Navigating the new realities

During the last decade, a number of new technologies have revolutionized how US land-based exploration and production companies drill for hydrocarbons. These new technologies have created significant increases in complexities with ownership, allocations, and accounting. Rather than a single vertical well into a known reservoir, companies now routinely drill horizontally through the hydrocarbon-producing layers of shale to find oil and gas. It's also now common to drill multiple lateral holes from a single pad and/or have multiple lateral holes into multiple layers. Since 2008, lateral lengths have doubled from 5,000 feet to more than 10,000 feet, which continues to challenge existing processes, systems, and data infrastructure.

This new horizontal geographic dimension, and the multiple zone approach, exponentially increases the amount of information generated. As a result, the industry is seeing a dramatic rise in the complexity of data related to production volumes, costs, royalties, liabilities, and taxes. This, in turn, requires more sophisticated systems, processes, and governance to manage it all. "Considering we have longer horizontal wells, with laterals, we're drilling and completing even faster, and states are allowing for cross-unit wells into different zones. The documentation and data management have been significantly compounded for landmen," said Clint McGee, landman at BHP Billiton.

Addressing outdated data management systems

Upstream business processes and associated systems, whether internally developed or sourced from commercial software, were initially built to support more traditional requirements. The horizontal and vertical expansion of each wellbore has the potential to overwhelm current infrastructures, which may lead to increased manual intervention and extensive correction. Every element associated with a well lifecycle is impacted by the evolution - from a geologic prognosis to the authorization for expenditure to planning multi-stage fracking to allocations and joint interest billing.

Here are some of the typical issues these aging systems could create:

• Misreporting to governmental agencies, which could result in fines and penalties
• High volume of adjustments and rework, resulting in greater general and administrative costs and increased chance of internal and external misreporting
• Inaccuracies in master production data, resulting in poor well files, inefficient system integration or mistakes in management and financial reporting
• Lack of appropriate processes and controls, resulting in wells being spud prior to all approvals or leases lost due to missed leased agreement terms

Other industry influences are incrementally adding to this wave of change:

• Required software upgrades (by leading commercial vendors) are causing a wave of investment by upstream companies in modernizing systems and related business processes
• Sheer growth in number of wells drilled is forcing change in the entire systems environment
• Advances in production-logging technology, with more accurate/reliable data in multi-layer and multi-phase flows, is causing challenges in direct integration with Geographic Information Systems (GIS)
• Increased scrutiny from public watch dog agencies is occurring, especially as drilling and production enter more urban areas

An organized approach to identify the most appropriate solution

Prior to making any new investments to upgrade existing systems or purchase new ones, it's prudent to assess the requirements of doing business for the next decade and consider how the company will address future challenges and increased operational complexity. In short: before committing to a multi-million dollar technological investment, companies should think through the options available, including whether the infrastructure in place is able to address both current and future needs.

Project management leading practices have found that an early investment in a detailed requirements assessment, representing a fraction of the overall upgrade or implementation budget (i.e., less than 10%), will typically reveal new operational complexities, gaps in current requirements, and changes needed to meet future needs. This early identification allows the company to more accurately scope its needs and costs and lowers project risk, ultimately giving a higher rate of return on a company's investment.

How to take the next steps

Assessing the current environment and deciding the right steps to maximize value can be challenging. (See Fig 1.) Data, processes, systems, and other related factors should be viewed holistically as part of an overall solution before a company commits to a significant technology investment. Pausing to assess and align on requirements can be difficult in entrepreneurial cultures where non-technology components, such as processes, may be viewed negatively by operations and/or investors, but is well worth the effort. Key components to consider are shown in Table 1.

Summary

An independent assessment of business needs prior to making the investment lowers your risk and provides real return on investment (ROI) by bringing to focus essential business requirements specific to your operator profile within a given play/basin. It's not uncommon to buy software far too powerful for the objectives; conversely, underperforming solutions should be countered with manpower.

Independently assessing requirements will drive down costs by illuminating only what you need. It will improve user focus and increase the probability of success. In some instances companies have reduced their projected spend 50-80% by simply buying what they need.

As Deloitte & Touche LLP Oil & Gas industry leader Coleman Rowland summarized: "The shale revolution has triggered significant change in the upstream oil and gas paradigm, and for companies to be able to compete, they must be smart about how they spend investment dollars; the successful ones look carefully at the requirements of integration of all aspects of the business before spending millions in new technologies."

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