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This article, written by Special Publications Editor Adam Wilson, contains highlights of paper SPE 186434, “Small Is Beautiful: Why Small Fields Are the Next Big Thing in Southeast Asia and How to Capitalize on Them,” by Arnold Volkenborn, Andrew Lea-Cox, SPE, and Bo Sun, Accenture Strategy Energy, prepared for the 2017 SPE/IATMI Asia Pacific Oil and Gas Conference and Exhibition, Bali, Indonesia, 17–19 October. The paper has not been peer reviewed.
This paper shows how a new approach to small fields could unlock more than twice the net present value (NPV) of larger conventional fields in Southeast Asia at a similar level of capital expenditure (CAPEX). Capturing this value, though, will require a fundamental change in the operating models of operators in the region. The small-field approach focuses on margin maximization instead of recovery and productivity maximization.
Southeast Asia has attracted sizeable foreign interest in recent years after weathering the global financial crisis while establishing strong manufacturing bases, expanding domestic infrastructure, and stabilizing financial markets. These developments fueled economies and continued to push energy demand higher.
However, Southeast Asia is facing its own challenges. Oil and gas companies in the region have been tasked with meeting domestic demand through local petroleum resources since the 1990s. Although companies have continued to discover new fields, efforts were insufficient to meet the growing demand, causing Southeast Asia to become a net importer in the early 2000s.
Moreover, the industry has accepted a new oil price norm approximately 60% lower than June 2014 levels. As some early signs of recovery emerge, another disruption is on the horizon: Because of a combination of technological and socio economic factors, demand for oil is expected to peak as early as 2030. Concurrently, on the supply side, assets such as shale and nonhydrocarbon sources (e.g., solar and wind) are eating increasingly into oil’s share of the energy market. These factors are forcing exploration and production (E&P) companies to cut capital and operational spending significantly and refocus their portfolios on core areas of advantage. Investors now are wary of locking up capital in long-cycle megaprojects.
Given the smaller size of discoveries, the need for decreased spending, and the demand for shorter-cycle projects, significant market opportunities exist for any player who can make a small-field business model work.
Potential of Small Fields
The future of Southeast Asia is in small fields, defined here as fields with less than 100 million BOE of reserves. First, the region is scattered with such discoveries and prospects. Second, and more importantly, a small-field approach addresses the current investor preference for high-margin, short-cycle projects. While technically difficult, small fields have great potential in terms of unlocking barrels to fill domestic demand and producing higher returns for capital-constrained companies.
Extent of Small Fields in Southeast Asia. The average size of discoveries in Southeast Asia has decreased to approximately 35 million BOE in the last 5 years, compared with two to three times that in the 1970s–1990s.
Preface This manuscript is intended to set the stage for a panel discussion, "Will Unconventional Play Revolution Impact Deepwater Development?" scheduled for Monday, May 5, 2014. The manuscript includes input from participants of this panel, who are: Panelists: Torstein Hole/Statoil – SVP Development and Production US Onshore Greg Guidry/Shell – EVP Upstream Americas Unconventionals Lee M. Tillman/Marathon Oil Corporation – President and CEO Darrell Hollek/Anadarko – SVP Deepwater Americas Operations and Development David Eyton/BP – Group Head of Technology James A. Slutz/Global Energy Strategies LLC – President Moderators: Doreen Chin/Shell – Surface Advisor, Upstream Unconventional. Chair for OTC 2014 Program Committee Sandeep Khurana/Noble Energy, Inc. – Manager Development Planning Abstract The recent surge in unconventional oil and natural gas production in the United States (US) has been called a "Revolution". Unlocking of massive unconventional reserves in the US is the biggest game changer in recent years. The US is now the number one unconventional oil and gas producer in the world. US together with Canada now accounts for more than twenty-five percent (25%) of global natural gas production. Shale gas will play an ever-increasing role in this resource base and per Energy Information Administration (EIA) is projected to increase to almost half of total US gas production by 2040. Per EIA, US tight oil production will continue to grow till 2020 and is projected to reach almost half of total US oil production. Influenced by the US success, the global unconventional play exploration activities have been active and also increased. This revolution has re-shaped and will continue to shape the energy resource picture for the entire world. For instance, in the US unconventional play investment has also led to resurgence of domestic manufacturing. Though onshore unconventional play development has very different development style (faster pace, cost sensitive, high number of well count, urban planning, etc.) from deepwater development (much higher cost and related risks, fewer wells, long project time, technology intensive, etc.), they have started and will continuously compete in talent recourses, investment flow, and technology supplies, etc. This manuscript discusses supply projections and overlays it with market drivers to portray value proposition. It compares and contrasts unconventional plays and deepwater from a full life cycle of exploration to operations. It discusses implication of regulations and policy. It then summarizes and identifies areas of discussion and viewpoints from panelists.
Abstract The offshore industry has always been at the vanguard of technical innovation and this is not about to change. The next wave of technology will not come, however, from new ways to bend the physical world to our will with steel and human power but from bits and bytes through digitalisation. Digitalisation is not new to our industry. Now the technology is cheaper and faster and the amount of data and level of connectivity are increasing exponentially, the application of digital technologies can deliver at an affordable cost. The energy industry is emerging from a lower-price environment in better shape and with more resilience and an increased focus on capital efficiency, cost performance and safety. The industry is also ready for a digital transformation that offers a big, if not the biggest yet, opportunity to improve efficiency in our existing operations even further. This transformative potential has been recognized for some years. What has been missing is a comprehensive approach for applying digital technologies successfully at scale in the oil and gas industry. This reflects one of the significant differences with previous waves of innovation: most of the benefit for existing businesses will come from replication and rapid improvement cycles of across many assets and projects. In addition, digitalisation also opens up the opportunity for new business models that could change the entire industry structure. This paper explores an approach to digitalisation that draws on successful use cases that have already realized significant value in Shell's operations. It identifies the underlying principles of the digitalisation strategy, including data strategy, approach to insourcing versus outsourcing and methodology of scaling up. The required success factors that underpin digitalisation are also explored: capability building for both people and IT/data systems; how to organize the digital deployment; and the required leadership, culture and way of working attributes. Practical examples and insights from Shell's digitalisation journey will be provided.
Talent & Technology
Oil and gas companies have increasingly relied on complex data to delve into the Earth’s geology and find energy resources thousands of feet below the surface. They have turned to numbers when analyzing prospective acquisitions, capital expenditures, and other investments. Yet, when it comes to managing their workforce, oil and gas companies have not adopted the quantitative rigor that they use so effectively across their business.
At a time when technological innovation and globalization are ushering in a new era of industry growth, large segments of the workforce are reaching retirement age, and with potential recruits from educational institutions remaining scarce, the competition for talent can now be as significant as the focus to find new resources.
Leading human resources (HR) organizations in the oil and gas industry are starting to effectively use data analytics to help identify, recruit, retain, and develop skilled talent. By blending internally available data with external statistics and information related to the labor supply, these HR leaders are positioning themselves to effectively manage changes brought forth by this volatile operating environment.
Managing a Moving Target
Oil and natural gas plays have been as fickle as fashion in recent years, due in large part to technological advances, such as horizontal drilling, combined with multistage hydraulic fracturing, which have given companies access to previously unattainable or uneconomic resources. The dramatic changes in the quantities, locations, and price volatility of the hydrocarbons unlocked by technology create a significant challenge in aligning human capital resources with the various market demands.
This challenge is tough for companies with balanced portfolios of natural gas and oil assets; they can theoretically shift manpower from one side of the business to the other as market conditions warrant, but it becomes much more difficult as volatility increases. The challenge is even harder for companies with a heavy tilt toward either oil or gas, as market swings may force them to reach outside the organization to staff up quickly in one area, while needing to right-size the workforce in other areas.
Adding to this complexity is a shrinking pool of available talent. A wave of older workers is reaching retirement age, and universities in North America and Europe are not producing enough skilled graduates to replace them. In addition, workers are increasingly mobile and technology advancements continue to change both the type of work and where it can be done. These factors are exacerbating the war for talent by extending competition beyond local, and even national, labor markets.
In the past, annual estimates of workforce needs proved sufficient. Now, the need for certain skills can change dramatically over the course of a year. The degree to which HR organizations anticipate these changes can spell the difference between being ready to support the company’s growth or inhibiting it due to a lack of skilled people.
Some in the industry have advanced their workforce planning in recent years by turning to resources such as enterprise resource planning systems to compile more data on their existing talent. But many HR leaders have been unable to distill such data into useful and actionable information. As a result, some have turned to blunt instruments, such as pay increases and competitive incentive awards, which have shown to be no silver bullet when trying to acquire or retain talent.
Abstract The concept of Integrated Operations (IO) has matured significantly over the past eight years since the landmark study by CERA in 2002. Many companies, including Chevron, now have established programs with demonstrated results delivered in multiple assets. With that track record, companies are now asking what’s next and how can they build on this foundation for the future. Given what we’ve learned to date, how can we accelerate results and where can IO add the most value? What business and technology trends will emerge both to help and hinder integrated workflow solutions over the next 5-10 years? This paper will address these questions by looking at the history of the Chevron i-field program to understand what has been accomplished, the promises realized and the challenges uncovered in the journey. We will examine trends in the industry, to understand future opportunities and challenges more clearly. The paper will look at how different elements of Integrated Operations can be deployed more effectively, and how to address the challenges of delivering and sustaining the change within the current and future workforce. Delivering solutions is usually difficult, but sustaining and supporting them provide new levels of challenge. How do we ensure that Integrated Operations becomes the way we work in the future instead of a passing technology fashion fad?