Six Myths about Ontologies: The Basics of Formal Ontology
Newparadigmdigitaloilfield
1. UPSTREAM NEEDS TO RE-INVENT ITSELF – HERE’S HOW IT WILL DO IT
By Nick Warren
Quantum Process Systems Ltd.
www.quantumprocesssystems.com
22ND
July 2016
BACKDROP
• 94 oil & gas producers listed on the AIM market
• All are facing unprecedented difficulties securing finance, dealing with depressed prices, and
assimilating accelerating technological advances
• Recent example? Fracking. This has rapidly opened up a massive new tranche of hydrocarbon
reserves with implications the world (and industry) is struggling to understand
• The cost of entry barrier is impossibly high if the 94 model themselves on the lines of the existing
exploration & production owner / operators
• Many are still drill & flip opportunists i.e. really only intending to sell assets on without developing them
• Governments however are increasingly aware that such players broadly fail to deliver tangible benefits
in most cases
• So to get hold of licenses in the first instance, new players must increasingly commit to longer term,
including development, even when recoverable reserves turn out to be modest - a lot
are therefore being forced into a space they don’t want to be in
FUTURE DIFFICULTIES
• Greener energy and transportation technology advances are starting to marginalise oil and gas. The
latter are beginning to look like smoke-stack industries. The bottom line is we are in decline… oh
dear
• The COP21 2015 Climate Change Convention in Paris has made funding Upstream developments
commercially / politically unattractive
• Demand for hydrocarbons is falling. Electric cars are on the verge of supplanting petrol and diesel in
high population regions where most journeys are relatively short. In fact the US, with much bigger
journey distances, is ahead of Europe
• Future conditions in design & build are looking increasingly difficult - recent ongoing and extensive
layoffs in the big contractors will mean a severe capacity bottleneck in design & build when the
recovery eventually materialises
• A capacity bottleneck is nearly always seen after a downturn, but this downturn is already severe (in
terms of depth / longevity) so the future bottleneck this time around will be worse than anything
seen in the past
• UK contracting has already seen appreciable job migration to India and the Far East - but these centres
are still inexperienced and require heavy expert supervision and oversight
• Engineering quality there is not up to the high standards needed to support top quartile HSSE
performance … use of these second tier contractors will trigger poor safety performance post first
oil when Operations get underway
• Build quality will be lower too. Adverse impacts on availability and mechanical integrity can also be
predicted
• The majors, however, as in the past, will use their larger project slates to lock-in the best design & build
contractors via frame agreements - current new entrants will effectively be denied access to the
better contractors
• Inexperienced new-entrant managements are in real danger of falling into the expediency trap i.e. go
fast-track / compromise on design quality / secure early cash flow / buy your way out of problems
2. later
• A beguiling / apparently clever strategy while the good times last - not so good in bad times - many are
currently struggling to offload poor quality assets in a buyers market with immense choice (Plenty
of examples of this right now - Gulf Keystone, Tullow Oil etc.)
SO - CAN THE NEW ENTRANTS POSITION THEMSELVES TO SUCCEED?
• Yes
WHY SHOULD THEY TRY?
• The very future of the Upstream sector is at stake (arguably)
• Upstream is a major employer of chemical engineers. If Upstream withers and dies, its demise will
send ripples across the entire profession and signal the start of the decline of chemical
engineering itself, a fleeting profession of the late industrial era
HOW SHOULD THEY GO ABOUT IT?
• By selectively using mature Digital Oilfield Technologies (DOTs), by focusing on core skills
(subsurface), by smart financial engineering, by offloading risk, and by outsourcing as much as
possible to cost-effective specialists
WHAT IS A DIGITAL OILFIELD AND WHAT ADVANTAGES DOES IT CONFER?
• A digital oilfield provides robust data aggregation and formatting resources capable of sending real-time
reservoir, wellhead and plant operating data to one or more remote locations via satellite (if
needed) and then over the internet
• Its main advantage derives from multi-discipline end-use software than can be used to transform
business performance and productivity
• End-use software can be used for production reporting, to monitor KPI performance, spot adverse
trends, evaluate possible solutions, and identify the very best optimal solutions / outcomes by
modeling them using powerful predictive software
• It makes competent end-users immensely more productive. They can, for example, identify in-fill drilling
opportunities much more easily and future test them economically in advance using simulators
• Remote end-users can be located anywhere as long as they have internet access. Location in lower-
cost regions (M4 corridor etc.) is very doable and attractive to a small, dedicated, but affluent /
aspiring workforce
• During the drilling phase, experts can be engaged from any location on the planet, advising drilling
teams on the rig itself on difficult wells in real time
• Once Operations commence, experts can be engaged anywhere on the planet to help solve operational
problems
• Digital Oilfield is a subset of the 4th Paradigm - Data-Intensive Scientific Discovery. There is plenty of
evidence strongly hinting Upstream is lagging behind its peers - other more progressive industries
are ahead of us - so the concept risks are low (virtually non-existent in fact)
WHAT KEY ELEMENT OF NEW DOT OFFERS THE MOST UPSIDE POTENTIAL?
3. • The cloud, the last key piece in the jigsaw, can be positioned as a highly cost effective data buffer
depository and archive
WHAT MUST THE 94 PLAYERS CONCEDE TO SUCCEED?
• Instead of waiting in the queue meekly for the privilege of using better-quality new-build resources, with
careful crafting, a smart player can shape a viable strategy to position a more powerful funding
entity in the same queue in his place, hugely reducing downside HSSE risk for all participants,
achieved by building safe, reliable, well-designed plant
• So concede plant ownership - and a share of the upside profits - to a powerful financial entity. This can
be used to offload risk, and a significant non-core workforce, thereby circumventing the high
potential cost of entry
• Concede plant operation to an expert third party specialist. Once again offload a significant non-core
workforce
WHY THINK ALONG THESE LINES?
• BREXIT - the black swan event in the topical mix. There is little left in the stimulus arsenal of the central
banks. Oil prices are on the slide again. We look to be heading towards an oil price double-dip.
This could prove to be a killer blow for some players
• Wait-and-see (and hope for the best) nows looks increasingly high risk. Do stuff. There has to be a
solution. There will be space for smart operators. Old Oil hasn’t done much with Digital Oil. As all-
rounders with large payrolls, it doesn’t do enough for them. (Actually, it does too much !!)
WHAT KEY ELEMENTS OF EXECUTIONAL STRATEGY CAN BEST GUARANTEE
SUCCESS?
• Reverse engineer in detail from the outset, i.e. work backwards from all the end-use software. Make
sure all the necessary field data inputs needed by the software are captured project-wise from the
beginning
• Carefully review which remote tasks really need live data - don’t be tempted to transmit everything out
of expediency
• A lot of end-use software can work off historic data. Find cheaper ways of accruing this data and
sending it remotely batch-wise off-peak
• Assuming all the necessary i/o will eventually turn up is naive and risky - nominate a concept champion
early, make sure they are empowered to defend the concept during design reviews, especially
Hazops, who have a habit of unraveling concepts
• Concede plant ownership, pass on only as much upside as you need to, but offload associated risk with
it too
• Cybersecurity has become a preoccupation with existing participants. Be prepared for this. Hackers
continually find ways round new security measures and innovations. Accept on-going
cybersecurity as a continuous manageable risk. All internet players have to do this. You are not
alone.
• Make room for Original Equipment Manufacturer (OEM) condition monitoring access. Preventive
maintenance is also the future. It supports high uptime and can be used to avoid major crashes
and position strategic spares
• Try to anticipate what the nascent Internet of Things (IoT) will throw up. Aim to embrace an open-
architecture approach. Always seek vendor-neutral solutions
• Avoid one of the main problems Old Oil has with Digital Oilfield - don’t use old-style equipment with
legacy issues that has not been designed to operate in the IoT (should b easy for new entrants)
• Don’t lose sight of the fact that there are two distinct phases to DO deployment - Drilling phase / Ops
4. phase. Different DOTs may be in play, for example LeoSat might work for Drilling phase - it is
unlikely to be economic for the longer term, but there could be synergies and some surprises….
SO THE CONCEPT HAS POTENTIAL?
• Yes it does, without doubt
• Core skill focus, cost-effective outsourcing, and passing on some of the upside with associated risks is
fair play, and it could result in a level of profitability far exceeding what established players have
achieved historically
• It can definitely breathe new life into Chemical Engineering. CE’s are, by far, the best equipped
engineering discipline to understand Digital Oil and oversee transformation from drawing board
concept to real hardware delivering extraordinary results
WHAT HAVE YOU LEARNT BY READING THIS ARTICLE?
• WHY and HOW to join up the DOTs of course !!!
• Get on with it !!!
• Hire the experts !!!