Business | Data drilling

Oil struggles to enter the digital age

Talk of the “digital oil rig” may be a bit premature

Off to new platforms

IT SOUNDS like a spectacular feat of engineering. Employees of Royal Dutch Shell located in Calgary, Canada, recently drilled a well 6,200 miles (10,000km) away in Vaca Muerta, Argentina. In fact, the engineers of the Anglo-Dutch oil major were using computers to perform what they call “virtual drilling”, based on their knowledge of Fox Creek, a shale bed in Alberta, which has similar geological features to Argentina’s biggest shale deposit. They used real-time data sent from a rig in Vaca Muerta to design the well and control the speed and pressure of the drilling. On their second try, they completed the well for $5.4m, down from $15m a few years ago. “It’s the cheapest well we’ve drilled in Argentina,” says Ben van Beurden, Shell’s chief executive.

Shell is not alone in deploying computer wizards alongside geologists in an attempt to lower costs in an era of moderate oil prices. The industry as a whole is waking up to the fact that digitisation and automation have transformed other industries, such as commerce and manufacturing, and that they have been left behind. Technology firms and consultancies are knocking on their doors peddling alluring concepts like the “digital oil rig” and the “oilfield of the future”. Some argue that the embrace of digital technologies could be the next big thing after the shale revolution that started to transform oil and gas production in America a decade ago. But this is an industry that embraces new technologies only in fits and starts.

Once, Big Oil was at the forefront of digitisation, pioneering the use of 3-D seismic data and supercomputers to help find resources. But priorities changed, especially during the past decade when oil prices rose above $100 a barrel and the primary goal was to find more of it, whatever the cost. Whizzy new technology took second place. Ulrich Spiesshofer, chief executive of ABB, a Swedish-Swiss automation-technology company, says the oil industry puts to use in exploration activities barely 5% of the seismic data it has collected. During production of oil, less than 1% of data from an oil rig reaches the people making decisions, reckons McKinsey, a consultancy.

It is the process of extracting oil and gas that is considered most ripe for digitisation and automation. Drilling often takes place miles below the surface in rock formations where drill bits and pipes can be broken or snagged, which halts activity for long periods. Baker Hughes, an oil-services firm, has recently developed what it calls the first automated drill bit, capable of self-adjusting depending on the nature of the rock. McKinsey says undersea robots are also being deployed to fix problems.

Above the surface, efforts are under way to reduce the amount of people and plant on oil rigs, helping improve safety in a dangerous industry. James Aday, a veteran oil driller now at Wood Mackenzie, a consultancy, says that on the drilling platform itself, automation is not new. Others say that more rigs are being controlled semi-remotely; in the Gulf of Mexico, engineers in Houston use real-time data from oil rigs to make decisions, reducing the cost of shuttling them by helicopter to rigs. “The aim is to bring the data to the expert, not the expert to the data,” says Peter Zornio of Emerson, an automation firm. “There’s a huge incentive to get the people and the choppers off the platform.”

Wider use of data, sensors and automation will produce new challenges for the industry. It will have to learn about cyber-security—oil rigs are critical infrastructure—and invest in ways to prevent theft of data. But digitisation may also attract millennials to replace an ageing workforce, where mass retirement is a looming threat.

As to whether the workforce could shrink across the industry in the digital age, ultimately geologists and engineers believe technology will not put them out of a job, because producing oil is art as well as science. Nor will tech startups be likely to overcome the barriers to entry—such as high capital requirements—that protect incumbents. But they add to a sense, born out of the shale revolution, that innovation will make oil and gas more accessible and that the days when oil was considered a scarce resource are long gone.

This article appeared in the Business section of the print edition under the headline "Data drilling"

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