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Oil field innovation: Talking in multiples of ten

Whether you love or hate fossil fuels, there is no debating that oil and gas is one of the most technologically sophisticated industries in the world. These days, new high-tech processes are being introduced at a staggering pace – so much so that the economics of oil and gas are being fundamentally altered in the global energy complex.

Few conferences can reveal the future of new oil and gas technologies with as much excitement as the Schlumberger Information Solutions (SIS) Global Forum. Held once every two years, the showcase event was held last week in Barcelona. More than 1,000 energy technophiles gathered to learn and share their experiences with the latest and greatest advances in hydrocarbon exploration and development. Schlumberger, the world's leading oil field services company, also showcased its sci-fi capabilities to the eager crowd of participants.

The SIS forum was replete with the latest computing hardware, information technologies and engineering marvels. Innovation from oil field service companies is going to be a much bigger theme that we will focus on going forward. For now, there is no need to review the whiz-bang specifics. Only three words are needed to describe the consequences of the technological advances that are in play: Clarity, speed and scope.

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This means that new tools and processes are inducing step changes along three dimensions of the upstream oil and gas business: A step change in the quantity, resolution and accuracy of information; a step change in the time it takes to explore, develop and produce oil and gas (much shorter); and a step change in accessing greater acreage at "the ends of the earth" that have hitherto been inaccessible to development.

Geoscientists and engineers have magnified their ability to "see" oil- and gas-bearing formations; drill and complete wells faster and more effectively; monitor and optimize production; and increase the amount recoverable from reservoirs. Every node along what Schlumberger calls the "Hydrocarbon Pathway" – from the subsurface rocks, to the wells, to the processing facilities, to the pipelines – is undergoing radical change facilitated by information technology, robots, computing horsepower and engineering systems.

Technical people are routinely speaking in multiples of 10. "Ten times as much information as before." "One-tenth the time it used to take." "Ten times the accuracy." And even, "Ten times the depth." For example, engineers can now build subsea production and processing equipment at depths of 10,000 feet, compared to only a 1,000 feet not long ago. That means that large tracts of the ocean bottom are now accessible, broadening the scope of development.

Few mention the most important multiple of ten: Cost. Implementation of some of these new tools requires an order-of-magnitude of more capital. The economics to justify a step change in upfront investment are evolving with the technology.

I casually polled attendees: "How far along are we in this innovation renaissance?" With few exceptions, the answer was pitched to me in the obligatory baseball metaphor, "We are in the second inning."

Over the next few years, the upshot of all this new technology will be to reduce risk, expand resource potential and speed up cycle times. On the surface, that implies more oil and gas at lower cost. Yet all this new technical glitz begs a chicken-and-egg question. "Which is coming first: The technology or the need for the technology?"

There isn't a quick, slap-the-buzzer answer to this question, but the response will dictate the direction of oil and gas prices over the next few years. A pull for costlier, more sophisticated technologies to produce oil and gas from the ends of the earth argues for higher commodity prices. On the other hand, if the technologies are being pushed into the industry with clear productivity gains that justify the expense, then the outlook is for greater abundance with stable (or lower) prices.

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Right now, oil and gas growth trends in North America suggest the latter. The jury is out in the rest of the world. But give it a few more innings and we should know.

Peter Tertzakian is chief energy economist at ARC Financial Corp. in Calgary and the author of two best-selling books, A Thousand Barrels a Second and The End of Energy Obesity.

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About the Author

Peter Tertzakian is chief energy economist and managing director with Arc Financial Corp. in Calgary and provides analysis on technology and energy-related businesses to fund managers and portfolio companies. More


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