Outsource Drill Core Storage To Increase Oil & Gas Operational and Financial Efficiency

Transcription

1 Outsource Drill Core Storage To Increase Oil & Gas Operational and Financial Efficiency A Frost & Sullivan White Paper Chirag Rathi

2 frost.com Abstract... 3 Core Sampling-A Critical and Costly Step in Decision Making... 3 An Industry Challenged to Restrain Costs... 4 Outsourcing Non-strategic Business Activities is Vital... 6 Geological Core Storage Solutions Enhanced by Value Addition... 7 Conclusion... 8 References... 8 contents

3 Outsource Drill Core Storage To Increase Oil & Gas Operational and Financial Efficiency ABSTRACT Over the past decades, the value in upstream operations has shifted from gaining access to new fields and delivering development projects, to delivering best-in-class operational performance. The scarcity of new oiland-gas-producing assets, combined with high-cost-driven projects, has shifted the focus to optimizing the existing assets. In addition, many existing oil and gas reserves have reached the end of their economic life, which has accelerated technological advancements to harness the existing reserves. Given the increasing technological costs and fluctuating oil and gas prices, the upstream companies are continuously trying to optimize their costs and resources. In the present-day scenario, upstream operators are making cautious decisions about the production volumes and production costs for better operational and financial performance. At the same time, the oil and gas industry is burdened with labor and skill shortage. Procuring skilled labor for the oil and gas industry has become challenging and expensive in the past few years. The strain on labor requirements, coupled with high costs associated with the exploration and production operations, have led upstream operators to seek a solution-oriented approach for their non-strategic activities. The upstream operators envisage outsourcing as a strategy to reduce costs and improve company efficiency. This concept transpires well at a time when more and more third-party companies are evolving and developing their specialized expertise of offerings. Outsourcing non-strategic business activities to third parties is a key tool to optimize business performance and operational efficiency. CORE SAMPLING - A CRITICAL AND COSTLY STEP IN DECISION MAKING As part of the oil and gas drilling process, the geological core samples are derived and collected from the subsurface of the earth. These drill core samples form the basis to assess the accurate geological properties of the hydrocarbon reserves as they are the only direct evidence available from beneath the earth. The core sample gives the upstream operators an opportunity to view the characteristics of the reservoir that has been encountered. The geological cores are highly valuable to the oil and gas industry, as they reduce the uncertainty in reservoir evaluation to a great extent. The oil and gas companies are able to efficiently evaluate the oil and gas reservoir, obtain information for chemical analysis, and validate the rock characteristics for its porosity and permeability. With the geological core samples, upstream companies have been able to make more informed decisions and have eliminated the guess work. This has, as a result, lowered their operational and financial risks. Simultaneously, the continuous technological advancements have led to significant development of unconventional resources. This has increased the probability of extracting more hydrocarbon resources from complicated reservoirs. The value of the core continues to increase tremendously as the reservoirs become more complex. The digitizing of oil and gas production activities has further led to better evaluation and production rates. This has, in turn, triggered high demand for high-quality core. Over the past few years the improvements in non-destructive extraction and sampling techniques have compelled rapid growth in the number and quality of samples. Tremendous progress in the area of digital rock technology has taken place with the use of sedimentation modeling and Computed Tomography (CT) Imaging. The inception of special technology, such as X-ray CT scanning, has enabled in-depth analysis and fast access to rock information. The significant progress of the three-dimensional scanning and magnetic resonance techniques of core has facilitated upstream companies to visualize and investigate the pore sizes accurately. The detailed analysis of the core resulting from high-resolution techniques has made it possible for the upstream operators to forecast their risks. 3

4 frost.com The cost of adopting advanced technology, coupled with high rig rates, has made coring an expensive process. Hence, sample preservation and curation is the key to preventing wasteful costs. Figure 1: Drill Core Sample Life Cycle Analysis Value of Core Drying Sampling Preservation Core Sampling and Core Preparation Core Cleaning Core Imaging Core Gamma Logs and Core Spectral Gamma Logs Time Development Growth Maturity As the technology continues to advance, it becomes increasingly important to store and preserve the physical core samples for future testing and analysis. Implementing the right arrangement and resources to handle and preserve the drill core samples is turning into an internal requirement for these upstream companies. Most of the oil and gas companies have internal formal records and information management systems with policies to manage material samples and technical data. Historically, oil and gas companies view core as a critical piece of data. They realize that the core represents the value of that well as the producibility of that reservoir is dependent on the analysis of the core sample. Some countries like Canada and Norway even have a regulatory mandate of storing and preserving the drill cores. The upstream companies store the core samples for more than 20 years to re-evaluate, re-examine and re-assess the analysis of the subsurface rock. Given that the oil and gas upstream industry is synonymous with long-term projects, operational cost efficiency is very fundamental to this industry. While the technology in the oil and gas industry improves, the objective of the upstream companies is to have economical and predictable estimation of the hydrocarbon reservoirs. AN INDUSTRY CHALLENGED TO RESTRAIN COSTS The core sample is an important decision maker for evaluating the subsurface rock type, so it becomes equally important to make sure that the properties of the rock sample are not changed in any way. If for any reason the core is mismanaged, lost, destroyed or discarded, then the oil and gas companies would have to drill another well to get that vital information. This is critical to the oil and gas companies as drilling another well to get the same information is the only option and can be costly. 4

5 Outsource Drill Core Storage To Increase Oil & Gas Operational and Financial Efficiency External factors like temperature and environmental conditions can significantly alter the properties of the core sample. Transporting, handling and preserving these drill core samples become critical, especially given the cost associated with extracting them. So the value of the core is material to the value of the well as it is an indicator of the reservoir. Furthermore, 80% of the known reserves are in the hands of national oil companies. Investor-owned companies are struggling to maintain production and retain market share. As a part of the regulatory mandate, many of the upstream operators give the drill core samples to core libraries and research facilities to store and preserve these samples. However, as the academic institutes, these research facilities put limitations on accessing and sampling the core. Traditional Practice Current Practice Upstream companies maintained their own core storage facilityresulting in operational inefficiency and higher investments Transportation of drill core from the core storage facility to the geologists and geo-technicians for analysisresulting in degradation of core sample Engaged highly qualified geologists and geo-technicians for handling, preserving tracking the drill core sample- resulting in lower productivity and cost overruns Upstream companies outsource drill core storage to third-party- resulting in higher operational and financial efficiency Availability of large physical infrastructure, core libraries, suitable transportation mechanism, capable staff, large databases, a high level of security and privacy, data viewing and sample testing rooms Integrated drill core storage facility making viewing, sampling and analyzing easier for geologists and geo-technicians Third-party drill core storage provide the right expertise and staff to maintain, preserve and handle the drill core sample Historically, the upstream companies maintained their own core storage. This involved having an optimal infrastructure and the capability to manage the entire core storage process, which required an investment in space, facility and manpower. This made the core storage mechanism very costly and had no strategic advantage for the operator. the value of the core is material to the value of the well. In other words, it is an indicator of the reservoir characteristics. Geologist of a well-known oil and gas company 5

6 frost.com What the upstream companies are beginning to realize is the huge investment of time and money that goes into maintaining a large facility just to preserve the core samples. These companies have to commit to maintaining large facilities with the appropriate storage competencies. Often these companies do not account for the costs of maintaining and managing these huge facilities, which leads to cost overruns. Some of companies end up discarding the samples because of lack of storage, exposing them to higher business risks and uncertainty. Furthermore, the industry is struggling with wage growth and availability of qualified labor. The industry is improvising strategies to procure and retain qualified and experienced workers. However, skilled labor has become expensive, resulting in inflated budgets and project delays. Various industry reports and surveys indicate high involvement of geo-technicians and geologists for clerical and physical management of sample storage. According to a survey by the Canadian Society of Petroleum Geologists, most of the upstream companies use their highly qualified geo-technicians and geologists to handle the core storage facility. As as result these highly paid resources are often found performing activities that are predominantly administrative and clerical tasks. This does not efficiently use the expertise of these skilled resources, especially at times when the industry is experiencing a labor shortage. Hence, optimum utilization of time and productivity of high-paid executives is important to retain costs. In addition, the industry faces several other operational challenges: Upstream companies have the tendency to store core samples at several locations. Decentralized storage leads to cost increases as the companies often find it strenuous to transport the core samples to dispersed storage facilities. Sample preservation and archival is a challenge, and sometimes leads to costly mistakes when not handled by professional experts armed with the best knowledge and who are well aware of the standardized practices. Lead time and ease of access to core samples are important when time-critical decisions need to made. Overall, the entire core sample storage process requires careful planning, archiving high-level security and precise environmental and economic considerations a job that requires proven procedures and practices. OUTSOURCING NON-strategic BUSINESS ACTIVITIES IS VITAL The oil and gas industry is familiar with the outsourcing model of non-strategic activities, which are more like the day-to-day tasks. The industry already recognizes the value proposition of third-party commercial storage offerings for seismic data, well logs, subsurface information, laboratory analysis, drilling, and field services. Leveraging the expertise of third parties with geological core storage solutions is a natural and logical extension of the outsourcing process and is gaining high recognition in the oil and gas industry. Having a single provider for core storage services brings economies of scale. The upstream companies want quick and easy access to their samples, which enables them to make the appropriate decisions. These companies are able to access their drill core samples at any time without having any apprehension about the quality of the sample being degraded. The companies find it feasible to outsource the core storage activity to a specialized third party, which ensures confidentiality and safety of the drill core samples. With the right expertise and knowledge, these third parties are highly capable of maintaining the integrity and privacy of the drill core samples. Past examples have demonstrated substantial cost savings for the upstream companies, as the companies are able to have better control over their costs and budgets. 6

7 Outsource Drill Core Storage To Increase Oil & Gas Operational and Financial Efficiency As we move forward, the traditional methodology of transporting the core from a core storage facility to an office to be reviewed by a geologist and then back to the core storage facility will become a bigger challenge. The third-party core storage facilities that are integrated with state-of-the-art laboratories for viewing and analysis will become increasingly the norm and will move the geologists to a unified storage facility, rather than moving the core to the geologists. GEOLOGICAL CORE STORAGE SOLUTIONS ENHANCED BY VALUE ADDITION Geological core storage solutions provided by third-party companies, such as Iron Mountain, ensure safety, security, privacy, and easy access to a company s core assets. Iron Mountain has expanded its core storage business globally, strategically locating assets in global exploration and production capitals of the world. The company has successfully established its core storage facilities in Calgary, UK, and Norway, where Iron Mountain currently stores a combined total of over 1.75 million cubic feet of core. This is one of the first companies to have a dedicated core storage facility. Iron Mountain has more than 30 years of experience in the oil and gas business. The company services all of the Super Majors and about 90% of the Majors. The company helps oil and gas companies maintain their energy records and legacy data. Apart from its Geological Core Storage solution, Iron Mountain also focuses on Pipeline Integrity Management, Well and Land File Management, and Seismic Tape Migration. Iron Mountain lays out a detailed core sample storage plan and provides suitable transportation services from the well site to its storage facility, where the core samples are handled and preserved. To expand its portfolio into the energy hub of the United States, Iron Mountain has recently opened a core storage facility in Houston. This facility is built close to the Houston Energy Corridor to provide secure, private preservation and easy access to the core storage solutions. The 200,000 cubic-feet storage facility is equipped with the right technology, equipment and temperature conditions to store core samples. The facility provides fully equipped, custombuilt viewing rooms; a high level of security; and long-term archive and retrieval of core samples. In addition, the company ensures safe transportation of the core samples to the storage facility. Iron Mountain s cautious decision to open a facility with close proximity to the Energy Corridor aids in retaining the quality and condition of the core, as well as minimizes transportation. 7

8 frost.com CONCLUSION As the oil and gas industry continues to evolve, the exploration and production operations become more complex, especially when most of the oil and gas reserves have matured. At this stage of the oil and gas reserves, the field evaluation is not as predictable. Therefore, core analysis becomes critical in eliminating the unforeseen operational risks. Additionally, a lot of significant progress has taken place to improve the coring technology. These advancements have stemmed from the need to accurately estimate the hydrocarbons reservoir present in deep water and ultra-deep water, high-temperature/high-pressure (HTHP) reservoirs, and unconventional reservoirs. These technological developments have further enhanced the value derived from core analysis as the technical ability to process the data and refine the results has changed substantively. The high value of core has led the industry to treat core storage requirements with tremendous care. Consolidations and cost-reduction initiatives are on the way. With the rapid technological advancement in the oil and gas industry, the trends are shifting toward optimization of costs and resources to achieve higher efficiency. To improve the operational and financial efficiency of the business, oil and gas operators are outsourcing core storage activities to third parties. Outsourcing is the key to restrain costs as upstream companies have better control of their operating costs, and these costs are now predictable. Gradually, there is broader adoption as the industry continues to become aware of the advantages of outsourcing core storage activities. REFERENCES 1. Canadian Society of Petroleum Geologists: Preservation of Core and Drill Cuttings Survey Recommended Practices for Core Analysis Shafer, John. Recent Advances in Core Analysis 4. Grachev, Nikolai. Digital Core Analysis - The Future of Petrophysics 5. Core Hardness Testing and Data Integration for Unconventionals 8

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