Innovate and grow the bottom line!

Oil companies are the industry’s growth engines. They are price-takers with financial levers of volumes and expenses. According to EIA, WTI has averaged $42.84/bbl (through October) this year, compared to $48.67 in 2015 and $93 in 2014. While these cycles’ bottoms are best determined after the fact, 2017 looks grim: EIA projects $49.91, IMF $50.51, etc.

According to Competitive Enterprise Institute, U.S. President Obama issued more than 250 executive orders and 230 “executive memorandums.” The various federal agencies under him issued countless additional “guidelines,” by-passing federal rulemaking procedures. One would be hard pressed to find any that help oil and gas.

While the incoming Trump administration generally won’t have control over price—absent import quotas on foreign oil, such as being suggested on cars from Mexico—there is a good chance of reversing some rules and regulations, and backing out some layered in over the past eight years. However, hope, with respect to prices and regulations, is best exercised in conjunction with actionable strategies.

So, how should companies address this lower, longer reality? Further hammering of supply chain margins is now at the stage of squeezing blood from a turnip. “Radically innovate or die!”—as I published last year—is still the best route for sustained advantage. Strong, deep, radical innovation across multiple fronts of technology, business processes and commercial arrangements is required to survive; those that do it well will be set for long-term success.

On the commercial front, with numerous examples, we will continue to see fewer, larger and better integrated service and manufacturing companies with global reach. From an operator’s perspective, the “one throat to choke” contracting strategy shifts more of the project integration, management and risk to the service/supplier side, where presumably it can be executed more efficiently.

Coupled with this shift is more reliance on, and domination of functional specs and industry standards. Over time, this approach will drive smaller inventories, faster deliveries, and lower overall costs. Additionally, with this approach will be a reduced need for oil company technical authorities, fewer design/spec ‘harmonization’ meetings, fewer/shorter stage-gates, etc.

Within the oil companies, we see more focus on resource development that better fits individual core competencies, coupled with divestitures of non-core assets to build balance sheets. This is happening at both the IOC and large publicly traded level, as well as with smaller private companies. However, a large area of common ground still seems to be deep water.

During a recent technical conference, Ryan Malone, projects G.M. for BP’s Gulf of Mexico operations, stated his firm’s objective to make all of their businesses commercially viable at $50/bbl. Further, with some deepwater developments, they plan to test the boundaries by targeting $25/bbl break-even prices with a bias to subsea architecture, simpler/smaller projects, and a focus on select, new technology. He provided several field examples.

At the same event, Tom Moroney, Shell’s V.P. for Deepwater and Wells Technology, echoed several of the same strategies with additional examples. The break-even metrics that many of the larger oil companies are targeting, already have been announced as achieved by the likes of privately owned LLOG and Deep Gulf Energy. Quest chief Paul Hillegeist confirmed the increased focus on subsea wells and tiebacks, with a projected four-year growth of 200 to 500 units above the current 4,000.

Within the deepwater environment, innovations that are expected to lead the way include advances in material science, as applied to subsea pumps, compressors and other components, as well as enabling smaller, cheaper, more reliable and less power-intensive sensors. Onshore, in the days of yester-year, pumpers made their rounds in a pickup truck, gauging tanks and checking operational status. From this data, calculations would be performed, diagnostics done, and work-orders issued. Today, mesh networks wirelessly “pulse” sensors, and upload the data for cloud-based analytics and pattern-based/predictive diagnostics. This information is delivered as actionable knowledge, where and when it is required.

Offshore, the tether to ROVs will be cut, along with the costs of the support vessel and crew, and limitations of launch conditions. AUVs will be docked subsea and make their daily rounds, wirelessly downloading subsea sensor data. At the end of their “tower,” AUVs will dock subsea, download captured data to a fiber network and re-charge their batteries. Units, such as Saab demonstrated at the NASA Neutral Buoyancy Lab last year, now operate in the Mediterranean and other locations on a commercial basis.

A large gap in subsea architecture that still exists today, is the delivering of production chemistries to wellbores and flowlines. Virtually all wells require various types and volumes of production chemistries, which may change during their operational lives. The incumbent solution is a complex, long-lead chemical umbilical—a fixed, upfront capital investment, unable to address changing field conditions.

Leveraging work done by operator-led DeepStar, and with funding from the U.S. Department of Energy’s NETL unit via RPSEA, and cost-share support from Baker Hughes and others, Safe Marine Transfer, LLC (SMT), has designed and validated a subsea chemical storage and injection system. It can deliver 3,000-plus barrels, at point of need, at up to 10,000 fsw as a service, with a smaller, cheaper version available for low-consumption, single-well tie-backs. This service meets the ever-changing chemical needs of a subsea tie-back and removes significant loads and potential personnel hazards on the host platform.

Unlike an umbilical, which is individually custom designed and installed, the SMT system is a single design, re-deployable across a very wide range of operational and environmental conditions. Its low cost and re-usability make it ideal to deliver as a service, saving operators scarce capital dollars. The patented dual-barrier storage provides additional environmental assurance, and the novel deployment methods greatly reduce “on-water” marine exposure for personnel. Innovate today and grow your bottom line!