Upstream IT Roadmap

[Former Member]

The upstream energy market is facing difficult times. Reserves have become more difficult to locate and more expensive to develop. As a result, oil and gas companies have placed more emphasis on managing assets and streamlining business processes to maximize profitability. Production, asset and operations managers, as well as engineers, require access to comprehensive oil and gas well information, performance constraints, benchmarks and service providers to reduce costs and increase production uptime. Oil and gas executives also need access to real-time asset performance information and benchmarking indicators in order to optimize portfolios through asset management and divestment decision data.   Finding and producing oil and gas in the most efficient, reliable and affordable way possible is the core mission of the upstream oil and gas industry. The challenge is to fulfill this mission in an intensely volatile market environment-one marked by unpredictable price fluctuations, costly and onerous regulations, intense competition, mergers and acquisitions, and ongoing pressure to address health, safety and environmental concerns. Success in the upstream business demands large investments of capital, ingenuity and agility in exploration and production, and strategic cost containment. To meet these demands, upstream companies in the early 1990s focused on reorganizing their operations, reengineering their business processes and investing in new technology. In the late 1990s, they moved toward consolidation. Large-scale mergers and acquisitions and joint ventures abounded as upstream companies sought to create synergies, gain economies of scale and increase shareholder value. While consolidation continues today, oil and gas executives are exploring other strategies to improve the bottom line. Finding it increasingly difficult and expensive to manage every business function, upstream companies are handing non-core areas of their business, including finance and accounting, through IT.  Oil and gas companies invest billions of dollars every year and generate terabytes of data during seismic exploration and processing. Yet, usually only one of ten wells drilled yields oil. To improve this yield, the industry started exploring 3-D seismic imaging in the mid-1970s. However, computing costs-even for the rich oil companies-were prohibitive then. (One Megabyte of memory used to cost $5,000 in 1975.) 3-D imaging was rendered more affordable over time because of the continued downward trend of the cost of computing and storage.  According to the U.S. Department of Energy, the average cost of finding new oil fell from $12-$16 a barrel to $4-$8. Some companies did it for about 65 cents per barrel in 2000! The cost of analyzing a 50 square-mile survey dropped from $8 million to $90,000. It is paradoxical that, as oil supplies are dwindling and it is becoming increasingly harder to find oil, the cost of finding it is getting cheaper. This can only be attributed to more sophisticated technology and downward spiral of computing costs.  With seismic data, a 20 square-mile survey can easily generate 800 GB of data. Thus, the industry is always seeking for proven, mature, high-performance, scalable, reliable, open platforms that can support massive amounts of data storage.  An oil company's typical business requirements are to: - Manage mission-critical and voluminous data. - Provide disaster recovery. - Make sound drilling decisions by avoiding dry wells. - Reduce total cost of ownership.  Upstream Software includes Land & Lease Management, Division Order, Volume Management (FDC, Production Allocation), Production & Revenue Accounting, Gas Marketing, Cost Accounting (JIB, AFE, FA), Core Financials (GL, AP, AR), and Lease Operating Statements. The functionality within each module was can be designed based on the requirements and best practices. The extent of automation and workflow throughout the systems & modules enables oil & gas companies to more efficiently manage growth without comparable increases in operational and administrative costs. All modules can have extensive security, workflow configurability and process controls necessary with the increased demands of the Sarbanes-Oxley era.  Upstream oil and gas assets must be managed in order to optimize project efficiency and profitability. Integration must be built into the three necessary aspects of project management, which are:  - clearly defined scope,  - project execution plan (PEP) and  - ability to manage change.  A scope statement defines the job and will therefore help to keep costs low and minimize schedule duration. The PEP defines how the job should be accomplished and must include contingencies for all project activities. Because change can be good or bad, depending on how it is managed, the ability to manage change must be built into projects from the beginning.  One way to know whether any project can be improved is to create a snapshot of before and after conditions. A Field Optimization Study (FOS) does this. Previously conducted FOS studies indicate that improvement of production facility operations can lead to increased production, more efficient produced water handling and realization of significant profits. The best candidates for these studies are large or complex mature fields where more than 75% of the recoverable reserves have already been produced, present production is less than 25% of peak production and minimal workovers have occurred. Potential improvement through FOS is typically 4-6% for production and 20-22% for costs.  Management of portfolio of assets, and balance between minimizing risk and maximizing returns is the key to the success of any upstream oil and gas company. For growth to take place in an upstream oil and gas company, petroleum reserves must be ideally replaced faster than it produces them. Acquiring existing petroleum reserves or finding and developing new petroleum reserves are two ways of achieving this. How to achieve petroleum reserve replacement by finding new reserves is key focus of Exploration and appraisal activities. Management, geologists and  geophysicists, and engineers are key players involved in these activities. IT plays a key & integrated part in this process