Big Oil Is Making Enormous Efficiency Gains

Efficiency and costs are the two magic words of the oil industry today. While just a few years ago the top priority was production growth, followed by more production growth, in the wake of the 2014 price rout everything has changed. It's all about becoming more efficient nowadays, in order to not just survive but to remain profitable at lower international oil prices.

Big Oil is spending a lot of time and money on efficiency. Just the last couple of months saw three separate announcements from Shell, BP, and Baker Hughes, all about lower-cost exploration and drilling.

Shell was first when, in late March, the Wall Street Journal published a report about the company's Gulf of Mexico operations, quoting sources as saying that production costs at its Mars platform could be lowered to less than $15. Shell officials claim that deepwater well drilling in the Gulf now takes 30 percent less time and 50 percent less investment than before the crisis. As chief executive Ben van Beurden put it succinctly, "If the world needs deepwater oil, which it does, it's going to ¬obviously economically make sense to develop the lowest-development-cost oil first."

BP also made headlines last week when it announced that improved seismic imaging technology has helped it to revise upwards the reserves of its Atlantis field, again in the Gulf of Mexico, and by quite a lot - 200 million barrels. The company is so enthusiastic about this tech that it will be deploying it across its GOM fields, as well as in Azerbaijan, Angola, and Trinidad and Tobago. Related: Oil Prices Fall As Hedge Funds Throw In The Towel

Enthusiasm is certainly in order: one of the biggest challenges for oil and gas explorers is that the earth is quite dense matter and producing a clear image of what lies hundreds-or thousands-of feet below the surface is a tough task. This is what makes exploration a highly risky business and has pushed a lot of companies away from new projects in the last couple years. Now, BP says, it has been able to receive crisp images, basically showing that there is a whole new field below Atlantis. The potential savings that this technology can enable are impressive.

Then, just a couple days ago, Baker Hughes showcased what it called "a revolutionary multistage fracturing service" focusing exclusively on deepwater drilling. The DeepFrac technology promises to significantly reduce drilling times and therefore expenses, while at the same time enhancing crude oil yields.

According to the company, DeepFrac can save drillers between 30 and 40 percent of operating expenses per well by skipping some steps that are otherwise necessary after the drilling is done, such as casing and cementing, by using tube-like sleeves that can be connected to the wellbore directly. According to Baker Hughes, the technology was recently tested, yielding time savings of 25 days in rig time, and US$40 million in costs. Related: What Crack Spreads Say About Oil Prices

What we are witnessing is a mind frame shift that is already bearing fruit: according to energy analyst and Reuters columnist John Kemp, the Gulf of Mexico accounted for the highest portion of overall U.S. crude oil production increase in the five months to February 2017. The daily average there expanded by 228,000 barrels in the period, while in the shale patch, growth was 175,000 bpd.

Chances are there will be more breakthroughs in energy in the coming months and years as challenges for oil demand increase in the form of electric vehicles and renewables for power generation, and what some see as the second shale revolution gathers pace, pressing prices down and curbing investment appetites.

By Irina Slav for Oilprice.com

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