Drill cheaper – or not at all

24.06.2016
The old saying that necessity is the mother of invention has been confirmed again by the present slump in the petroleum industry. In any event, wells are the key to recovery – some­thing the biggest driller on the NCS is painfully aware of.

| Bjørn Rasen

Photo: Statoil

Turnkey.
Statoil is now awarding turnkey contracts which make a single contractor responsible for a complete well delivery. A typical package covers all completion, well services and mud/fluid treatment.
(Photo: Statoil)

 

Boreholes are and will remain the petroleum sector’s Achilles heel, and its biggest cost. How Statoil, operator for some 80 per cent of the NCS portfolio, intends to drill enough – and more efficiently – in a low-price regime is therefore an interesting question.

Geir Tungesvik, senior vice president for drilling and well at the company, emphasises that these activities account for a quarter of its costs.

“We were worried last year whether the oil price would fall below USD 60 [per barrel],” he observes. “Right now, I’m glad it’s over USD 30.” [Prices have since risen about USD 15.]

But his brow was also furrowed when oil prices topped USD 110 per barrel about three years back. “That price level and the excessive costs we saw prompted us to launch an improvement programme in 2013,” he says.

The aim was to boost efficiency and get more out of Statoil’s capacity at a time when the market was tight, rigs were in big demand and order books at the yards were full.

 

Geir Tungesvik, senior vice president for drilling and well in Statoil

Improvement.
Geir Tungesvik, senior vice president for drilling and well in Statoil, says the company has had a good response to its improvement initiatives from the whole supplies industry.
(Photo: Statoil)

 

Action

“So we were already taking action when oil prices dropped like a stone,” says Tungesvik. “We’ve used a reference from 2013 in the form of our Step programme.

“That was a good initiative until improvement halted and we’ve concentrated solely on measures which really had an impact on the bottom line. One of these was end-to-end delivery.”

This commitment yielded results, he reports, with metres drilled per day up by 50 per cent for production wells. Days per well and costs fell by 30 and 20 per cent respectively.

“It remains to be seen whether that’s good enough with today’s oil prices,” Tungesvik acknowledges. “At the same time, we can report our best-ever safety results.

“So we haven’t forgotten that aspect. We’re applying the same medicine for working efficiently that we use to ensure safe operation.”

Asked whether he is passing the bill on to the contractors, Tungesvik says that he and his colleagues have had several rounds of discussions to find the breakeven price.

“If the cost per barrel exceeds the oil price, we have to call a halt,” he emphasises. “[But] I’m not interested in working with anyone who’s making a loss. That’s the worst possible position, because people then take short cuts. We don’t want that.”

He also recalls that vessel owners sought three-year charters, which left them on good rates. “Rigs and ships on long contracts are paid far too much in relation to today’s costs.”

In his view, a number of owners failed to take strong action when this proved necessary. He now wants to talk with contractors on how the work can be done in other and more efficient ways.

 

Technology

“We must first exploit the technology we already have, and then look at opportunities for a single company to do several jobs rather than many small firms doing one job each,” he says.

Tungesvik notes that a number of contractors want to offer turnkey packages. “Our response is OK, let’s do that. We’ve done it on Johan Sverdrup and Britain’s Mariner field. The next step is to put this approach to the test.”

A typical package includes all completion, drilling service and mud/fluid treatment. Tungesvik admits this has both advantages and disadvantages, and that not everyone likes such solutions. But they are being tried out in the hunt to cut costs.

Overall, he is reasonably satisfied with the improved efficiency of well and drilling work. The most critical elements he wants to do more about are logistics and downtime.

These account for 30 and 20 per cent of costs respectively, he says. “We want to halve downtime. The key is that systems to work first time and that we avoid having to pull out equipment.”

 

Not idle

Statoil’s many drilling teams have not been idle, despite the downturn. They drilled 103 wells in 2014 and planned another 95 for 2015 – but ended up doing 117.

At the same time, the company has removed 10 derricks to cut costs. Tungesvik says improved efficiency has boosted the acceleration in production.

That has been worth an estimated USD 200 million to Statoil. But it is not enough. Work must become even more efficient, and errors have to be reduced.

The question is whether Tungesvik is being penny wise and pound foolish. His response is to ask what he loses by using standardised solutions.

“We’ve shown that we can get out more resources in this way. Reserves are growing faster. We’re not cutting anything in the reservoir, but may be doing things simpler on the way down.

“To get more out of the fields, I need to drill more cheaply if I’m going to be able to afford to drill at all.”

He adds that reducing the level of costs actually increases opportunities for improving recovery.

 

Perfect

Statoil has put together the perfect well from the best sections of reference boreholes. In theory, it should be almost impossible to do better than the sum of these sections in a single well.

But Tungesvik is seeking an improvement and something to strive for. “Getting 10-20 per cent better will help. We’ll be constantly trying to beat individual elements in these sections.”

He claims that Statoil actually achieved several wells last year which were better than the perfect case. But these are the exceptions.

In his view, it is more important that “we’ve breached the barrier and are delivering more stably. The NCS is where we drill the most, and the trend is now good. This is more a case of attitudes and efficiency than new technology for us.”

 

Response

Tungesvik says that the response to Statoil’s initiatives has been good, and that the whole industry “is fantastic in its ability to turn around.”

This means the breakeven price on the fields has already improved, he reports. “Narrow doors can be opened in bad times –ones which are shut when everything’s booming.

“That may permit collaborative efforts which weren’t possible before. In addition, though, we must undoubtedly have a little help from oil prices in the rather longer term.”

Statoil is planning just as many production wells in 2016 as it did last year. According to Tungesvik, however, the drawback is that these wells have yet to be approved by the licence partners.

He says that the number of exploration wells is likely to fall this year. “I need to find more gaps to close. The alternative is to halt projects.”

 

"To get more out of the fields, I need to drill more cheaply if I’m going to be able to afford to drill at all."