The cost of extracting a barrel of crude oil quadrupled from 1996 to 2014. There are many reasons for this although at least three that have played a major role. First, higher safety standards, excessive documentation, internal processes (we have previously written about how BP was able to cut $10 million by standardizing specifications), and growing environmental regulations have imposed new costs on upstream oil and gas production. Second, capital project designs and equipment used on new assets have become increasingly complex with multiple redundancies. Finally, poor project execution has led to schedule delays and cost overruns.
These costs overruns were tolerated when oil prices were high. However, now, low oil prices are putting a lot of pressure on operators, especially those operating offshore. Operators need to reduce costs in order to breakeven and make new capital projects profitable.
There are at least four options that operators can consider to cut costs: First, standardization and modularization offers the opportunity for companies to “design one and build many”, reduce engineering and design costs, and cut construction time. Second, employing new business models such as increasing the amount of equipment that is leased instead of owned gives operators more flexibility with capital budgets, and reduces the amount of owned inventory. Third, efficient project scoping and execution can help operators eliminate unnecessary redundancies in both their processes and equipment, thus eliminating unnecessary costs. Fourth, employing new and innovative technologies and techniques allows operators to stay on the cutting edge of cost reducing and time saving measures. This article will focus on new technologies and techniques that are being developed to reduce operator costs.
Simplifying offshore platforms can help reduce breakeven prices: Not every innovation needs to reinvent the wheel. KBR has recently developed a smaller and simpler fit-for-purpose offshore platform to serve the Gulf of Mexico market. In addition to reduced costs the smaller offshore platform also promises to achieve first oil in as little as 35 months. KBR is not the only company seeking to develop lower cost offshore platforms. Exmar, BP, and Technip have all developed a new generation of offshore platforms and production vessels with the aim of cost reductions.
In the North Sea, Statoil has focused on innovations which it claims has helped reduce the future breakeven prices of offshore projects from $70 in 2013 to $41 today. It has a designed a bare-bones offshore platform for its Oseberg Vestflanken 2 project. The platform is fit-to-purpose, has very few bells and whistles, contains a minimum amount of redundancies, and has no added functionality. Additionally, Statoil is embracing subsea gas compression as another cost-saving measure. In all, Statoil claims breakeven price reductions of 52% for its Oseberg Vestflankent 2 project.
Moving processes to the seabed can help operators reduce costs: Subsea compression is an exciting new technology that has the opportunity to provide operators with cost savings. Fuglesang, a Norwegian company, has developed a subsea compressor that eliminates the need for topside compression equipment, putting a significantly lower load on the offshore platform. Additionally, the compressor operates autonomously, reducing the need for personnel topside. In all, Fuglesang’s subsea compressor is able to cut compression costs by up to 70%. As part of a previous project ADI Analytics has researched subsea compression for an integrated oil and gas major performing a technology assessment and profiling projects using subsea compression worldwide.
Subsea separation is another emerging technology that can reduce inefficiencies. Like subsea compression, it can save space on the surface by moving processes to the ocean floor. Additionally, it has the potential to increase recoverable reserves and accelerate production. However, the industry has been slow to adopt subsea separation. Of the ~5,000 subsea wells only five projects are using subsea separation to a significant degree. While subsea separation projects have been overall positive to date there are several hurdles that must be overcome before there will be industry wide adoption. One of the largest hurdles is the perception of added risk stemming from having equipment subsea. Additionally, reducing complexities in current systems and further standardization of subsea separators will help drive further use.
Some companies are using completely new techniques to reduce offshore costs: Wild Well is using a new plug and abandonment technique for subsea wells than what has traditionally been used. Wild Well is using a riserless intervention system in combination with a proprietary tool to essentially “undrill” the well versus the traditional method of cutting and pulling casing. The new technique claims to be able to reduce plug and abandonment costs by 50%. Figure 1 highlights a few cost cutting technologies and techniques that are available to operators.
Figure 1
Reducing costs is the key for operators to navigate low oil price environments. New technologies and techniques ranging from advanced subsea compression systems to simplified offshore platforms offer operators the chance to reduce breakeven costs to make many future projects profitable, even in low price environments. ADI Analytics has sized several offshore markets and conducted technology and cost assessments on current and upcoming technologies. For more information about our capabilities please contact us.
-Tyler Wilson and Uday Turaga
