Previously, we shared part one and two of this three-part series from Ed Cowsar. We recommend reading those articles first, if you haven’t already. Here, we’re sharing the final part of this series with you.
Lowering Lease Operating expense with a lean team was already becoming mission critical, then COVID19 hit, and all hell broke loose. Rig workers are walking off of rigs, and others that would like to, cannot leave. McKinsey & Company identified the oil and gas industry as being one of the lowest in terms of the percent of its jobs being “vulnerable,” defined as being “subject to furloughs, layoffs, or rendered unproductive (e.g., kept on payroll but not working during periods of high physical distancing).”
Yet according to Society of Petroleum Engineers, JPT Publication, Editor Pam Boschee, the 53 infected and 30 more quarantined SBM rig workers working offshore from Brazil may not agree with strategy consulting firm McKenzie’s assessment of Covid-19 in Oil and Gas. Having worked offshore on production platforms as well as drilling rigs offshore and on land earlier in my career – and staying abreast of updates, it is fair to say that it is difficult to avoid close quarters in some oilfield scenarios.
The lower frequency and duration the contact however, apparently the better, with this pandemic. Producers that leverage the concept of the Virtual Control Room in drilling and now also with Production Intelligence, will not only benefit from collaborative technology for real time well issue resolution with live data streams, but they may also lower Covid-19 exposure in the oilfield and help avoid a health crisis in their organization with a leaner staffing model on land or offshore.
Going forward, it is key to get detailed in operations. Establish and search for repeatable processes that can be changed to be more productive operating is important to lowering operating expenses. Innovative oil and gas companies are leveraging Machine Learning technology that identifies anomalies (ESP Gas locking, ESP sand plugging, Rod Pump tagging, and Gas Lift or Plunger Optimization for example) that cause failures, or identify less than optimum production and embody the experience of subject matter experts in machine learning models to identify the event and also suggest solutions directs the lease operator the critical issue at the right time. The ability to integrate these problem identification and resolution systems to devices and other operational and enterprise systems is mission critical to the lean E&P operator of 2020.
The Digital Oilfield is here to stay, several nimble software and technology companies have solutions that offer significant value to producers that are ready to implement it. And being open to innovation from outside your own organization leverages the momentum of the market, as well as the experience and capital of others.
The industry is changing to survive, though not all producers will. Profitable production is a focus for all producers for the balance of 2020 and 2021 performance. Some oil and gas companies have lower cost conventionals which are back in vogue with lower Capex and LOE, others have more profitable natural gas wells they can focus on. Oil and gas consulting firms and strategists give guidance on decision strategies that help producers decide which wells to shut in, and which ones to focus on to maximize production.
Wood MacKenzie recently published an editorial, “10 Factors That Affect Production Shut-in Decisions”, which is helpful, but fails to point out that if a producer is able to leverage changes to lower their Break Even Point for a well, or is able to lower Lease Operating Expense for a field, then more profitable BOE will flow as profitable production and feed the oil and gas investor requirement for Free Cash Flow for the next few critical quarters.