[Editor's note: A version of this story appears in the September 2020 edition of E&P Plus. It was originally published Aug. 31, 2020. Subscribe to the magazine here.]
Today's economic climate is punishing those who are operationally or capital inefficient. The 226 bankruptcies from January 2015 to May 2020 lays this truth to bare. The focus for those seeking to avoid a similar fate and survive an extended period of tight capital markets and low, volatile oil prices is on improving cash flow. At the heart of most E&P efforts is strengthening margins through production optimization and other cost reduction opportunities—in many cases through headcount reductions.
Prior to today’s economic climate, there were already too many wells and too few people to manage them. Operations groups are now stretched even thinner as they focus on ensuring production goals are met. A day filled with data analysis and fighting fires, unfortunately, does not allow much time for other important activities, such as production optimization. The challenge for E&P companies then becomes how to get more out of their existing workforce.
The truth is that real productivity growth is difficult to achieve. At a macro level, the U.S. saw growth decline from 2.1% to 0.6% over the decade after 2004. In an age of significant technological advancement, it is difficult to fathom why. Economists certainly have theories, but not all technology advances lead to greater productivity. Corporations often struggle to achieve requisite productivity gains from their IT spend. A new back-office system, for example, does not help a company get more oil from the ground.
To achieve significant productivity gains, E&P companies must carefully consider their technology bets before placing them. Companies that successfully boost field productivity and the number of wells managed daily per engineer display similar patterns in how they evaluate and adopt technology. There are three such patterns to consider:
- Augmented workforce and processes: Simply speeding existing processes rarely moves the needle in efficiency and productivity gains. Automating repetitive, manual tasks and transforming processes through disruptive technologies, such as artificial intelligence (AI), create significant cost savings and revenue enhancement opportunities. Companies that do so will see more wells managed and optimized on a daily basis.
- Demonstrable proof points: Innovation has a dark side—the bleeding edge—where technologies have not stood the test of field deployments. In an environment of capital constraints where bad decisions have high opportunity costs, companies must invest in deployed technologies that show measurable value.
- Six months or less payback: The demands of improving cash flow mean investing in solutions that have much shorter paybacks than traditionally sought. Aim for technologies or terms that have a positive return on investment in less than six months.
We are an industry that has benefited greatly from technological change. Ours is only one of four industries to have doubled growth in the last 20-plus years, primarily due to the rapid adoption of hydraulic fracturing technologies. We embrace innovation when it changes the game. In tough economic times, E&P companies must resist the urge to retreat from innovative technologies and instead look for ones that can make a difference.
AI-driven production optimization is one of these technologies. It gives the field back at least 25% of their day through real-time actionable information, reduces wind-shield time and allows companies to cover the entire field of assets. It is the very definition of doing more with less in a short payback period. Is AI on the table for you? If not, why is AI already adopted successfully on thousands of wells across every major basin today?
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