What a difference a year makes. As the summer months lay before us last year, the oil price had rallied from its $30 a barrel nadir of early 2016 but upstream operators were still wrestling with challenging margins as Brent crude sat south of $50 a barrel.
Now thanks to a miscellany of different factors, we find ourselves with a realistic expectation of the oil price cruising past $80 a barrel.
But the effect of the 2014 downturn, which saw 36% of oilfield services operators go the wall according to S&P Capital IQ and Deloitte analysis, is still being felt. The International Energy Agency’s (IEA) Offshore Energy Outlook reveals the oil price crash stalled numerous deep-water projects with final investment decisions (FID) put on ice, while a slump in exploration and appraisal drilling was a further inevitable outcome.
But things are changing. The oil price has had an uptick and according to the IEA’s findings, the impact of the crash has led to offshore operators “looking much leaner and fitter than they did before” as they have slashed their breakeven numbers.
Linh Austin, senior vice president, Middle East and North Africa at engineering, procurement and construction major McDermott agrees, “More FIDs are being signed as both national and international oil companies’ projects have now crossed the economic threshold and become financially viable due to the higher oil price. Whilst we are not back to the market conditions of five years back, there is a general improvement in terms of market optimism going forwards.”
Whatever the prevailing market conditions may be, offshore production is a necessity as global demand for oil and especially natural gas increases. The IEA estimates that, despite the recent headwinds, offshore production currently accounts for 25% of all oil and gas production and deep-water has accounted for half of all newly discovered oil and gas resources in the past ten years – the vast finds off Egypt and Cyprus being perfect regional examples.
Offshore exploration and production players have got leaner and the IEA puts some of this down to simplified project designs as well as standardised and downsized operations, but new technologies are also helping to impact a traditionally cost-intensive segment. Automation is helping to improve efficiencies and the perennial issue of health, safety and environment (HSE) concerns.
Christian Cravedi, senior VP & head of ABB’s oil, gas and chemicals business, IMEA remarks: “A structured way of using expertise and digital technology will improve operations in a way that reduces unplanned and unscheduled maintenance or equipment failure, which is also a significant safety hazard.
“A well-executed maintenance strategy using digital solutions can have savings in the order of 30%. Offshore platforms present a unique opportunity for innovation in the digital sphere as these remote areas require an incredible amount of automation.”
The key consequence of a tighter and more standardised offshore operation is that these fields remain competitive for longer when oil prices begin to wane. John Bright, business development director for global energy services provider Proserv believes, regardless of the specific oil price, operators look to maximise output and reduce overheads, “There will always be a requirement to increase productivity while reducing costs as it is with any business.
“The market continues to be competitive but also allows opportunities for new advances in technology, which can deliver cost and time savings along with improvements in HSE, while also maintaining the rate of production required. However, decisions to make large capital expenditure investment are continuing to be influenced by international oil pricing.”
But offshore operators are becoming increasingly resourceful in their attempts to streamline their processes and outgoings.
Cravedi points to the increasing use of big data analytics to aid predictive maintenance and comments that, “… small changes to improve performance can have a huge impact on margins,” while Bright has observed that operators are using technology to get the maximum from their assets.
“The oil and gas industry is dependent on innovation and intelligent solutions driving its sustainability, but also enhancing its future growth. There is a defined focus to continue with a rigorous maintenance and upgrade programme of the fields, as production has had to take the priority with low oil prices.
“Operators are now, more than ever, investigating and investing into rehabilitation and extending life of asset initiatives.”
Bright’s view is that there is not much ‘easy oil’ to tap and so with the complexity of new production sites, making the most of existing “brownfield” facilities is a priority: “No easy oil is the reason more organisations are look towards adopting the ‘life of asset’ approach. By maintaining what they have, operators can reinvest into the future prospect areas of oil, gas and renewables. Global oil pricing will continue to have a strong impact on offshore and deep-water investment; an oil rate in the range of $80–100 is required to justify the investment.”
Austin, however, refers to the fact oil has been extracted in challenging circumstances for years and solutions such as improved seismic reservoir technology will only aid the accuracy of exploration and appraisal drilling.
In fact, innovations such drones and robots are already assisting in the inspection of equipment in hazardous locations such as underwater or high up on an offshore platform. Cravedi sees further technological advances ultimately helping to increase reliability, aid viability and reduce HSE risks.
“Safety is a priority in remote areas where environmental factors can wreak havoc. One response to this risk is to make these platforms unmanned. We can sink operations into the seabed where we can provide compressor pumps and all relevant equipment, entirely submersed. The site is immune to storms.
“The future isn’t necessarily purely offshore or deep subsea applications but digital solutions have allowed us to tap into these resources in a much safer and sustainable way.”
