Productivity at any price

Oct. 1, 1998
One year ago, who suspected crude oil prices would drop as low as $11/bbl, and hover in the $12-14/bbl range for months? Today, who knows what oil prices will be one year from now? When we're honest, the oil price collapse of 1998 caught us all off guard. And our crystal balls are rather cloudy now. After all, oil is a commodity and prices depend on chaotic and unpredictable factors: weather, politics, economics, and market demand. Realistically, none of us can either predict or control the

One year ago, who suspected crude oil prices would drop as low as $11/bbl, and hover in the $12-14/bbl range for months? Today, who knows what oil prices will be one year from now?

When we're honest, the oil price collapse of 1998 caught us all off guard. And our crystal balls are rather cloudy now. After all, oil is a commodity and prices depend on chaotic and unpredictable factors: weather, politics, economics, and market demand.

Realistically, none of us can either predict or control the price of crude. So what can we do to weather this storm?

  • First, assume prices may not rebound in the near future.
  • Second, focus on productivity at any oil price.
At today's prices, exploration and production information technology is more critical than ever before.

Reset price assumptions

In the late 1970s, the reigning assumption was that prices would rise. Companies made long-term plans and commitments on that assumption. We all remember 1986.

But this is not 1986. Over the past decade, enormous productivity improvements, due in part to advanced information technologies and organizational innovations such as asset teams, have made oil and gas companies profitable at much lower energy prices.

In the late 1990s, our reigning assumption has been that prices would remain relatively "flat," presumably in the $17-20/bbl range. Few companies, as far as I know, have assumed prices would decline, and planned accordingly.

Maybe it's time to reset our assumptions. What if the oil industry adopted the mindset of the computer industry? Hardware and semiconductor companies assume:

  • Prices will go down - every year
  • Quality and productivity must continually improve.
This is the only way to survive, much less to increase market share in a commodity business. How do the winners thrive? They re-engineer and integrate processes. They take an extremely high-tech approach, deploying advanced robotics, computer-aided design and manufacturing systems, and collaboration technologies for their knowledge workers.

If our industry no longer assumed oil prices would go back up, companies would be forced either to "plug and abandon" or invest in dramatic productivity gains. What would it take to make money and grow at $12/bbl?

Harness E&P technology

In today's environment, reactive companies view technology investment as a variable expense to cut in order to survive. Proactive companies also monitor costs, but aggressively advance their competitive technological capabilities - redesigning exploration and production workflows, empowering asset teams with more integrated systems, and providing even better training and support.

Technology is allowing multinational corporations to shrink the globe, creating "virtual teams" across time zones. At the same time, technology is turning savvy independents into "virtual majors," competing effectively in the most challenging geological and geopolitical settings.

The most crucial exploration and production technologies of the future will be those that seamlessly integrate people, information and processes across existing "white spaces" between diverse operating groups such as drilling and subsurface interpretation. An exciting example of such "white space" integration technology is the virtual reality team room.

Experimental virtual reality (VR) "caves," and ultra-wide, curved screen 3D visualization systems have begun to appear in some large oil companies, often at a cost of several million dollars. By "immersing" geologists, geophysicists, reservoir and drilling engineers in a common visual experience, a VR room allows teams to "tour" 3D subsurface models together, identify potential drilling and completion problems more rapidly, and design more cost-effective solutions.

Over the next decade, I expect this technology to have as much, or more, impact on team productivity as the interactive workstation has had on individual productivity over the past decade. Landmark is developing VR technology for teams that should cost about the same as our original 3D seismic workstation did in 1984. Desktop seismic interpretation systems today actually have more capabilities than that original workstation, but at a tiny fraction of the 1984 cost.

I expect VR team technology to take a similar path. As with Landmark workstations in the 1980s, companies may set up one or two VR rooms, shared by many teams. Over time, however, advancements will inevitably "personalize" both the technology and the price - perhaps converting the entire room into an inexpensive pair of wraparound goggles. With integrated, global database systems and high-bandwidth satellite links, a virtual team could assemble on several continents and experience a single visual environment. Imagine the impact on productivity.

Wake-up call

The recent oil price drop is another wake-up call, inviting oil and service companies alike to rethink current business models. If crude oil prices stay down, some companies will fixate on cost-cutting, play it "safe" and stick to the old ways. Forward-thinking companies will
  • Reset assumptions
  • Aggressively search for more productive ways to harness technology
  • Increase market share and leave competitors behind.
If oil prices eventually "return to normal," as everyone hopes, those who have learned how to make money at lower prices will only create more value for their stakeholders.

Robert P. Peebler President & CEO Landmark Graphics This page reflects viewpoints on the political, economic, cultural, technological, and environmental issues that shape the future of the petroleum industry. Offshore Magazine invites you to share your thoughts. Send your manuscript to Beyond the Horizon, Offshore Magazine, Box 1941, Houston, TX 77251 USA. Manuscripts will not be returned.

Copyright 1998 Oil & Gas Journal. All Rights Reserved.

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