Oil and Gas Hunker Down

Oil and gas used to be one manufacturing segment that had the luxury of putting process automation and optimization on the back burner. When oil is priced near $200 per barrel, who has time to do anything but pump that liquid gold out of the ground as quickly as possible? Ah, the good old days.

Coming off historic highs, the cost of oil dropped precipitously in 2008 and mostly stayed low. Prices reached a shocking low of less than $30 per barrel in January 2016, triggering widespread layoffs across an industry that suddenly had to figure out how to do even more with even less. Now, prices appear to have settled around $50 a barrel, and oil producers up and down the value chain have gotten religion on process optimization.

In Texas, oil wells were damaged and temporarily thrown offline by Hurricane Harvey in September, but oil producers are well prepared to handle events of that sort, says Luis Gamboa, global heavy industries market development manager for Rockwell Automation. They are less prepared to handle low oil prices, coming somewhat late as they have to the automation and optimization party.

“They were not quick to implement the efficiency technologies compared to other industries,” Gamboa says. “In this downturn, all of a sudden the oil industry finds itself at a cost of producing at $60 per barrel but not being able to sell it for more than $30 per barrel.”

Though the price of oil has edged up since hitting that $30 low, there is still today an urgency toward process optimization in the sector. “It used to be that the oil field was sensor-poor and margin-rich,” says John Oyen, manager of business development for the oil, gas and chemical industry vertical for ABB. “That’s not true anymore.” Like all other manufacturers, it seems, oil producers are tapping a wide range of digital technologies to increase business agility, boost productivity, protect human safety and reduce costs.

At ConocoPhillips, for example, sensors dispersed across its well fields helped cut in half the time it once took to drill new wells in the Eagle Ford shale basin of South Texas. Running analytics against the data from hundreds of sensors yielded insights the oil producer leveraged for optimization, including adjustments in the weight placed on a drill bit and its speed. The bottom line is faster extraction of oil, according to ConocoPhillips officials. The company uses analytics software from Tibco.

This is a major advance over manual methods, says Michael O’Connell, chief analytics officer for Tibco. “You used to have to stop the drill, pull up the data in Excel, go over the progress and assess whether you wanted to make a change,” he says. “You would end up stopping for 30 minutes or an hour.” Now, oil operators can work much more digitally, getting a real-time picture of what is happening so the crew can make adjustments on the spot.

Oil producers are also focusing on which well is the most profitable. To do that, they need analytics, among other tools, says Tobias Scheele, senior vice president of the design simulation and optimization business at Schneider Electric. “They need monitoring and KPIs (key performance indicators). They need early warning of hiccups or degradation,” he says. Visibility provides the ammunition needed to be proactive, a piece that had long been missing in this industry. But analytics are far from the only tools oil owner-operators are deploying.

Lower for longer?
Advanced control systems, simulation, asset performance management (APM), predictive analytics, Big Data, the Industrial Internet of Things (IIoT), artificial intelligence (AI)—it’s all on the table, helping oil and gas producers improve operator safety and reap more in drilling, production and completion while continually improving back-office efficiency. Though perhaps late to it, the industry has embraced this new world, Oyen says. “‘Lower for longer’ is the mantra. You better get efficient or you’re out of business.”

Oil companies typically do not view the world in short increments, Oyen says. “They have a 20- to 40-year horizon that they look at. Once the prices started dropping, they had a good idea that’s where things were going to stay for the foreseeable future.”

Now, optimizing—operations and profits—is key. First, that is likely to mean oil companies are turning their attention to equipment that has long languished in the field. Upstream, many producers still use pumps that are decades old. “We had customers that were just letting things run until a pump blew out,” O’Connell says.

“Some of these companies have compressors that go back to the 1950s,” says John Fryer, senior director of industry solutions at Stratus Technologies, which makes computers used in industrial automation. One Stratus customer, a large natural gas pipeline company, overhauled its infrastructure after a fire caused $600,000 in damage (thankfully there was no loss of life). The company reaped an impressive return by upgrading the control systems on all of its compression systems, while also adopting predictive analytics. “They greatly reduced their maintenance costs—about $10 million saved over 10 years,” Fryer says.

Many oil and gas companies are just beginning to make use of the wealth of data produced by equipment such as compressors, Gamboa says. “Knowing the exact status of the compressor in real time lets you operate more efficiently. You can see when maintenance will be needed and diagnose a failure more quickly. Instead of having to send a technician to the field blind, you can immediately determine what you need, to send the technician with exactly the right parts the first time.”

Major push for automation
Oil companies have always been more automated in their offshore operations, for obvious reasons. “Offshore is a much harsher and riskier environment than onshore,” Oyen says. Companies naturally want to reduce the number of people in harm’s way as much as possible, which drives the need for process automation technology. “You can’t drive 250 miles offshore; it’s helicopters and boats. You have people onboard an offshore platform who have no place to go when things go bad. The production rates are much higher offshore, so it’s worth it. But there are access and safety issues.”

ABB recently completed a remote monitoring center (RMC) for ExxonMobil’s Hebron and Hibernia platforms. “They needed to reduce the number of people onboard,” Oyen says. “They can simulate at the RMC and see what’s happening to advise the guys offshore.”

The trend is starting to take hold for onshore drilling, as well. Companies are investing in everything from process automation and process safety through electrical control and power management, implementing these systems in an integrated environment that reduces complexity.

The new normal
A pervasively pessimistic view about oil prices in the near term prevails among the industry’s technology suppliers. “The people who say oil is going to jump right up are the outliers,” O’Connell says.

In some ways, the industry will be better off if increased profits don’t return too quickly. If prices were to rebound quickly, oil and gas companies would be at risk of losing some of their focus on optimization, Gamboa says. Human nature being what it is, their attention would likely shift in the short term mainly to speed of execution in drilling and bringing oil online. Some of the automation and optimization efforts would be put on hold or forgotten.

Sooner or later, the price pendulum could swing back. “Come 2020 and beyond, we will start to see price increases and going back to a mode where you need to bring oil online as fast as possible,” Gamboa contends. By then, a lot of the changes that are occurring will be permanent in terms of people, procedures and the use of automation to operate more efficiently and make better decisions.

Especially given the cuts in staffing, oil companies cannot easily go back to the way they operated before, according to Scheele. “What has happened is a massive shift of skill sets and focus,” he says. “The service providers and owner operators have had significant layoffs—they don’t have the horsepower to go back to business as usual anymore.”

Old habits die hard, however, according to Andrew Howell, CEO of KBC Advanced Technologies, a Yokogawa Electric subsidiary that helps oil and gas companies improve operational efficiencies. Howell has seen those companies slide back to the path of least resistance. “We optimize these plants for our customers and then we go back for a visit and we find that they are no longer doing the optimizations,” he says.

KBC recently inked a partnership with Baker Hughes, a GE company (BHGE), that combines its process simulation software with BHGE’s asset performance management capabilities for use in oil and gas.

“In the last downturn, the industry learned that you lose massive amounts of talent and competencies, but you still need to sustain your business for the long run,” says Matthias Heilmann, president and CEO of digital solutions at BHGE. “These companies have got to be more focused on risk.”

This wasn’t the case even four years ago, Heilmann adds, when projects would break even with oil prices at $85 per barrel. Today, people are looking at a breakeven point of $30 per barrel. It forms an unshakeable framework for technology investment decisions.

No one knows where oil prices are going. “We assume we are now going to be on a lower cost basis. We don’t have recovery in our sights,” Heilmann says. Digital is here to stay. “You are changing the way you operate your business.”

For Scheele, too, there is no turning back the clock. “There are things that have been set in motion that cannot be changed,” he says.