Online exclusive: New strategy needed for deepwater development, unconventional plays

Sandeep Khurana
Granherne Inc. (A KBR Co.)

The unconventional resource play serves to achieve production targets whereas aspiration for a large material discovery pushes the industry toward deepwater. Each direction presents different risk profiles and challenges that range from technical and commercial to government and community relations. Compared on a risk adjusted basis however, the two arenas can be strikingly similar. The conundrum facing the upstream industry today is: Which way do we go?

An article titled “There is no way but onwards” teaches that problems arising from the applications of science and technology cannot be solved by bypassing them but rather by more and greater engagement. This also applies to the oil and gas industry. 

Looking at today’s market there is a great deal of diversity across the deepwater and unconventional sectors that stretches across the globe and through both public and private companies. Companies with a captive land position in established unconventional plays are investing more to increase production. On the other hand, companies in the offshore arena are pushing to deeper water depths and deeper reservoirs to find larger resources while others are moving to frontier locations to prove up new geological plays.  

As complicated as the oil and gas business seems, at its core it is quite simple.  It begins by exploring to find the resource. Finding the resource does not mean much until the field is developed. To realize value, oil and gas has to be connected to the markets. But just connecting the three dots of Resource-Develop-Market is not sufficient. There are external factors, such as dealing with the government, regulators or public policy, which must be satisfied. Only when Resource-Develop-Market-External factors are combined appropriately can new possibilities be realized.

In developing the unconventional play, industry is constantly figuring out the Resource-Develop-Market cycle. First, test to find the sweet spot to drill. Then move to full-field development with a large drilling and fracturing program. In parallel, resolve midstream processing and pipeline access, or rail or road to get product to markets. Finally, as the pace picks up so does the influence of external factors.  Regulations are numerous and are continuing to evolve.  

Unconventional developments have their own set of problems. Initial production is high but then drops rapidly. To maintain or exceed the production target requires drilling more wells.  Infrastructure needs to keep pace with drilling and to get oil to the market. Unconventional development is on an investment treadmill and capital expenditure is skyrocketing. On the other hand, the public is concerned about hydraulic fracturing as well as interim gas flaring.

So what is next? Keeping the competitive edge in the unconventional play requires further improvements in drilling and fracturing efficiency. For instance, focus on supply chain management, autonomous rigs, multilaterals, well spacing, longer horizontals, more stages, etc. The investment scale forces a shift from one-well economics to a mega-project mind set, similar to those in offshore developments. It is necessary to constantly reduce the footprint on drilling and production sites, and to improve the efficiency of water resource usage. Innovative solutions for handling gas will be needed. These include investing in the conversion of gas into compressed natural gas and LNG, and use of gas as a fuel for drilling and fracturing. This requires partnerships with multiple communities and the development of regulations, as this is an uncharted region. As these issues are resolved, the industry will continue seeking unconventional resources in locations beyond North America.

Now look at deepwater production. Drilling costs are escalating, thereby increasing the cost of finding and developing the resource. Then there is the challenge of transporting the product to the market from remote locations, specifically if it is gas. Adding to this is the new regulatory and permitting regime resulting from the 2010 Deepwater Horizon incident.

Once again connecting Resource-Develop-Market-External factor dots in innovative ways will realize new possibilities. The first effort is in finding new plays and larger resources. This means investing in 3D seismic, 4D seismic, subsalt imaging, and new inversion techniques. It also means engaging the regulatory authorities and non-government organizations early to ensure environmental aspects are assimilated from the onset. 

As for challenges of developing high-pressure and high-temperature reservoirs, new industry efforts such as the Project 20K for high-pressure wells are springing up. In development, the industry must prepare for increases in the complexity and size of the floating production systems by finding innovative ways of integrating large topsides with the hull, and to improve topsides efficiency.

Although focused on oil, the oil and gas business is further complicated by the discovery of large gas resources with limited local gas markets and/or in remote locations. Converting gas to LNG provides a commercial avenue to export. There are numerous LNG plants onshore, FPSOs, and subsea fields. The next step is to combine these technologies into floating LNG. Finally, will governments agree, as they did with oil, to let their gas resources flow without coming onshore to benefit them first? A similar challenge exists in the US – convince the government to allow export of excess unconventional gas and ultimately light oil products that cannot easily be refined in the US Gulf Coast refineries.

In short, unconventional plays have led to an increased pace of development in the US and worldwide. Offshore, operators are looking to deeper waters and frontier locations. The essence is to be versatile to create new possibilities. The industry needs more, more, and even more of both. There is no way but onwards.  

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