Guest Editorial: Needed: Radical Efficiencies

Abstract

Guest editorial During my 35 years in the upstream oil and gas business, I have seen firsthand the tremendous gains in efficiency, productivity, and cost reduction that the industry has achieved through innovation and technology. Drilling and completion times have been shortened dramatically, wells perform much better than they used to, we are drilling even-longer laterals, and we are able to operate in increasingly hostile conditions. As we have seen during the current downturn, these types of gains have been critical to survival for many operators. Despite our progress, we face a pressing need to close the sizable efficiency and productivity gaps that continue to hinder performance and value creation industrywide. These gaps limit profitability during growth cycles and exacerbate vulnerability during downturns. We must fundamentally change the way we operate to be sustainably successful going forward. The good news is that we have a very powerful tool in our arsenal to reset the bar in these areas. That tool is technology. It can lead us to what we at Baker Hughes like to call “radical efficiencies” in well construction and oil and gas production that will create a more profitable and resilient industry—one that is less vulnerable to the cycles and volatility we constantly experience. The Gaps To put context around the efficiency and productivity gaps that currently exist in our industry, we need look no further than hydrocarbon recovery factors. There are currently 1.5 trillion bbl of proven reserves globally. Yet average recovery factors are less than 30% across all operating environments, and less than 10% in deep water—shocking statistics. We are leaving a lot of value in the ground. Equally shocking is that, by some estimates, the industry is at best 50% efficient along the entire spectrum of E&P costs when nonproductive time (NPT) is taken into account. NPT continues to be one of the largest challenges facing operators. Although many gains have been made in this space, delving into the details reveals that the cumulative NPT, as well as the invisible lost time of all participants in a particular project, are significant. This takes into account the efficiency performance of all players involved in the value chain. What is more, performance may vary at the country or even basin level for similar customers or service providers.