innovative approaches to control cost. However, the second of the trends highlighted is that investment will be on a tight rein for the remainder of the year. Navigating a path between these two seemingly opposing forces will dictate how and where the industry will see innovation emerge.
The first point to make is that it will, again, be about extending the potential of existing production and mature basins, rather than investing in new capital projects.
Maturity of fields will also be a huge factor. As the Canadian Energy Research Institute points out, new oil sands projects require a WTI price of at least $85 a barrel to be profitable— which suggests that developing extraction technologies that focus on currently unrecoverable resources are going to be a very low priority indeed.
Instead the primary focus for innovation will be tailored towards existing production: extending field life, making equipment last longer, refurbishment and reactivation— both onshore and offshore. As before, low-cost drilling and process improvements, as well as improving reliability and well integrity management will be the focus of attention. It will be about taking out the old and inefficient and replacing it with less wasteful and more productive alternatives.
We are therefore likely to see innovations such as smaller, lighter and more efficient systems for separating oil, water and gas, which might include inline separation of bulk oil and water. When it comes to process optimization, we are likely to see new solutions that improve efficiencies by removing known bottlenecks or offer savings related to oilfield chemicals and other consumables— particularly in mature and harsh regions like the North Sea.
Solutions that enable off-site analysis of real-time data offer significant process and integrity improvements accompanied by a potential reduction in maintenance, upgrade and repair costs.
All of which raises the question of how innovation by necessity is affecting the ecosystem of the oil and gas industry. One of the first moves from operators is to ask service companies to cut costs. As a result, the need to innovate cascades down the supply chain, where system developers and manufacturers improve their own designs and processes.
2015 is clearly a year of change and unexpected outcomes. Will the oil and gas industry ever be as innovative as NASA in the 1960s? No— and nor should it. Will it be more innovative in 2015 than 2005? Absolutely— and it will come out healthier as a result.
(Full comment at Exploration World)