Cost Savings in Oil Drilling – 10/20/16

Last spring, Statoil ASA announced it had used the same oil well design and components to drill three reservoirs for the price of one. Such large cost savings through standardization could explain how so many companies can keep drilling at low prices.

Even as oil producers have planned $1 trillion worth of spending reductions between 2015-to-2020, they have continued to green-light new wells even as they add to the supply glut.

Though much the blame for the resilience of the world’s oil drilling has fallen on U.S. shale producers,  the slashing of costs through standardization of components used in drilling suggests another suspect. Earlier this year the heads of some of the world’s biggest oil majors met in Davos to discuss a push to standardize the equipment used in exploration and production.

Originally, standardization efforts were meant to speed up lead times—the interval between the discovery of oil and when drilling commences—in order to make up for a shortage of trained personnel. Ordering standardized parts can allow the firms to pre-stock components and rapidly sign contracts, letting them ramp up production at a faster rate and cheaper cost.

But now, such standardization efforts are putting downward pressure on all oil production costs, according to Goldman’s analysis. Given that GE Oil & Gas has estimated that standardization can lower drilling expenses by an average of 30% for some projects, it is safe to say that the glut is at least partly the result of permanent operational advances.

Technological advances are also helping oil and gas companies cut costs.

In May, Halliburton Co. helped tap the longest shale well on record—8,500 feet deep and another 18,544 feet long—for Eclipse Resources Corp. in Ohio. That well was fracked 124 times compared to the typical 30 and 40 times, up from just nine fracks in 2011, according to Drillinginfo. Eclipse saved 30% by supersizing the well, said Chief Operating Officer  Tom Liberatore.

On the more high tech side, a program developed in part by General Electric Co has helicopter drones being tested to sniff for methane emissions at well sites.

The detection and stopping of leaks, a requirement from the EPA, is the first of many planned applications for oilfield drones to make workers more productive. GE is working on having Raven make methane inspections go three times faster, said Ashraf El-Messidi, a research engineer for the project.

GE’s oilfield drone project began last year after some of its other industrial divisions explored how they could use unmanned aircraft. Other applications could include inspecting flare stacks at refineries or checking gear for mechanical wear and corrosion, John Westerheide, head of the Raven project.

The test in July was done in partnership with Southwestern Energy Co. and Oklahoma State University.

Print Friendly

Comments are closed.