Facing up to the new realities
  from: Asian Oil & Gas
  by: Rick von Flatern
  Friday, October 27, 2006

For majors and large independents, the magic 100% reserves replacement figure can rarely be accomplished through new discoveries alone but must include acquisitions and, more recently, increased emphasis on significant improvement in reserves recovered. Rick von Flatern spoke with the industry's three largest service companies in an effort to separate marketing buzz from an emerging production strategy known as 'production optimization'.

The upshot was service companies that once specialized in logging or cementing or packers or drill bits or some combination thereof became fully integrated, offering products for nearly every discrete E&P operation from seismic to production.

These service giants marketed themselves as 'one-stop' shops offering clients supermarket-like convenience, efficiency and volume-based cost-savings. Further, they reasoned, by offering so many critical products under one umbrella contract, a practice known as 'bundling', companies were better able to serve clients entering remote environments by having all their needs on hand while at the same time eliminating incompatibility problems between different suppliers.

But in practice, bundling rarely lived up to its billing. Early on, competitors learned to make their products compatible with each other. And operators tended to discount claims and some evidence that a single manufacturer of closely related parts such as directional tools and bits delivered better results. In time, the only dividend of bundling was to operators who were able to negotiate price advantages for volume buying.

More importantly, bundling tended to concentrate on packages based on relatively narrow hardware requirements as defined by operator plans without much consultation with suppliers. But things may be changing as operators move from single well solutions to longerterm, wider goals of improved recovery, says Dr Guy Vachon, head of Baker Hughes's months-old production optimization arm, ProductionQuest.

'If we want to go to the next step and transition from a provider of goods and services to our clients to being a partner in the production of their reserves, we have to do more than give them the bits and pieces and leave it as an exercise for the user to put them together,' he says. 'And ProductionQuest is our direction for that endeavor.'

Today, the industry's largest service companies roundly say they are taking bundling that next step. Halliburton, Baker Hughes and Schlumberger have all created distinct divisions under the heading of Production Optimization. And though the three giants have slightly different takes on the subject, their arguments for creating divisions devoted to the new strategy all revolve around deployment of completion technology with an eye on the reservoir, longer field life and, most importantly, increased recovery.

'Bundling is efficient in terms of dollars and time when the right matches and synergies are made and so can be seen as a production enhancement technique,' says Jim Renfroe, senior vice president of Halliburton's production optimization division who describes his group's guiding principles as simplified, reliable and efficient solutions for complex well problems. 'But without production optimization technologies it may be that an entirely different completion, less economic or more complicated or simply less efficient, would be chosen.'

International operating companies, he says, are also more concerned with improved recovery because so much of the remaining reserves around the world today are in the hands of national oil companies. IOCs therefore are seeking to 'extract the incremental barrel beyond what they traditionally have and push the limits of technology which is compelling them to drill more complex wells, not just an offshore issue but on land too.'

Schlumberger says its production optimization group, located intellectually and physically in its 'Production Center of Excellence', grew from a realization that as modern completion techniques become more complex they generate more data than the operator can handle, a particularly troubling point in cases where the full value of that data is realized only when acted upon in real time.

'One of the challenges in the industry today is you have sensors in high producing, expensive wells, down hole and on topsides to make sure everything is under control and that generates huge amounts of information,' says Pedro Navarre, Schlumberger's real time production optimization business development manager. 'And what we have seen is operators are not using all that information because there is no time. By the time you go through all those numbers it is too late. We transform that information to help operators make decisions.'

It's the economy stupid
While best engineering practices all eventually boil down to finding ways to attain the best performance for the least cost, it seems a guiding principle especially applicable to production optimization. Offshore, where formations are most often unconsolidated, sand control is a primary, if often expensive and rig time-consuming, technology. Reducing these costs and the associated risks can be key to lower economic limits and thus improved recovery rates.

'One of the things the operators are really pushing, as are we, is to eliminate rig costs by doing more with fewer trips in the well bore,' says Halliburton product manager for sand control, Tommy Grigsby. 'Where we are headed with our sand control technology is to simplify the system to allow us to deploy it at deeper depths with enhanced capabilities. In the deepwater market we are preparing to deploy an enhanced single trip multiple zone tool system that will allow fracturing multiple zones in a single trip rather than in a stacked pack mode where the vessel is there and goes away and comes back.'

Too, he says, his group is making conventional frac pack technology viable in the ultra deepwater areas of the Gulf of Mexico, where total depths have today reached 30,000ft, by extending the performance envelope of frac pack service tools to enable higher treating rates and increased total proppant placement.

Also in ultra deepwater, operators are now finding themselves having to deal with the complexity imposed by drilling horizontally through low permeability formations holding heavy oil. Halliburton's response to these less than optimal circumstances for perforating, stimulating and sand control is its 'SurgiFrac' service.

Using a gunless perforating technique of eroding the casing with pressure and sand, this fracturing technology holds another distinct advantage in that it does not require packers to isolate the treated interval. Instead, the physics of the localized pressure system are such that more pressure is generated into the fracture point that in the surrounding well.

'SurgiFrac combines the best of both worlds of horizontal wells and fracturing,' says Halliburton sand control product manager Harvey Fitzpatrick. 'Operators drill extended reach to get a lot of reservoir exposure and then sequentially along that lateral they add these fracs to further enhance production using this perforating and fracturing process.'

The added challenge, he says, is to roll it all into a package that can be run into such depths and fracture while placing a sand control pack. In Brazil, he reports, the feat was accomplished using a resincoated proppant for sand control, and SurgiFrac to create the fractures in horizontal wells across numerous intervals in a single trip.

And, Fitzpatrick says, in deep reservoirs in which downhole pressure requirements create pressures beyond the surface discharge line's burst rating, the company has turned to their in-house chemists to develop a weighted fracture fluid it has dubbed DeepQuest, that increases hydrostatic pressure so surface pressure can be reduced without sacrificing bottom hole pressure. The upshot is fractures have been performed offshore at 25,000ft and 30,000ft TVD using standard surface equipment and which could not have been done at all otherwise.

'Without the weighted frac fluid the operator would have had to choose a different completion scenario,' says Renfroe, explaining how such technologies fit into the category of production optimization. 'And it would have been a less efficient, more risky and less effective choice.'

Using single trip technology to treat numerous zones means a lower well count in the field, adds Halliburton's Bruce Techentien, which greatly reduces overall development costs and allows operators to economically tap smaller reserves deposits that otherwise would have been left stranded or behind pipe. Moreover, he adds, operator quest for improved return on investment, ie more production per well bore, are best served through efficient completions and minimal rig time and interventions. Again, he says, innovation driven by simplification is the answer.

'One way in which we address this is through a hydrostatic set packer set on production string without the need for intervention plugs,' says Techentien. 'The original concept was the disappearing plug but the hydrostatic packer allows us to simplify even more.'

As the packer is set when hydrostatic pressure ruptures a disk, no intervention is required, a particularly attractive feature given the complexity of some of the newest, most expensive fields around the globe such as Sakahlin Island where its long reach horizontal configuration means traditional systems can only be activated by coiled tubing.

'Again, the hydrostatic pressure activated packer ties into production optimization because it reduces capex and risk,' says Techentien. 'It is an example of simplicity and reliability.'

In the Gulf of Mexico, as in the North Sea, a high density of mature fields on the shelf have attracted independents anxious to implement a business model of buying what their larger brethren no longer find worth spending resources on. In response, says marketing communications supervisor Walt Glover, Halliburton has put together under its production optimization group a package that includes lift boat, electric and slick wireline, coiled tubing and pumps for a single price.

'What you get is everything you need to move on to these wells and do a recompletion or workover and put them back on production,' he says. 'You also get a dedicated crew and the engineering required to implement the jobs. Except for materials it is essentially turnkey.'

Sum of the parts
Baker Hughes, through its distinct divisions, has long been a company concerned with production, says Guy Vachon, and so the concept of production optimization is a natural fit.

'We think we have a unique angle and perception on production optimization,' he says. 'Baker Hughes is about the production end of the business and it is an end of the business in which we are dominant. Baker Oil Tools is the standard for completions as is Baker Petrolite for production chemicals and flow assurance in production tubing and the pipeline. We are the only major service company that has a flow assurance division. And then for artificial lift, the leader in ESPs, by dollar volume and volume of fluids lifted, is Centrilift.'

But in taking the view that separates a production optimization effort from that of being merely manufacturers and suppliers of completion and production equipment, Vachon says Baker Hughes needed to enhance its well bore monitoring capabilities. It did have an intelligent completions offering, he says, that included real time pressure and temperature monitoring, but because that technology did not fit particularly well in the core competencies of any of the company's divisions it was not fully embraced by any of them.

That gap has been filled, he says, by the company's acquisition of Quantex, a 2003 joint venture between Baker and Expro, Luna Energy and Nova Technology. Together these three companies form the well monitoring segment of Production- Quest.

The emphasis on monitoring derives from ProductionQuest's emphasis on smart fields, a concept that has been discussed widely and continually for nearly a decade but that has seen little concrete progress. The lag between talk and action, Vachon thinks, is a result of what the literature often refers to as the reservoir-centric slow loop and the well-centric fast loop.

Closing the loop
In the 'slow loop', he explains, exploratory wells are drilled based on a reservoir model derived from seismic surveys. 'You drill your first three holes and you realize it doesn't look anything like what you thought,' Vachon says. 'But you learn a little and modify the plan and drill the wells a little differently and come to the production plan.'

That approach is called the slow loop because it takes months or years to close and the epitome of optimization in the slow loop is production of the final barrel from the final well, when the reservoir has given up all it can. To be able to close that loop requires an enormous amount of systems and skills and is best suited to large integrated oil companies.

'We believe there is more accessible benefit in going after the "fast loop" because once you drill a well the reservoir becomes an externality,' he says. 'It helps to understand it but you cannot move the hole around once it is there. Therefore, you put the well in with a plan and measure what is coming out and see if that is what you expected and eventually it will not be and you have to do something about it.'

The epitome of the fast loop then is the ability to address production problems without an intervention through intelligent completions, says Vachon. Wells can be opened or choked in real time and intelligent ESP performance can be changed from the surface without the cost or risk of traditional intervention. Through monitoring, chemical treatment and injection can be changed in real time for flow assurance.

'The loop can be closed in minutes or hours at most, says Vachon. 'But in order to do that you have to bring together all those skills. You have to configure the completion, artificial lift and flow assurance and most importantly you have to be able to measure parameters in the well bore.'

Besides providing the necessary gages and flow meters and other products necessary to for customers to monitor their wells, ProductionQuest also contains an 'optimization solutions group' whose job is, in Vachon's words, 'first, in the near term, concentrate on the customer's problem and then leverage the larger Baker Hughes portfolio to offer technology required to address it.'

But in production optimization, the technology offered is not just a matter of bits and pieces to solve a present problem but solutions aimed at all the interdependent parts of the completion.

'When the reservoir changes you think of changing chokes so you have the right contribution from each zone,' Vachon says, describing his vision of a production optimization approach to changing well conditions. 'But now you have adjusted the chokes and changed the volumes and weights of fluids coming in. Water cut changes, maybe less fluid or heavier fluid, which means the ESP is looking at a different job than when first installed.

'So we are going to adjust the settings on the pump from the surface to accommodate the new flow regime but then the pressures change and maybe you are depositing scale but we know enough now about the reservoir that we are altering the combination and rate of chemicals.'

Baker Hughes began addressing the idea of a production optimization group in principle in 2005, brought Vachon into the group in January 2006 and launched ProductionQuest in May. Like everywhere in the oil industry today, staffing is a specific challenge at the moment. The division currently has a staff of about 280 but aims for 320 production and reservoir engineers, field personnel and project managers by year end.

Vachon has also been responsible for developing a curriculum with which to build on people's knowledge of completions, artificial lift, well monitoring and reservoir engineering and chemical flow assurance. 'Each of those provide rich broad careers on their own,' he says of the difficulty of bringing in rounded professionals. 'And now I want someone who knows all those things. I need renaissance engineers.'

Data, data everywhere
Marc Pearcy, solutions manager at Schlumberger's Production Center of Excellence says it is indeed a 'physical location but is really about the people. The center is a knowledge hub of experts assembled to focus on production optimization and we have developed a certain methodology that allows us to formulate optimization routines on flowing data coming from the well site'.

Traditionally data taken at well sites are stored in operators' offices. It is the center's goal to acquire that data as it comes from the field in order to translate it into actionable information in the shortest time possible. According to Pearcy, over the past two years the strategy has increased client production by about 18%.

'About half that increase in production comes from optimization of the lifting system,' he says. 'Whether it be through some mechanical lifting like ESP or adjusting some parameters in the plumbing of a flowing well or gas lift, it is optimizing the way fluid is lifted. The other 9% comes from optimizing reservoir behavior.' Optimizing reservoir behavior, according to Schlumberger, means determining what if anything can be done to increase production and be certain, says Pearcy, 'that the reservoir is giving up as much fluid as possible and the tubulars are lifting as much fluid as possible. Finding and correcting such things as near wellbore damage or even re-perforating a zone experiencing a pressure drop or remediating a gravel pack that is experiencing a pressure drop all are part of optimizing reservoir behavior.'

The key function Schlumberger brings to the table, says Pearcy, is the ability to process and interpret extreme volumes of data available from today's wells. 'We really act as a support function for our clients,' Pearcy says.

'We are doing the type of work that turns all this data into information they can make decisions on.'

Today, Schlumberger reports a large part of its production optimization business is ESP wells in which it uses proprietary software called espWatcher that gathers large volumes of data from many wells in a field and distills it to choose the dozen or so wells needing attention on that day.

And while much of what the company is offering has to do with fixing older wells, the Solutions Group says the best time for it to become involved is very early in the life of the well, at the time of completion being optimum.

'The solutions we are giving you now is the new face of production optimization,' says Schlumberger Gulf Coast solutions manager, Lumay Viloria. 'The classic face of production optimization is one in which you are helping in new wells by assigning the best completion for that well. But the new face uses real time, high-density data to provide to the client a short cut to make decisions and a completion optimization.

'It is part of a complete process and we do for the client as much as they ask. Sometimes we just prepare the data for them to use and sometimes we do everything for them. In our group we sometimes optimize the completion design and sometimes we send our information to our simulator or the client simulator and they do the field development based on that.'

The staff of the Production Center of Excellence, says Pearcy, is 99% from service backgrounds, production and reservoir engineers with experience in one of the Schlumberger field service divisions.

Just as they use espWatcher software to optimize artificial lift, Schlumberger uses a second proprietary program called ProductionWatcher to check whether companies are optimizing production on flowing wells. Onshore the latter is most often applied to brown fields but offshore the target is more likely a new deepwater well or recent development in which stakes are high and operators are anxious to bring to bear every production tool available.

'Offshore it is being used on new wells for sure and you can also use this to make changes to already developed fields,' says Navarre. 'We have one client with a couple of fields with lots of data and they were not able to manage that data. So we took over that and did the data analysis so they could manage their wells and keep them under control.'

In deepwater especially, taking full advantage of available data can not only maximize production but also eliminate risk-laden and costly interventions. 'Operators want to pull as much as they can from those wells without damaging them so they need to keep an eye on those parameters to avoid things like sanding collapse or completions collapse,' says Navarre of ways in which his clients use ProductionWatcher.

'So we put together some indicators that the operators can use to manage those wells and find out if they need to slow down in that particular one or pull harder.'

Original or retread
Maximizing recoverable reserves, particularly in deep and ultra deepwater, inevitably translates to more complex wells, extreme depths, temperatures and pressures as well as huge volumes of data from more, increasingly sophisticated monitoring sensors. In essence, it is the management and leverage of all these factors that is Production Optimization.

It remains to be seen whether this new approach as envisioned by service companies and which bears so many similarities to earlier industry initiatives of alliancing, bundling and partnering, will take hold as a discrete service. But where those essentially past strategies are based almost solely on reducing costs, production optimization is driven by a very different industry priority: upping recovery rates significantly. 'While up to now there has been a lot of emphasis placed on finding and describing reserves, most of what is to be found has been found,' says Baker's Vachon.

'And there is a lot more work left in producing discovered reserves than there is in exploring for new ones. So the relative importance of production is going to increase.' AOG

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