Is the Next Oil Production Breakthrough Already Here?

The shale revolution was made possible because there was technology that allowed developers to drill and complete wells capable of producing oil and gas affordably. Through the years, industry, because of that technology, successfully focused on drilling longer wells, pumping more sand and increasing the number of fracturing stages per well. The question facing industry experts these days is: What will the next breakthrough be that will produce even more efficient and affordable oil and gas?

According to Jon Ludwig, president of Novi Labs, a company specializing in artificial intelligence-driven software that helps shale operators improve economic outcomes, that technology is already here – and has been here for some time.

“I believe the implementation of digital technologies will begin to rise exponentially in the next 12 months, particularly as the focus of public operators transforms to delivering general and administrative efficiencies.”

Ludwig said digital technology will be the key to the next wave of well productivity gains, providing it is implemented “throughout the entire well lifecycle from A&D, to pre-drill planning, to well factory execution, to plug and abandon.”

Tools, Not Toys

The reason it hasn’t happened sooner, he said, is that the language of digital technology lulled many in the industry to think it was already being employed.

It wasn’t – certainly not to the extent it needs to be.

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The shale revolution was made possible because there was technology that allowed developers to drill and complete wells capable of producing oil and gas affordably. Through the years, industry, because of that technology, successfully focused on drilling longer wells, pumping more sand and increasing the number of fracturing stages per well. The question facing industry experts these days is: What will the next breakthrough be that will produce even more efficient and affordable oil and gas?

According to Jon Ludwig, president of Novi Labs, a company specializing in artificial intelligence-driven software that helps shale operators improve economic outcomes, that technology is already here – and has been here for some time.

“I believe the implementation of digital technologies will begin to rise exponentially in the next 12 months, particularly as the focus of public operators transforms to delivering general and administrative efficiencies.”

Ludwig said digital technology will be the key to the next wave of well productivity gains, providing it is implemented “throughout the entire well lifecycle from A&D, to pre-drill planning, to well factory execution, to plug and abandon.”

Tools, Not Toys

The reason it hasn’t happened sooner, he said, is that the language of digital technology lulled many in the industry to think it was already being employed.

It wasn’t – certainly not to the extent it needs to be.

“In the mid-2016 timeframe, if you look at investor relations materials, many oil and gas companies started using terms that were completely unfamiliar to the industry. Things like ‘machine learning,’ ‘advanced analytics,’ ‘digital twin,’ ‘artificial intelligence,’ and so on,” he explained.

But these were just buzzwords and did not truly address the integration of digital technologies into well delivery workflows, where they would actually make a difference.

“Many companies spent money on projects leveraging these kinds of technologies, but there was a general lack of enthusiasm to do what was necessary to actually make the workflow and process changes happen, and, to retrain workers to actually take advantage of these technologies,” he added.

The perception, said Ludwig, was that these companies were implementing digital workflows, but the “hard work” needed to reset “well-lifecycle management was not done, and therefore, the projects to implement digital technologies resulted in ‘toys,’” which, he said, “were like science projects, and not tools,” which could have affected operational changes.

Developing the Technology of Unconventionals

Ludwig said there have been three distinct phases in the technology development of unconventionals:

  • The technical innovation, which focuses on efficacy – the actual drilling, frac’ing and production of horizontal wells safely and effectively
  • The manufacturing innovation, which focused on drilling horizontal wells at scale
  • The digital innovation, which dealt with the kinds of tools engineers needed to properly analyze the volumes of data that come from each part of a wells lifecycle so they can build better wells in better locations in the future

“The first two questions seek to understand if the business is even possible to execute at scale, and make a profit,” said Ludwig. “This was pushed very hard during the downturn of 2015-16, where these operations either needed to scale efficiently, or companies would go out of business. This also drove a string of acquisitions, where companies determined that they must be in the most productive multi-stack plays, and consequently, should divest of non-core holdings that did not offer the right economics to scale.”

The Coming Digital Wave

But it is the third question, which has been the much tougher road, he said, as digital tech “strikes at the heart of what some practitioners in the industry consider to be an existential threat, i.e. ‘Will machines and algorithms replace me?’”

There was, understandably then, some resistance to greater digital immersion, but Ludwig believes digital technology can actually have a positive impact on business results.

“Management will demand it, because shareholders are demanding it, and they cannot deliver it any other way,” he said.

Competition between companies will also play a factor in the coming digital wave.

“Companies with high price-to-earnings are the ones that successfully integrate digital technologies into workflows, while companies with lower adoption of digital tech are going to lag. Eventually, they will see the strong need to catch up, or face a lagging stock price, underperformance on capital efficiency, be among the acquired,” he said.

Ludwig will be part of a panel at this year’s Unconventional Resources Technology Conference entitled, “Next Technology Frontier in Unconventionals: What’s Needed Versus What’s in Development,” where he will join others in discussing the promise of the latest technology breakthroughs required for unconventionals – and contrast it, where there is a contrast – with the actual development technology focus already available.

What’s clear, Ludwig said, is that the future for shale looks good.

“Despite efforts to extinguish it, shale has survived and thrived through technological advancements, and it has been done with remarkable safety records especially considering how fast it all happened,” he said.

He wants industry executives to become “drivers of implementation and successful integration” of these digital technologies.

“As long as hydrocarbons remain in the mix to power the economies, it is our job in the industry to try to operate as safely and efficiently as possible. Shale drilling has a remarkably good track record in this realm, especially when compared to much riskier offshore drilling.”

He has a simple challenge for the industry: “To think and act upon ways in which digital technologies can be implemented into workflows. Stop investing in toys, start investing in tools.”

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