Innovation, Who Pays—Making the Economic Case for Adopting New Technologies

Abstract

Abstract Since the early 1980's hydrocarbon finding and development costs measured in $/BOE declined steadily reaching a low in the mid 1990's. This improvement in Capital Efficiency was driven by the adoption of technologies such as PDC bits, improved drilling fluids, and dual activity rigs, which help reduce costs as well as technologies such as horizontal drilling, and advances in well completion technologies which significantly improved well recovery. Additionally, advances in seismic and other exploration technologies significantly improved the exploration success rate and hence increased reserve additions. However, since the mid 1990's finding and developing costs have been rising steadily as the rate of discoveries and additions in mature basins decline and fields become smaller resulting in higher costs as more wells and infrastructure are required to exploit these reserves. Furthermore exploration and production activities have moved to ever more demanding regions such as deepwater offshore, and harsh environment areas such as the Arctic requiring ever more costly wells and infrastructure to develop resources in these areas. Technological innovation drove the improvement in capital efficiency realized during the 1980's and early 1990's. Since then the pace of technological innovation has slowed due in part to the desire to minimize technical and commercial risk as exploration and development activities move to these more demanding environments. The consequence of this is deterioration in capital efficiency. In particular the efforts to control costs have created barriers to the development and application of new drilling technologies which could significantly reduce the current 25 – 30% non productive time experienced drilling wells today. This paper discusses a phased approach to technology evaluation, development and adoption which seeks to minimize the risks, both technical and economic associated with applying new drilling technologies or innovations.