Energized! #035

Friday, December 6th, 2019

Hello all,

Happy Friday and welcome to Energized, your weekly look into the geopolitics, news, and happenings of energy markets.

Before diving into this week’s content, we’d like to remind you to join our Energized LinkedIn Group. We will be releasing frequent news and snippets of Energized newsletters through the group. We hope to see you there. Also, if you haven’t already, visit our website to gain access to our free Oil 101 introductory course, our popular series of mobile-ready videos describing “How the industry works.” Ready for more? Check out our in-depth Oil 201 course which covers exploration, drilling, production, well completions, and refining. If your company or group is interested in Oil 101, let’s talk. We license our courses for use as internal training for sales, IT and operations teams. Think you know someone who would enjoy this newsletter? Pass it on! They can subscribe and access our Energized archives here.

Now, onto this week’s issue.

Energized!

Curated weekly oil and gas newsletter

Oil Prices and Markets

+ Fast Facts – Houston Chronicle “Fuel Fix”

Light, sweet crude (dollars per barrel): $ 55.17

Last Week: $57.77

Natural Gas (dollars per million British thermal units): $2.281

Last Week: $2.665

Rig count (United States): 802

Last Week: 803

Offshore Deep-Dive

2019 Review and 2020 Predictions

Towards the end of a year, it’s always interesting to look back on forecasts and predictions and see how accurate they were. Offshore drilling is mainly what this issue of Energized will focus on, as well as looking forward to the Offshore industry in 2020.

2019 was supposed to be the year that offshore turned it around, but 2019 began with some of the “lowest activity levels seen in 20 years,” according to a report by McKinsey. New project investments were initially expected to reach a value of $123 billion this year, but they only surpassed $50 billion in July. According to Rystad Energy, 15% of the $123 billion in investment was dependent on a breakeven price of $60 per barrel, meaning investment is highly unlikely as oil has been ping-ponging between $50 and $60 per barrel for the latter half of 2019. Additionally, projects that breakeven, when oil is in the $50s, may see their investments fall flat as that breakeven price is too close to the current price of oil to warrant the massive scale, logistics, and sheer capital needed to successfully hit forecasted targets.

To be fair, Offshore Magazine did feature Rystad’s prediction in June, that it would be another record year for offshore production, which we mentioned in Energized #10. But that’s production, not investment.

“In 2013, GoM oil production was 1.28 MMb/d, whereas in 2018 production averaged a record high of 1.79 MMb/d. Rystad Energy forecasts that 2019 production will average 1.95 MM/d, with some months potentially reaching 2 MMb/d.”

This production growth is mostly due to ahead-of-schedule oil and gas production from Shell’s deepwater Appomattox platform.

Rystad then updated its forecast in October, starting with the facts from 2018, “Crude oil production in the US federal Gulf of Mexico (GoM) averaged 1.8 MMb/d in 2018, setting a new annual record, according to the Energy Information Administration (EIA).”

Then moving onto 2019’s prediction: “Based on EIA’s latest Short-Term Energy Outlook’s expected production levels at new and existing fields, annual crude oil production in the GoM will increase to an average of 1.9 MMb/d in 2019 and 2.0 MMb/d in 2020.”

Then, Rystad trimmed their 2019 and 2020 forecasts in their most recent update…

“Joachim Milling Gregersen, an analyst on Rystad Energy’s upstream team, said: “2020 is expected to be another record year with average production above 1.9 MMb/d.””

So investment levels didn’t live up to the hype, but is that necessarily a bad thing? Maybe not if production levels are at a record.

“The strong production growth comes on the back of successive years of cost cutting in the Gulf. Total investments peaked at $30.2 billion in 2014. According to the consultant, they currently stand at less than half of that amount in 2019 and are projected to grow to $17.7 billion by 2022. Since 2015, development costs have decreased by 60% whereas opex are down 7% in the period.”

Another interesting point to note is that “the Gulf of Mexico has been the world’s second most prospective offshore region, trailing only Guyana. The collective resources discovered in the Gulf of Mexico over the past five years amount to 5.03 Bboe, with an estimated value of $1.9 billion.”

That being said, data from IHS Markit and offshore drilling giant, Transocean, tells a contrasting narrative.

According to IHS Markit, the worldwide offshore drilling marketed supply remains about the same as last year, but market utilization rates are up to 84.9% from 75.5% in 2018. While that sounds like good news for drilling contractors like Transocean who make money by leasing their rigs, crews, and equipment to operators such as ExxonMobil, Chevron, Total, Equinor, BP, and Shell, the company’s rig utilization stands at a mere 69%, significantly underperforming the broader offshore market.

Transocean Rig Class and Utilization
Rig Class	Used	Available	Utilization Rate
Ultra-Deepwater	18	28	64%
Harsh Environment	12	14	86%
Midwater Floaters	1	3	33%
Total Fleet	31	45	69%

Data Source: Transocean Rig Status Report October 2019

As you can see from the above chart, Ultra-Deepwater makes up the majority of Transocean’s fleet but has a poor utilization rate of just 64%. That’s partially because Ultra-Deepwater is built for environments like the U.S. Gulf of Mexico (GOM), which has the lowest marketed supply (42, or 6.5% of the overall market) of any region and one of the lowest overall utilization rates at just 78.6%. Compare that to the Middle East, which has a marketed supply of 157 rigs and a utilization rate of 87.3%, or Northwest Europe with a marketed supply of 75 and a whopping 89% utilization rate, and it feels like Transocean is in the wrong market.

For reference, the worldwide total supply of offshore rigs is 758, the marketed supply is 647, marketed contracted is 549, so the marketed utilization rate is 84.9%.

Transocean Rig Utilization by Geographical Region
Norway and the UK North Sea	11
U.S. Gulf of Mexico and Canada	10
Australia and Asia	4
South America	3
Africa	3
Total	31

Data Source: Transocean Rig Status Report October 2019

One of the reasons for the lack of major investment in the Gulf of Mexico is competition from less costly alternatives available in mature fields like the North Sea, which is dominated by Norway and the UK. As you can see, Transocean’s harsh environment rigs are doing just fine, of which all 12 that are in use are in the North Sea or Canada.

The main problem for Transocean is simple. 28 of their 45 rigs are ultra-deepwater, and that’s just not something the offshore market is using as much right now. Comparatively, almost all of their harsh environment rigs are in use, which makes sense given the North Sea’s high 89% utilization rate.

In early September 2019, the number of onshore operating drilling rigs in the United States fell below 900 for the first time since 2017. Today, the rig count is barely above 800.

As we report in every issue of Energized, the Baker Hughes Rig Count acts as a yardstick for onshore drilling contractors, but don’t let it affect your analysis of a pure-play offshore driller like Transocean.

Main Takeaways

Offshore production is at a record high in 2019, set to finish the year around 1.9 MMb/d.
Offshore production was originally poised to set another record in 2020, but Rystad trimmed its October forecast from 2.0 MMb/d down to 1.9 MMb/d in November.
Offshore investment, especially in the U.S. Gulf of Mexico, is not doing that well, significantly underperforming other regions.
Mature fields like the North Sea and offshore operations in the Middle East are utilizing the vast majority of offshore rigs, (primarily Harsh Environment rigs in the North Sea).
While the U.S. Gulf of Mexico shows promise for production growth, drilling contractors like Transocean with majority ultra-deepwater fleets are struggling due to increased oil recovery and competition from mature fields that have more rigs and higher utilization rates.

+ Water, Water Everywhere…– World Oil

“Every barrel of Texas crude oil produced yields over 6.5 bbl of water with it. As oil production has risen, managing massive volumes of produced water is ever more challenging. A new Texas Alliance of Energy Producers white paper tackles the issue, to ensure that future energy development is not constrained by water issues.”

Exxon is one of the most innovative companies. But it still (mostly) shuns renewables – The Wall Street Journal

In late November, Exxon was listed in fifth for innovation in the Management Top 250 ranking by the Drucker Institute at Claremont Graduate University. As the only nontech company in the top five, Exxon got the award largely for its patents and efficiency improvements to its oil and gas operations. Unlike other supermajors that are divesting away from oil projects and into natural gas, liquefied natural gas (LNG), and renewables such as wind and solar, Exxon is mostly sticking to what it does best by making oil and gas more profitable and less harmful to the environment.

According to Exxon, the company’s efforts on carbon capture and storage (CCS) have “accounted for more than 40 percent of cumulative CO2 captured” since 1970. CCS technological innovation is a way for oil and gas companies to participate in reducing greenhouse gas emissions while still dealing in the business of hydrocarbons.

CCS and other environmental efforts are important for Exxon since it is betting big on the future of oil and gas, and thus will benefit from proving that it is dedicated to a sustainable energy future.

Then article was a real surprise, even to EKTi founder and president, Marty Stetzer, “In my 13 years with Exxon, I saw numerous innovations in project management and process engineering, but I had no idea of the scale of this investment. According to the article, Exxon has invested $ 16 1/2 billion in R&D since 2000, that’s astounding,” said Marty.

Petrobras starts up fourth FPSO of 2019 – Offshore magazine

“This is the company’s fourth start-up this year offshore Brazil following the earlier operations at P-67 (Lula field), and P-76 and P-77, both on the Búzios field.”

“The P-68, stationed 230 km (143 mi) offshore Rio de Janeiro State in 2,280 m (7,480 ft) water depth, is engineered to process up to 150,000 b/d of oil and compress up to 6 MMcm of natural gas.”

Have a great weekend!

-Danny Foelber

EKT Interactive Managing Editor

Energized! #030

Friday, November 1st, 2019

Hello all,

Happy Friday and welcome to Energized, your weekly look into the geopolitics, news, and happenings of energy markets.

Now, onto this week’s issue.

Energized!

Curated weekly oil and gas newsletter

Oil Prices and Markets

+ Fast Facts – Houston Chronicle “Fuel Fix” as of Sunday, October 27th, 2019

Light, sweet crude (dollars per barrel): $56.66

Last Week: $53.64

Natural Gas (dollars per million British thermal units): $2.30

Last Week: $2.32

Rig count (United States): 830

Last Week: 851

Upstream

+New innovations touted to give shale oil a boost – Houston Chronicle

“The U.S. shale boom is at a tipping point as it struggles to profit amid weaker oil prices, but the industry is leaving tens of billions of dollars in the ground each year with wells that aren’t nearly efficient enough.”

If you’re interested in the shale plays, I would give this article a read. It’s the result of an analysis of 80,000 drilled wells in the Permian. “Better well designs coupled with a greater understanding of the shale rock and fluid movements underground could boost efficiency levels by about 20 percent, representing almost $25 billion in annual savings for the U.S. shale sector, said Scott Sanderson, a principal in Deloitte’s oil and gas strategy and operations practice.”

Speaking of Deloitte, here’s the report the Houston Chronicle alluded to:

+ How the shale revolution is reshaping the US oil and gas labor landscape – Deloitte Insights

“Not only has the shale revolution transformed production in the US oil and gas industry, it is reshaping the composition of the industry’s workforce in ways that will fundamentally redefine tomorrow’s oil and gas job opportunities.”

“This article delves into the two subsectors—exploration and production (upstream) and oilfield services (OFS)—and analyzes the overall employment trend over the past 15 years. Our analysis, covering the three phases of oil price movements and the progress of the shale revolution, indicates that the structural changes in the sector have had significant implications on employment, demand for different kinds of skilled professionals, and wages across occupations, although to varying degrees. Nonetheless, the past may not be the best prologue to what lies ahead, given the uncertainty around how the labor market will likely shape up in the future as the sector adopts new technologies to increase well productivity and change cost structures.”

Excellent analysis by Deloitte and worth the read.

The article is broken into three phases.

Phase 1 (2003–2008): The beginning of the US shale revolution

High oil prices, high employment, high capital expenditures, high demand from developed and developing nations. High oil prices as a result of depleting conventional reserves. The shale revolution was motivated by the need for more reserves.

Phase 2 (2008-2014): Big focal shift in the shale revolution and employment trends

Strong employment, strong investment growth, shift from shale gas to shale oil. US crude oil production soared and grew at the fastest pace between 2012 and 2014.

The great recession caused job loss in 2008-2010 but rebounded in 2010 as oil prices revived and stabilized.

“Wages paid to the highly and mid-skilled professionals grew much faster than the overall US industry average, especially during the global financial crisis. The annualized wage growth for highly skilled professionals increased 4.9 percent in 2008–2010, almost twice the overall US industry annualized wage growth of 2.5 percent.”

Phase 3 (2014–2017): The oil downturn and shale’s responsiveness to oil prices

layoffs, year-over-year price declines. Both shale drilling and production recovered their losses from late-2016 after the oil price stabilized above US$50/bbl. Loss of oilfield services jobs, growth in downstream jobs.

“The third phase saw the longest and one of the deepest downturns in oil prices. Three consecutive years of decline led to the slashing and deferring of investments in areas deemed expensive to drill and develop.”

“Although there was always a need for shale companies to become capex light and production efficient, the oil price downturn compelled them to adopt new technologies and focus on the best resources to strike a new balance in the equation.”

“Higher productivity stemming from technology gains and a better understanding of the resource base may cap employment growth. Nonetheless, technology and automation will likely help companies create unimagined, new, and unique work profiles.”

+Drilling and production outlook market report – Spears&Associates

“The Drilling and Production Outlook (DPO) is a quarterly forecast of rig activity, wells/footage drilled and spending through 2025 for more than 50 countries. It is used by oilfield equipment and service companies as an important planning tool for future sales, marketing and manufacturing efforts.”

“Global oil demand growth has slowed, but the supply outlook remains constructive.

US oil production growth slowing
Saudi Arabia cutting output
US sanctions reducing oil exports from Iran”

“The OPEC+ group is expected to continue to curb output into 2020 in an effort to keep global oil inventories near normal and support oil prices. Pressured by their investors, US operators are expected to focus on profitability over volume growth and exhibit a high degree of capital discipline going forward, resulting in a 10% decline in US drilling and frac activity in 2020.”

“Conversely, exploration and new field development activity in markets outside North America is expected to grow 4% in 2020 as IOCs and national oil companies cautiously step up investment in order to maintain oil production capacity. ”

Source: Spears & Associates

Offshore

+ Eni highlights 2019 exploration track record – Offshore Magazine

“Eni delivered six offshore discoveries as operator during the first nine months of the year.”

Location of the five recent discoveries in block 15/06 offshore Angola. (Courtesy Eni)

“According to the company’s latest results statement, three of the finds were in block 15/06 off Angola, bringing the number of new fields proven since exploration resumed on the block last year to five.

Eni estimates the cumulative resources at 2 Bbbl in place.”

+U.S. coast guard responds to three spills – The Maritime Executive

“The U.S. Coast Guard is responding to an oil sheen in Breton Sound, Block 37, Louisiana. It is just one of three spill responses underway on Monday. The three-mile by 10-mile sheen originated from a damaged and inactive wellhead owned by Texas Petroleum Investment Company (TPIC). Currently, the well is intermittently discharging a mixture of oil, water and mud. The cause of the damage to the wellhead is unconfirmed and is currently under investigation.”

“5,000 feet of boom has been deployed on the northwest corner and south of Breton Island. So far, there are no reports of impacted wildlife.”

The coast guard also investigated a sheen in Virginia, likely a petroleum product, as well as an “oil discharge in Pass A Loutre Wildlife Management Area, Louisiana, where crude oil is leaking from a storage tank owned by Whitney Oil and Gas. The maximum potential for the spill was estimated to be 2,520 gallons, but the discharge was contained before all the contents of the tank entered the water.”

+ Somalia says Shell, Exxon agree to pay $1.7 million for oil blocks lease – Reuters

“Royal Dutch Shell and Exxon Mobil have paid $1.7 million to Somalia to lease offshore blocks for 30 years, the country’s state news agency reported on Friday.”

Climate Change

+ Exxon hid “catastrophic” climate prediction, state suit says – Bloomberg

ExxonMobil “was sued by Massachusetts for allegedly hiding its early knowledge of climate change from the public and misleading investors about the future financial impact of global warming, two days after a trial started on similar claims in New York.”

ExxonMobil finds itself in the cross-hairs in response to a “205-page complaint” filed last Thursday. The Massachusets complaint comes on top of a “suit filed a year ago in New York by alleging Exxon misled the general public as well as shareholders by concealing the looming crisis.”

So where does the “catastrophic” quote in the headline come from? “Exxon went so far as to disregard the findings of one of its own scientists, who decades ago correctly predicted the amount of CO2 in the atmosphere in 2019 and said that climate change would become “catastrophic.”

Massachusets Attorney General, Maura Healey, has been investigating Exxon since 2016 and “claims Exxon’s actions violated the Massachusetts Consumer Protection Act.”

This suit will be a story to watch. By now you’ve probably seen ExxonMobil ads on biofuels, promoting #UnexpectedEnergy and Exxon’s new motto “Energy Lives Here”. The company has been rebranding itself as an energy company, not just an oil and gas company, in an attempt to change negative public perception about Big Oil. For Exxon, the stakes are high. Redefining its brand will help the company recruit top talent and probably bolster the depressed stock price. In the meantime, negative press and lawsuits do Exxon no favors.

In response, Exxon’s claimed the state “twisted” reality “by conflating two internal metrics the company uses to account for the financial impact of climate change on its business. Instead, Exxon had evidence proving the two metrics were used for different purposes and were never intended to be public, refuting New York’s claims that the differing numbers were kept to give the public a falsely rosy picture of the company’s financial health.”

Have a great weekend!

-Danny Foelber

EKT Interactive Managing Editor

Head Writer | Eau Claire Writing

Eau Claire Writing is a Houston-based freelance writing company that specializes in gas compression, turbomachinery, onshore and offshore drilling, and well service content for the oil and gas industry.

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Energized! #016: Moonage Daydream Issue

Friday, July 26^th, 2019

Hello all,

Happy Friday and welcome to Energized, your weekly look into the geopolitics, news, and happenings of energy markets.

Before diving into this week’s content, we’d like to announce the launch of our Energized LinkedIn Group. We will be releasing frequent news and snippets of Energized newsletters through the group. We hope to see you there.

Now, onto this week’s issue.

Source: Space.com

Houston, the eagle has landed!

This week, we celebrate the 50^th anniversary of Apollo 11 when, on July 20^th, 1969, Neil Armstrong and Buzz Aldrin became the first men on the moon. A monumental occasion that sparks deep reflection about human existence and discovery. It’s also an honor for Houston, the location of Mission Control and now the energy capital of the world.

Today, you hear less about NASA and more about SpaceX and Blue Origin; private companies curious to unlock the next frontier. We wish them the best of luck, but they have yet to accomplish what the men and women of Apollo 11 did 50 years ago.

Here on Earth, the energy industry is testing the boundaries of machinery and science so much so that the American Petroleum Institute (API) must constantly update their standards. Houston remains at the center of all, which is why we at EKTi are proud to be a Houston-based company.

We can all learn a thing or two from Apollo 11, an accomplishment that, in the 1950s, was widely thought impossible but was achieved with less computing power than an iPhone.

John F. Kennedy famously proposed on May 25^th, 1961 that this nation “should commit itself to achieving the goal, before this decade is out, of landing a man on the Moon and returning him safely to the Earth.” I’m sure he would be proud that America not only accomplished that goal but that, today, there is no cold war and that, in general, we live in a much more peaceful world.

It is not, however, a world immune to differences between nations, the recent US-Iran conflict being a key example. One thing is for certain: that education, curiosity, industry, and commerce have the ability to promote peace. Our hope is that this newsletter keeps you informed and interested in the energy industry so that you can help drive the modern world and push the boundaries of science, engineering, and discovery.

“We face the future with our past and our present as guarantors of our promises, and we are content to stand or to fall by the record which we have made and are making.”

-Theodore Roosevelt

Happy 50^th anniversary of Apollo 11! Now, onto this week’s content.

Energized!

Curated weekly oil and gas newsletter

Fast Facts – Houston Chronicle “Fuel Fix” as of Sunday, July 21^st, 2019

Light, sweet crude (dollars per barrel): $55.63

Last Week: $60.21

Natural Gas (dollars per million British thermal units): $2.251

Last Week: $2.453

Rig count (United States): 954

Last Week: 958

United States Drilling and Production

+ API: US on track to become net energy exporter –Hydrocarbon Engineering

“US crude oil exports reached a new all-time high of 3.3 million bpd in June 2019, a 1.1 million bpd year-over-year increase”, according to data from the latest monthly report by the American Petroleum Institute (API).

Wow, what a headline! Just a few issues ago, in Energized #14, we mentioned that the US is the only reliable place in the world where production is going up. US production increased by 2.3 million bpd in 2018 and was expected to increase by 2.1 million bpd in 2019. The midyear export number being 1.1 million, it does appear that the US is on track to increase production by the forecasted amount. No surprise to some, but I must say in the oil and gas industry it’s nice when optimistic forecasts prove accurate.

Global demand and the topic of exports is the bigger story here. Also mentioned in Energized #14 was the fact that global demand is increasing 1.2-1.4 million bpd, meaning the US is supplying 150% of the incremental demand in global oil consumption. But, all this growth is coming from shale, meaning more wells will have to be drilled. As you can tell by our weekly rig count numbers, which keep going down, it would seem that growth at the assumed rate is far from guaranteed.

The story following this one will elaborate on the improvements in drilling and why the US is doing more with fewer rigs, a win for almost everyone except the oil services companies. For now, here a few more important highlights that Hydrocarbon Engineering notes from the June 2019 API report:

US petroleum demand reached its highest level for June since 2005.
Domestic and international crude oil prices decreased despite geopolitical tensions in the Strait of Hormuz and tropical activity in the Gulf of Mexico.
Refinery inputs – the two highest on record for June – drove petroleum inventories above the 5-year average.
US petroleum net imports fell to 1.3 million bpd in June from 2.9 million bpd in June 2018.

Note that last bullet point.

It’s much easier to become a net exporter if you are increasing overall production, increasing exports, and decreasing imports. It’s the perfect trifecta for an energy trade surplus.

Business

+Halliburton and other drillers are fighting for new life in a world of cheap oil– Bloomberg Sunday Business Chronicle

It’s well known that the oilfield services companies, most notably Schlumberger, Halliburton, and National Oilwell Varco, have been struggling since the 2014 oil downturn. Many smaller oilfield services companies have gone flat out bankrupt. Weatherford, not small by any means, became overwhelmed by over $8 billion in debt. Consequently, the company was forced to file for Chapter 11 bankruptcy in late June.

It’s not a pretty story. The most alarming quote from the article is the following:

“In June 2014, the U.S. pumped 8.4 million barrels of crude using 1,545 drilling rigs. Last month, it produced about 12.2 million barrels, 45% more, with just 788 rigs.”

For the rest of the industry, this is wonderful news. But for the oilfield services companies large and small, these efficiencies have caused severe overcapacity and economic pain. In this newsletter, we have discussed many improvements that have made drilling and production more efficient.

The advent of data-driven drilling and production, discussed in Energized #11, #12, and #13, reduces costs for operators by integrating machinery into a system of systems. Drilling multiple wells from one rig, and the advent of padded wells increase the output of each rig, leading to greater profitability for operators but less business for oilfield services companies. Oil majors are becoming more and more cost-conscious, focused intently on reducing breakeven prices per barrel to sustain profitably during downturns. Meanwhile, the oilfield services companies have seen quarter after quarter declines with no floor insight to bounce back from.

Upstream

+ Drilling Down: Top 10 drillers so far this year – Houston Chronicle

“Exxon Mobil has unseated EOG Resources as the top driller in the Lone Star State.”

“Some 86 percent of Exxon Mobil’s drilling permits this year were for projects in the Permian Basin of West Texas, followed by the Eagle Ford Shale of South Texas and the Haynesville Shale of East Texas”.

View the article to see the Top 10 drillers in Texas as well as the top drillers in each Texas shale play.

Environmental News

+Everything you want to know about IMO 2020 but are afraid to ask– Hydrocarbon Processing

Starting on January 1^st, 2020, the International Maritime Organization will begin enforcing a reduction in the current maximum fuel oil sulfur limit from the current 3.5 weight percent to 0.5 weight percent.

This 80% reduction is a big deal. The marine sector consumes half of global fuel demand. Fuel costs will likely increase as fleets look for cleaner fuel sources.

Founded in 1948 by the United Nations, IMO is one of the most powerful regulating bodies overseeing international waters. In response to IMO’s strict cut, fleets across the world are outfitting their ships with dual-fuel engines and Tier-4 fuel systems. Tier 4 emissions standards significantly reduce emissions of particulate matter and Nitrogen oxide.

It will be interesting to see the effects of IMO 2020 on fuel prices, commerce, fleet management, and most importantly, the environment.

We’ll keep you in the loop as 2020 creeps over the horizon.

For an in-depth preview of IMO 2020, I suggest you read the linked article to review key issues, availability and prices, scrubbers, compatibility and stability, and more.

Downstream

+ As Permian oil production turns lighter, price outlook darkens – Reuters

It’s well known that Permian oil is very light and Texas doesn’t have the refinery capabilities to handle heavier crudes.

Before the shale revolution, the United States was importing heavier oil from other countries to satisfy its growing energy needs. As such, refineries along the Gulf Coast were constructed to handle these heavier imported crudes.

In just a decade, things have completely flipped.

Now that the United States is producing an energy surplus of over 2 million bpd, lighter crude refineries are needed to export the surplus to America’s energy customers.

Crude refineries constructed decades ago are struggling to blend the imported heavier and medium crudes with the lighter Texas crude.

On top of that, imports are dropping for heavier crude because of lower supply from neighboring producers and an absence of American appetite for imported energy.

IoT in Downstream

+ Advanced crude management by NIR Spectroscopy combined with topology modeling – Hydrocarbon Processing

The surge in Shale oil has resulted in wider feedstock variability, leading to instability in the Crude Distillation Unit (CDU).

As you can see by the schematic above, the CDU distills the incoming crude oil into various fractions at different boiling ranges. Consistency of crude oil is critical for refinery optimization.

The downstream industry is in need of technology that can characterize crude feeds more frequently and therefore avoid the reliance on crude assays.

According to the article by Hydrocarbon Processing “The appropriate answer lies in a technology able to analyze, both rapidly and accurately, any crude feed received at the refinery. This technology should also assist in allocating the correct crude tanks, depending on quality, and allow the setting of CDU targets based on crude quality. Moreover, promptly knowing the crude quality will help planning and scheduling activities in setting target yields and qualities for process units.”

An online application of a technology called Inline near-infrared (NIR) spectroscopy was first installed at BP’s Lavera refinery in 1992. Since then, NIR has been increasingly used to replace hazardous manual sampling and low-frequency laboratory analysis. Topology-based NIR models are able to identify and characterize any crude mixture.

In sum, just know that NIR spectroscopy is an analytical technique that can evaluate and characterize critical chemical and physical properties of crude oil in less than a minute.

NIR spectroscopy is very important for existing refineries that are unaccustomed to shale oil.

If you’re a frequent reader of this newsletter you can recall discussions on digital twins. Digital twins are more widespread in upstream due to the fast-moving and ever-changing nature of the business. That being said, digital twins of crude oil distillation towers could ensure that new and existing refineries save on maintenance costs, increase efficiency, and increase uptime.

IoT in downstream isn’t discussed as much as upstream, but the technology is essential for communicating across the entire integrated value chain of oil and gas. Especially for the supermajors as well as various NOCs like Saudi Aramco and Pemex, for a true system of systems to work the downstream needs to be just as involved as the upstream.

Additional IoT in Downstream Coverage

+ Migration of control systems – Hydrocarbon Processing

+ To reduce security vulnerabilities in downstream facilities, try unikernels – Hydrocarbon Processing

The July issue of Hydrocarbon Processing did a special focus on the digital refinery. It’s chock-full of rich content. Give it a read if you’d like to learn more about IoT in downstream.

Natural Gas/ LNG

+ Cheniere to build Louisiana Sabine Pass 6 LNG export train – Reuters

Cheniere Energy Inc is building the sixth liquefaction train at the Sabine export terminal. The Sabine terminal is shaping up to be the LNG exporting capital of the Gulf of Mexico, perfectly positioned to receive natural gas from multiple US gas plays, most notably the Permian.

On top of the Sabine Pass, Cheniere is planning to add a third stage to its Corpus Christi LNG export train as early as 2020.

Do liquefaction trains cost a lot of money? Absolutely.

That’s why Cheniere Energy Partners LP is busy raising money for parent company Cheniere Energy Inc. Cheniere Energy Partners LP “entered into five-year, $1.5 billion senior secured credit facilities with 29 banks and financial institutions.”

To learn more about liquefaction trains and LNG, check out our Oil 101 product offering.

Books

+The Quest- Daniel Yergin

In Energized #003, we mentioned Yergin’s “The Prize”. Written in 2011, “The Quest” is his follow up that covers a lot of the geopolitics in the 1990s and beyond. “The Quest” is more economic and political while “The Prize” is more historical. Take your pick or read both, either way, Yergin is a great author. You can also listen to “The Quest” on Amazon Audible here or “The Prize” here.

Sponsor

Oil 101 – An Introduction to the Oil and Gas Industry

Most of you are already familiar with our Oil 101 course, at least the free version. Did you know that we have companies that license the course to use as internal training for sales, IT and operations teams? If your group needs this, let’s talk.

Have a great weekend!

-Danny Foelber

EKT Interactive Contributing Editor

Head Writer | Eau Claire Writing

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Energized! #012 : DDDP Spotlight Issue 2/3

Friday, June 28th, 2019

Hello all,

Happy Friday and welcome to Energized, your weekly look into the geopolitics, news, and happenings of energy markets.

This issue continues our coverage of the 2019 Upstream Intelligence Data Driven Drilling and Production Conference. DDDP was so chock-full of rich content that we spread our coverage over three issues of Energized. You can find the prior issue here.

EKTinteractive is proud to be the podcast sponsor for Upstream Intelligence.

At the conference, we couldn’t help but notice that most of the crowd seemed to be IT professionals and data scientists. If you are new to oil and gas and would like to learn “How the industry works.” You can find our popular 10-part mobile ready Oil-101 series at https://www.ektinteractive.com/oil-101/

Join our 10,000-member community to keep current on industry events.

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Energized!

Curated weekly oil and gas newsletter

Part 2/3: New Frontiers

Incremental Steps Towards Achieving Widespread Digitalization

June Spotlight Issue: Data-Driven Drilling and Production Conference (DDDP)

June 11^th and 12^th, 2019

Houston, TX

Welcome to part 2/3 of our DDDP Energized newsletter series.

Part 1 provided an introduction to the conference, what it is, why it’s important, and how the current operating model of most companies is causing resistance to digital change.

In part 2, we discuss the widespread implementation of digital tools across many upstream companies. These tools lay the foundation for digitization, acting as a small step for cost savings and efficiency but a giant step for changing the way traditional upstream operations work.

Let’s begin.

AI-Based Predictive Reliability

First is AI-based predictive reliability, now used for a variety of upstream applications. It is a miniature “system of systems” that, when properly executed, is equipment agnostic, reduces false positives, engages in continual deep learning, and deals with both unknown and known failures.

A great example of effective implementation of this miniature “system of systems” is an offshore rig where data is viewed holistically with, let’s say, 30 main operations control systems each consisting of 15 sub-systems. The next step would be to integrate the same sophistication across all of a company’s offshore operations. For example, Shell has over 14 production operations in the Gulf of Mexico. That would truly bring in the next wave of advancement but it’s also a point of resistance for most companies.

Many companies have AI-based predicative reliability down pat, and are struggling with the next step. I personally believe this is impressive, considering where the industry was just 5-10 years ago, but there’s still room for improvement.

Digital Twins in a System of Systems

Using data by LNS Research, a presentation on “digital twins” provided a clear example of the value that can be derived by cross-functional solutions. The presenter defined digital twins as the following:

“An executable, virtual representation of an asset, process, value chain or human; based on data, data models and knowledge, ideally incorporating physical properties, chemistry, physics, and thermodynamics where applicable; and which uses advanced analytics to create and safely operate assets, support effective decision-making, and optimize business outcomes.”

Simply put: A marriage of data, physics, and applied mathematics

Digital twins replicate the physical asset with sufficient accuracy and robustness which can lead the twin to identify previously undetected or unexplained patterns, meanings, anomalies, and discrepancies. Other capabilities include:

Performing what-if scenarios
Acting as a test-bed for potential physical, process, and operating changes
Capture the full operations history of the asset
Be a single point of reference for trusted information
Be adaptable, continuously updating, and scalable
Facilitate change management

While these features are all brilliant in their own right, their scope of benefit is limited if the twin representation is isolated to its own silo.

But, if the twin is part of a network of twins that make up the broader value chain to explore, develop, drill and complete, produce, transport, and finally sell, then the data gathered by the twin will be much more meaningful.

Imagine having digital twins at the wellsite, utilities twins, reliability and integrity twins, etc, all working across upstream – even to the handoff at midstream or downstream.

Coordination of a company’s entire value chain is challenging if not impossible under the current operational model. A revamp is needed in the organizational structure.

C-suite-level executives such as the CTO or CIO or even the creation of a Chief Data Officer (CDO) would give projects like an interconnected system of digital twins the muscle needed to actually pull of digital transformation at scale.

There Is No Standard IoT Solution That Can Be Implemented at Scale Better Than SCADA

Supervisory Control And Data Acquisition (SCADA) is one of the most widely used systems in the upstream.

SCADA is essentially several industrial applications used together to support process control across most if not all upstream business segments. SCADA is both the medium for process control and the source of collected data from field operations.

An article by Oil and Gas Engineering that quoted Michael Day, oil and gas market development manager at Siemens Industry Inc…. “While new automation technologies can enable quantum gains in upstream productivity, the industry has been conservative in their deployments, preferring what it considers time-tested production methods and technologies.”

What Michael is saying is that the new technologies are available, but risk aversion leads to continual reliance on SCADA.

In The Top 5 Problems with SCADA Systems, which was released in February, Tony Poole states that “SCADA Systems are visualization and data collection (aggregation) tools. Even though most also have moderate storage systems in terms of compression, what they usually do not do well is support hundreds or thousands of simultaneous clients or 3rd party interface connections. As a SCADA System grows in size sometimes the number of clients/interfaces has a significant impact on the core SCADA system performance. “Dragging” huge amounts of data from SCADA storage systems is simply put, bad practice.”

Basically, data in SCADA is limited to SCADA and SCADA has limits in scale partly due to misalignment and a lack of integration with in house or vendor-made IoT tools. This rigidness of SCADA and its foothold across operations makes it difficult to replace.

This is a huge problem for customized IoT solutions, tailor-made for a specific organization.

The entrenchment of SCADA reaffirms our earlier point that upper management absolutely has to buy into digitalization for there to be any chance of widespread change.

Ground –> Up Feedback Approach

Although upper management buy-in is critical for overarching strategy, tactical decisions start from the ground up.

At the conference, companies agreed that input from the ground-up field operations staff was the best way to address the greatest problems that digital solutions can fix. After all, SCADA is just a tool. Start with the “why” on what needs to be done and then build or buy a tool that fits management objectives and has a practical use for the field personnel.

Asking those employees “what would make your job easier” is a great way to increase the likelihood that new technology is adopted. Then have your data scientists spend some serious time with them riding in a truck through their field operations.

The stickiness of these digital tools is often an overlooked criterion. Will people begrudgingly use a new technology only when absolutely necessary — while secretly reverting to old software? The adoption of new technology really starts when it benefits both management and field employees.

Many presenters stressed the importance of saving time for users of the new tools. The last thing you want to do is take someone who so is so busy they are resistant to doing their job differently or make their job harder.

The difficulty lies in answering the following question: Can the organization prove to its employees and investors that the suggested tool or tools save time, improve the job, and make the company more money?

After all, many engineers are well versed in SCADA and their job security is partially tied to the ongoing use of SCADA. It’s important to not alienate the SCADA-related workforce of an organization and instead, have management ask them “what’s wrong with SCADA, how would you improve it, and how can we (the company) make that happen. It’s impossible to change the mindset of someone without new incentives.

As far as new IoT solutions go if they’re just about saving the employee time but there’s no clear improvement to the bottom line, funding will likely peter out. If they improve the bottom line but workers hate using them, then turnover and HR costs could soar.

Thanks for reading!

The next issue of Energized will feature Part 3: “Cutting Edge, Crowing Achievements in Data-Driven Solutions”

You can view past issues of Energized on our website and subscribe to Energized here.

Be sure to check out the latest episodes from our digital oilfield podcast series which are listed in the Energized IoT in oil and gas podcast supplement. Here’s the link again so you don’t have to scroll up.

Have a great weekend!

-Danny Foelber

EKT Interactive Contributing Editor

Head Writer | Eau Claire Writing

Think you know someone who would enjoy this newsletter? Pass it on! They can subscribe here.

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Energized! #011 : DDDP Spotlight Issue 1/3

Friday, June 21st, 2019

Hello all,

Happy Friday and welcome to Energized, your weekly look into the geopolitics, news, and happenings of energy markets.

Energized!

Curated weekly oil and gas newsletter

It’s the third Friday of June and that means we’re releasing our second spotlight issue covering an important recent Houston event, the fifth Upstream Intelligence Data-Driven Drilling and Production Conference (DDDP).

DDDP was so chock full of rich content that we are going to spread our coverage over the next three issues of Energized.

This first issue is merely meant to start the conversation and get you acclimated with the broad topics of digital transformation.

EKTinteractive is proud to be the podcast sponsor for Upstream Intelligence. The supplement to this issue of Energized gives links to seven podcasts with leaders in the field of IoT applications in oil and gas. The supplement is available on our website here.

With all of the buzzwords surrounding the digital transformation space, it’s useful to separate fact from fiction by listening to industry influencers and veterans who are at the heart of driving this change.

Join our 10,000-member community to keep current on industry events.

Let’s get started

Part 1/3: The Dawn of Digitalization

Adapting to Change and Issues with The Current Operational Model

June Spotlight Issue: Data-Driven Drilling and Production Conference (DDDP)

June 11^th and 12^th, 2019

Houston, TX

DDDP is the world’s largest data-driven oil and gas conference.

Over 750 guests, 60 speakers, and 60 exhibitors were in attendance.

As an energy education provider, it’s important that we at EKTi connect and learn from the companies that are successfully implementing digital solutions into their operations.

And boy did we ever learn a lot from DDDP. Here are some of the key takeaways.

First, DDDP is truly the pulse of digital transformation in upstream oil and gas.

Presentations and exhibitions provided clear readings on

the financial feasibility of new technology
successful or failed execution of new technology
challenges in the field
how digital change is implemented across different organizational structures

Challenges with Company-Wide Digital Transformation

Arguably, the greatest takeaway from the conference was the widespread struggle many companies are facing in successfully integrating a network of digital tools throughout their operations. Commonly referred to as a “system of systems”, this data-driven approach drives efficiency by interconnecting digital solutions across multiple business functions. As the system of systems scales throughout the organization, it effectively creates a multiplier effect by providing deeper insight into actual operations, speeding up time to value, improving products, equipment, and process designs, and reducing planned and unplanned downtime by coordinating logistics.

Well… That’s the theory anyway. It’s easier said than done.

To prove just how challenging pulling off a system of systems is, a Gartner study in 2018, which was referenced at the conference, showed that 86% of oil and gas companies surveyed said they were undergoing digital transformation, but of that 86%, 91% said that they are struggling to implement digital technologies at scale.

In most cases, the oil and gas industry is stuck at level 1, maybe level 2. Situated in steadfast silos, operational efficiency is measured on a micro-scale. In many cases, there is a lack of alignment throughout the company on the best way to approach digital transformation. Should tools be built in house or purchased from 3^rd party vendors?

Building tools in house offers security and customization. On the other hand, vendors typically provide cheaper and more scalable solutions but require the customer to share personal data with the vendor.

Typically, there’s a mixture of both in house and vendor-purchased solutions scattered somewhat haphazardly into different business functions.

Many of the presenters showcased shining examples of improving operations with technology but admitted that they had not yet figured out a way for all of this data to be organized. Too often than not, a team somewhere in the organization will do something really well but there’s yet to be a lasting impact on the organization as a whole.

That being said, let’s not sell them short.

This isn’t like having Microsoft Office across most PCs; standardization isn’t easy.

On this topic, the following quote was heard from a panel of industry and company experts at the conference.

“The concept of standardization in oil and gas is foolish, you need enterprise capability to act on intelligence. Deliver intelligence when you can, but if you can’t act on it in a flexible application than it’s worthless, you need to have a shift in the operating model. Be agile as an entrepreneur to act on data-driven insight. You’ve heard of broad project implementation, huge drastic changes, that’s not the way to do this. Small solutions that work and improve the way things are done now: that’s what needs to be done.”

In response to this insight, another panel member raised the following question, “Well then do we want to change? Do we really want to transform? Is there an industry appetite for changing the way we do work?”

The first-panel member responded, “I’d say there’s a lot of tactical decisions being made with no overarching strategy. There’s no end game and that’s the rift that companies don’t understand. At the end of the day if these solutions can help you survive and be profitable then they need to be done.”

That’s another main takeaway from the conference. Digital transformation doesn’t have to be hard. Focus on building tools that improve the way things are done now, think of an end game, and then on top of that, gradually scale the tools across the organization. Between shrugs and sighs, this was the reality that many attendees came to understand. Maybe they had been overthinking it the whole time.

Crossfire & Crossroads

As it stands now, each major silo is comprised of smaller silos and each smaller silo has even smaller silos. And so on and so forth.

In many ways, this structure resembles a military organization. Think of a major offensive, requiring a division to advance in a coordinated effort. What is happening now is only one or two battalions out of the whole division (bolstered by valiant efforts from platoons of IT infantry), will break through enemy lines, only to look around and realize that the other battalions encountered heavy resistance and missed their objectives.

What I mean by missing their objectives is certain business segments failing to provide the proper investment or prowess to pull off actual change in their operations. Meaning that some business units will fall behind others, which makes any data collected less valuable because there are holes or dark spots in different segments.

Winning a few battles means nothing if you’re losing the war.

Nearly all digital tools and innovations are occurring at the company or platoon or even squad level when they really need to happen at the battalion or regiment level. Presenters and companies in attendance were painfully aware of this inefficiency. Some are trying to solve it too fast by thrusting initiatives on the entire corps with no foundation to handle the load. Others continue to rely on the platoons and squads, failing to realize that they need air cover and naval support to really make a difference.

Conclusion: Failure Under the Current Operational Model

The lapse in coordination is occurring due to an outdated operational model. When budgets, objectives, targets, and bonuses are developed for specialized teams there’s limited incentive for cross-functional collaboration. What’s more, the impact of a great tool is muted when that tool’s capability can’t extend beyond its own silo.

______________________________________________________________________________

Thanks for reading!

The next issue of Energized will feature Part 2: “New Frontiers, Incremental Steps Towards Achieving Widespread Digitalization.”

You can view past issues of Energized on our website and subscribe to Energized here.

Have a great weekend!

-Danny Foelber

EKT Interactive Contributing Editor

Head Writer | Eau Claire Writing

Think you know someone who would enjoy this newsletter? Pass it on! They can subscribe here.

Unsubscribe | Update your profile | 9813 Shadow Wood Dr., Houston, TX 77080

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Offshore Deep-Dive

2019 Review and 2020 Predictions

Transocean Rig Class and Utilization

Data Source: Transocean Rig Status Report October 2019

Transocean Rig Utilization by Geographical Region

Data Source: Transocean Rig Status Report October 2019

Main Takeaways

Upstream

Phase 1 (2003–2008): The beginning of the US shale revolution

Phase 2 (2008-2014): Big focal shift in the shale revolution and employment trends

Phase 3 (2014–2017): The oil downturn and shale’s responsiveness to oil prices

Source: Spears & Associates

Offshore

Location of the five recent discoveries in block 15/06 offshore Angola. (Courtesy Eni)

Climate Change

Part 2/3: New Frontiers

Incremental Steps Towards Achieving Widespread Digitalization

Part 1/3: The Dawn of Digitalization

Adapting to Change and Issues with The Current Operational Model