Switching on to Doff
Author: Darius Snieckus
After 2002's high oil price, low activity conundrum, last year represented not so much a settling back into old routines as a period of reckoning of what was to come under this changing industrial regime. Ringing in the new for 2004, OE opens its annual forecast section with a look at a study from CERA into the prospect of 'total asset awareness' in the digital oilfield of the future.While the promise held by individual new-generation 'intelligent' technologies to radically alter the way E&P companies exploit offshore fields continues to excite real interest within the oil and gas industry, the 'total asset awareness' potential to be gleaned from weaving together real-time drilling, 3D modelling, smart wells and their ilk into an integrated, operational whole remains in chrysalis. Darius Snieckus speaks with Bill Severns, Managing Director of The Energy Consulting Group, and previoulsy CERA senior director of digital E&P strategies about a new study that aims to advance the 'digital oilfield of the future' vision one step closer to reality.
Cambridge Energy Research Associates' multi-client study into the so-called digital oilfield of the future (Doff), which finished by incorporating interviews with some 150 industry and technology experts along with a review of the bolus of research already published on the subject, started quite humbly as a 'scoping exercise' on the current views of Doff, according to project leader and Managing Director of The Energy Consulting Group, Bill Severns. It proceeded to grow into a far-reaching report on just what it might mean to oil companies and contractors if they were able 'to monitor and manage all operational activities in real-time, regardless of location'.
'This project began back in April 2002 as a thought piece,' he explains, 'not so much as a study of the technologies involved but rather one that looked at the clients' business needs and the economics associated with [Doff] - enhanced recovery, lowering operating costs, increased production rates, reductions in capital costs.'
Not surprisingly, increased recovery emerged as top prize from CERA's study, with 'better data, enhanced decisions and improved execution in production planning and operations' together pointing to a potential boost to the global oil and gas resource base of as much as 125 billion barrels through the Doff concept.
Cuts in operating expenditure derived from labour-saving automation, recast working processes and streamlined maintenance and operations practices, the study found, could equate to yearly savings of $4-8 billion, while curbing equipment downtime and improving well management could help debottleneck output to add a further 2-6% to the current 80-90% technical production capacity.
The Doff concept, more broadly, is being put forward as 'the next step in migration toward using computing systems to monitor and control reservoir and nearwellbore environments and remote machinery'. As a 'Doff-enabled' facility could run with fewer personnel, not only would the start-up investment in a development be lower but facility costs could be shaved by 5-10% over the next three to five years, according to the CERA study, 'with more potential for larger reductions by the end of the decade' as unmanned and subsea process facilities become more prevalent.
'These benefits do not exist independent of one another but rather rely on a strong interdependence to achieve their maximum gains,' Severns cautions. 'The technologies and processes that enable greater production volumes also control water and gas handling, strongly influencing ultimate recovery capabilities. Discovering and exploiting additional reserves increases facility throughput and the need for optimisation. The study supports this holistic view of the Doff concept, identifies key reinforcing interactions and attempts to quantify their synergistic value.'
Putting quantification momentarily to one side, he adds, the companies involved - from oil giants BP, ExxonMobil and Total to independents EnCana and Ocean Energy, along with contractors such as ABB, Baker Hughes and Schlumberger and IT specialists Microsoft, IBM and Oracle - wanted insight into 'how technology would translate into value' and how Doff integration would change 'work processes and practices'.
Herein lies the rub. Take-up of trailblazing new technologies is one thing - and one thing in which the oil and gas business continues to show itself to be circumspect if not conservative - but transforming Doff philosophy from futurist vision to workaday reality will require a top-down cultural change within the industry. As Severns notes: 'Doff benefits will not materialise simply by acquiring more and better data from all aspects of oil and gas operations. Transformative work processes and organisational changes will likely be needed to take full advantage of the new technologies.'
Despite the industry's reputation for resistance to change, the CERA director is sanguine the economic benefits to be drawn from the Doff 's 'geographic and organisational transparency' - what he calls 'network effects' - will win companies over to an integrated, digital way of thinking.
'We've made futuristic changes time and time again over the last 20 or 30 years and often that change has not been easy,' he suggests. 'But if the business case can be clearly demonstrated then the oil industry will ultimately recognise the value to be gained from Doff.'
Greenfields of dreams
The 'transformative potential' of Doff stands to profit both E&P firms and service companies by giving shape to new business models, Severns argues, with operators - led by greenfield operators factoring in a Doff approach early on in their field development plans - sharpening the economics of new fields through improved production rates and reduced costs and contractors grasping the 'opportunities likely to come from combining communication advances with a specialised knowledge of technologies and processes, enabling greater service company involvement in production operations'.
'The principal way forward is for greenfield project teams to start incorporating Doff thinking in their plans, with brownfield teams following their lead driven by the business imperatives of prolonged field life,' he notes, adding that for national oil companies with asset portfolios dominated by large, mature fields Doff 'may lead to a more aggressive focus on adding productive capacity by revitalising [these] fields'.
Working from the 'fact base' built out of its interviews and research, the CERA study assessed the economic and strategic business cases for Doff through the 'lenses' of four production-specific reference cases - deepwater oil, shallow water gas, onshore oil and onshore gas - and three strategic scenarios. To establish the potential economic upside of Doff in each reference case, a base state for each asset type was measured up against its Doff alternative to calculate net present value changes, both as greenfield and brownfield projects.
For a greenfield deepwater oil development, for example, where the base NPV was $3.7 billion, applying a Doff approach could add some $505 million to the field's value, a 14% improvement; as a brownfield development, a deepwater field with an NPV of $1.78 billion could see its NPV climb by $190 million, an 11% improvement.
A greenfield shallow water gas development with an NPV of $1.5 billion, by comparison, was calculated to grow in value by 7%, or $100 million, while as a brownfield development with an NPV of $803 million, the shallow water field would see its NPV rise by $7 million, equal to a 1% rise.
One majority view to emerge from the CERA Doff interviews was the need for 'significant changes in how, where and by whom' work is performed within the field development model, if the industry is to bring home the NPV prize. On balance this will mean 'proper alignment' of people, processes, organisations and technology. More specifically, as the study reveals, for Doff to take root change will have to involve:
'This is one intriguing part of the Doff idea: remote ops, run from anywhere,' underlines Severns. 'How do we take the data to the people who have the greatest knowledge or the lowest cost? Taken to the extreme you could set up a centre anywhere in the world and bring your smartest people and data from your best fields, uniting the two to see what optimised performance you might get. Remote drilling centres are just the first step down this road.'
CERA's research returned the finding that there was a 'strong divergence of views' as to the best tack to take in overcoming industry resistance to making this leap of faith toward Doff. Larger-scale organisations, oil majors among them, felt that 'classic' change management initiatives - 'define the gaps between initial conditions and desired ends; clarify objectives, milestones and processes; secure strong senior management commitment' - would be called for, while smaller companies, including some independent operators, saw the changes required as 'no more significant than others successfully navigated with little or no disruption over the past 15 years', such as industry restructurings and introductions of major new technologies.
To look at the strategic resonances of Doff, CERA used a scenario process wherein 'ground rules and base assumptions' were set out by several international oil companies, NOCs and service companies, and then industry reaction to added 'key events' were simulated.
In the 'business as usual' scenario, progress and adoption of Doff was slowerrolling due to a lack of high-level coordination of development and standards push among asset teams, with a number of E&P and technology start-ups stepping forward to capitalise on this lag in reaction time before the E&P majors geared up to take advantage of the 'economies of scope' afforded by their larger asset portfolios.
The 'leaders of the pack' scenario looked at how the attempt by a major E&P company or contractor to 'break away' from its peer group using Doff would play out, with the study finding that an E&P firm could enjoy a competitive advantage from Doff for a period of 'two to three years' before 'the pack caught up', while a service company might create 'a defensible market share advantage' by establishing itself as a front-running Doff-branded solution provider and 'locking out' competitors.
In a scenario entitled 'A new relationship', the question of whether Doff might alter relationships between IOCs, NOCs and service companies was posed. Here Doff was seen to have the potential to cause NOCs to re-examine the value IOCs - rather than Doff-enabled service companies - brought to redevelopment projects, though ultimately Doff was expected to have 'little influence on the traditional industry structure in which NOCs grant asset rights to IOCs that in turn bring their capital and expertise to bear on an asset using technology and services contracted down the supply chain.
The CERA study also identified two other scenarios in which companies might steal a march on their competitors through Doff. One is by fashioning a strategy anchored on the 'performance differential' offered by certain Doff-enhanced asset types; another is by combining Doff tools and concepts with changes to work practices and organisation structures.
'If Doff significantly boosts the performance of a subset of assets, it will tend to favour as a group those companies that generally pursue that asset type,' notes Severns. 'For example, our analysis indicates that deepwater oil fields and underdeveloped high-rate onshore oil fields will likely accrue the greatest Doff benefits. As it is the larger E&P firms that generally pursue these high-volume, highrisk and capital-intensive properties, they as a group could benefit differentially from Doff relative to smaller firms.'
Still, this does not rule out independent oil companies from benefiting from 'capturing the full power' of Doff. 'Pursuit of a successful melding is one of the most challenging tasks a manager can tackle,' he adds. 'It is this very difficulty that may provide Doff 's leading exponents - whether large or small companies - with a barrier to imitation.'
Service companies, in some respects, may be particularly well placed to reap the rewards of a competitive advantage with the help of the adoption of the Doff philosophy as it will likely lead to gamechanging new service and product offerings as well as opening the door to new entrants and new business models. Though there is patent risk involved for these companies, acknowledges Severns, 'the beginning stages of Doff development provide an opportunity for an existing service firm to attempt a breakout strategy - by making a bet that Doff will support significant demand within three to five years as successes drive rapid adoption'.
'Such a firm would aim to capture and retain valuable market share by committing the R&D funds and personnel needed to develop a full, integrated set of robust tools and services,' he suggests. 'This is a challenging and risky task but not impossible.'
Mapping the way forward for Doff reveals that many areas remain terra incognito. 'As with any new technology,' says Severns, 'there will be those that are quick on the uptake and those that are of a mind to wait and see. The same dynamic is likely to play out with Doff.' With the largest operators yet to place their bets, chances are slim to nil that Doff will spur a 'big bang' shift from one operating paradigm to another overnight. Should Doff prove its potential sooner rather than later, however, all this could change, notes Severns, with rapid take-up of the concept - whether 'supermodel or selective' in scope - by E&P companies of all sizes within 3-5 years.
'Doff thinking is increasingly at the back of everyone's minds,' he concludes. 'They are all coming to recognise that in the future Doff will likely become the industry modus operandi and everyone wants to be ready for it.' OE