Digital Oil Fields? Tech Boom a Boon for Aging Industry
by Angel Gonzalez
Mon, Apr 18, 2005 21:28 GMT

HOUSTON - The digital oil field of the future has taken shape in ChevronTexaco Corp.'s (CVX) new headquarters in Houston since early January - and it looks like the set of a Cold War melodrama. In a screen-filled war room, technicians monitor real-time data flowing via fiber-optic cable and satellite links from sensors behind the drill bit below a Gulf of Mexico platform.
By looking at the acoustic, temperature and pressure information, engineers can almost hear and feel the pulse of the drill, and receive e-mail alerts of any emergency to their Blackberries if they're out of the office. Developments like these could help add 125 billion barrels to global reserves in the next 10 years, according to Cambridge Energy Research Associates.
CERA analysts predict digital oil fields could improve reserve recovery by 6%, raise production rates by up to 10% and cut operating costs by up to 25% through better reservoir management and reduced on-site crews. The technology would be a boon for oil companies being pressured to find and pump more oil amid a shortage of qualified labor. The technology industry also stands to gain. International Business Machines Corp. (IBM), which employs about 1,000 people in its petroleum-industry practice, estimates the market opportunity for digital oil field applications to be $1 billion between 2005 and 2010. "The digital oil field has moved from being a fringe concept five years ago to the point where it's becoming an accepted part of the industry," said Bill Severns, director for exploration and production strategies at CERA. Challenges arise from oil companies' cautiousness when it comes to technology spending and potentially drastic changes in the workplace, but proponents are hopeful.
If successful, the ChevronTexaco pilot project - known as Well Design and Execution Collaboration Center, or WellDECC - might help mitigate the risk of drilling in deepwater, where a single exploratory well could cost up to $100 million, said Kevin Lacy, ChevronTexaco's principal adviser for well engineering and operations. "The WellDECC concept could be applied to the planning and monitoring of many rigs as we ramp it up," said Lacy. "But practically, it makes sense to focus first on our most expensive and complex wells in deepwater and offshore." Supermajors like Royal Dutch/Shell Group (RD, SC) and independents like Kerr McGee Corp. (KMG) also have similar projects. Full adoption of digital technology as the industry norm, however, may take from three to 10 years, Severns said.
Total Asset Awareness
According to Severns, information technology can provide companies with "total asset awareness" - real-time monitoring of reserves, production and transportation. Live data would flow from sensors at the drill into remote operation centers, and from there into the accounting department and Wall Street.
But most importantly, the new technology would help make better sense of the reservoir, the most volatile part of the oil extraction process. "The part of the asset the company knows the least about is the reservoir," said Severns. "And that's the most important part." To that effect, an IBM team is fine-tuning software tools to anticipate reservoir behavior, days and even weeks in advance, said Gary Adams, a partner with IBM Business Consulting Services and head of that company's upstream petroleum practice.
Adams' team has made progress in predicting sanding - the accumulation of sand in the well bore, which can cut or halt production - by adapting algorithms created to anticipate sun flares and disease outbreaks. "We are working on how to make sense of data that would help the company decide what to do when something terrible is about to happen," said Adams, who sees the intelligent oil field as a remote location from which emergency crews would be dispatched.
Success would open the possibility for companies to concentrate more of their employees on shore - an advantage for an industry without enough recruits to replace a rapidly aging workforce, said Yuan-chi Chang, a researcher at IBM's research facility in upstate New York. In the long term, Adams sees real-time data being used to better manage production. "Companies could precisely answer the question of 'did we meet our production goals today?'" Adams said.
Tough Sell
But even as the digital oil field has become the principal strategy of at least one major oil company, many in the oil and gas sector are cautious when making technology investments, experts said. In a May 2004 survey of 93 oil and gas companies, 68 said their information technology spending would be flat, according to Forrester Research analyst Andrew Bartels.
"In reaction to the digital oil field, (oil companies) are saying 'well, maybe,' but they're not rushing right out," said Bartels. Nevertheless, big fish like Microsoft Corp. (MSFT) have started energy-industry practices in recent years. Even old oil-industry hand SAP America Inc., the North American unit of SAP AG (SAP), sees new promise in smaller independents enriched by high oil prices.
"A lot of the oil companies are figuring out what to do with their cash," said Robert Surprenant, the Houston-based oil and gas director for SAP America Inc. "At the end of the day, we're still competing for those capital dollars with other uses for the money."
Culture Clash
The digital oil field also has to overcome venerable workplace conventions. In ChevronTexaco's "collaboration" room, drilling engineers and geoscientists - the petroleum human resources equivalent of water and oil - stand side by side, wearing 3D-vision goggles as they interpret a tri-dimensional model of the reservoir.
According to Lacy, the new arrangement helps drilling engineers increase their knowledge of the reservoir and geologists get involved in the drilling process. But problems may arise between the command center and the field as offshore workers lose some control.
The field force would be increasingly transformed from data gatherers into troubleshooters dependent on remote decision-makers, said Severns. At ChevronTexaco's pilot project, offshore workers are still in charge, though. They rely on Houston for advice, but onshore experts must request their permission before tampering with their platform.
Offshore workers "are not on their own, but the decision must be made on site," said Lacy. "What we do is provide them with the best of the services of the company."
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