The Perfect IT System

Imagine a computer system that increases reserves, lower costs, and maximizes the efficiency of every single asset you possess.

It is Monday morning, and the board-of-directors is calling for more profits. Now.

With a flick of a mouse, you call up sales at the gas pumps and note with satisfaction that volumes for the weekend are up. It’s time to bring more production on-stream.

Unfortunately, when you check with production, you discover that your oil field is at maximum production.

Not to worry; the pull-down display of exploration seismic shows that there is an excellent prospect adjacent to your producing field, and a split-screen chart indicates that a semi-submersible rig is available this month to drill it.

A quick e-mail to the refinery confirms that periodic maintenance is complete; all that is necessary now is to inform the board that more profits are on the way-and confirm your golf foursome for that afternoon.

As described above, the perfect oil & gas IT system not only places real-time information about all assets - from exploration, production and rigs through to refineries and petrol pumps-at the fingertips of management, but also allows executives to react instantly to the changing business environment to maximize profit and efficiency. But is such a system feasible?

With four refineries across Canada, Imperial Oil Ltd converts 430,000 barrels of crude a day into hundreds of petroleum products and fuels. “Our products are demand-driven, and demand changes seasonally and daily,” says Bruce Orr, a senior manager with Imperial. “We have to react quickly.”

Imperial first began installing automated, electric-information systems downstream 25 years ago. “We now have 10,000 sensors hard-wired at four refinery sites,” says Orr. “The information is used in a very fast loop control to automatically maximize production and efficiency.”

When point-of-sale information indicates local demand, Imperial can automatically deliver product through several thousand kilometres of pipeline. “We have remote-control of pipeline systems,” says Orr. “All information is linked by real-time live systems. We blend directly into our pipe.”

Nor is Imperial’s system restricted to downstream; a host of upstream applications, from seismic records to rig utilization, is tied in. “We have 400 to 500 applications in total,” says Pierre Côté, manager of Information Applications at Imperial. “We have multiple systems and applications, and an enterprise-wide system, SAP, for our transactions and financial (analysis). For instance, we have an application that measures tank levels in refineries, then that information is pooled and bridged to SAP. We then have an executive information system that is a key-performance indicator.”

Such a comprehensive system, however, doesn’t come cheap. “The total cost of personal computers, LAN (Local area network), mainframe and controls was in the $1 billion range,” says Côté. “Maintenance and operating costs annually run at 10-15% — around $150 million per year.”

Starting from Scratch

If that sounds a bit rich for your blood, don’t worry; you can still have a valuable, real-time IT system for far less.

“Building (an IT system like Imperial’s) today would cost a fraction of what it cost 10 years ago,” says Jacob Stein, senior strategic planning director for Sybase Inc., a California-based data management company. “It would be cheaper by a factor of ten to hundred times; a $1 billion system built a decade ago could be built today for between $10 million and $100 million.”

Savings in hardware and communications play a dramatic role in reducing costs. “Reliable networks were terribly expensive,” says Stein. “Now, even home users can get a dedicated digital subscriber line for under $50/month. And the functionality of a personal computer that cost $3,000 a decade ago can now be had for a few hundred dollars.”

But, most significantly, oil companies need no longer develop the necessary software applications in-house from the ground up; boutique software firms have coded a myriad of specialty applications specifically for the petroleum industry. “As a result, software costs are way down, and you are starting at a much higher level of functionality,” says Stein.

Exploration

Houston-based Landmark Graphics is one of a half-dozen companies that offer a complete upstream package allowing geoscientists to analyze and integrate their entire data base of seismic and geology in real-time.

With a starting price of $50,000, Landmark’s software package employs some of the most sophisticated interpretation and display modules in the sector. Using a desk-top workstation, explorers can gather, interpret and present the latest, up-to-the-minute information. Exploration plays (such as land sales) that formerly took a team of geoscientists a week to prepare can now be done by one professional in half a day.

But the real advantages of such a system lie in the areas of multidisciplinary collaboration and visualization. “This system is excellent for exploration and development of complex structural and stratigraphic plays, like the type you see on the East Coast,” says Doris Ross, a senior technical consultant for Landmark. “Everyone can participate; geophysicists, geologists and engineers.”

Presenting an exploration play on paper charts and graphics has also gone the way of the rotary-dial phone; the latest rage is the ‘cave’, a room fitted with wrap-around screens and 3-dimensional projectors that (for $1 million) allow up to 30 team members to literally walk into the middle of a reservoir.

Gulf Canada Resources uses Landmark’s package for most of its exploration work, and is quite pleased with the results. “I recommend the system to other companies because it reduces uncertainty,” says John Van Der Laan, a Gulf geologist. “You reduce risk by eliminating bad wells.”

Drilling

Once an exploration play has been delineated, it is up to the engineer to drill it. No longer do roughnecks rely on Rigid tools; the preferred gadget these days is the laptop computer. “Let’s say you’re casing an offshore well and you have to re-design the casing due to unforeseen circumstances,” says Dr. Jonathan Lewis, Landmark’s vice president of Information and Business management. “It usually involves a flurry of faxes back and forth as you check inventory and costing-it’s highly inefficient.”

Landmark has recently re-written its StressCheck application (a technical software program that allows engineers to design casing), to tie into SAP’s inventory and accounting systems. “It allows you to pull up inventory and costing in real time,” says Lewis. “It can reduce cycle time from weeks to minutes.”

Production

“Upstream oil companies don’t compete on quality,” says George Quesada, the director of product development and support for PanCanadian Petroleum. “Competition is restricted to producing fast and efficiently. Automation can help.”

PanCanadian has over 4,000 wells in production, primarily in the western Canada basin. Back in 1993, the company employed an array of field operators to visit each well daily. “When an engineer had to drive to a field every day, they were not doing engineering work, they were doing driving,” says Quesada. “It was very inefficient.”

PanCanadian decided to spend $35 million over seven years to design and install an automated system. The basic installation is the remote terminal unit, or RTU, that measures a well’s pressure, temperature and flow once per minute and sends the data back to one of several production centres, where performance is automatically optimized. Operators know instantly when a well is beginning to malfunction, and can dispatch a crew to deal with a problem before it happens.

The benefits to PanCanadian include less down-time and lower operating costs. “In 1993, we had one operator to 20 wells,” says Quesada. “Now, we have one operator per 70 wells. “Savings range from 2-10% of operating costs, depending on the field.”

Financial Information

The value of knowing precisely how much oil and gas is being produced at any given moment goes far beyond savings in production costs.

For the last seven years, Ocean Energy Resources has been virtually doubling in size through acquisitions and mergers. By 1998, it had production in Equatorial Guinea, Côté D’Ivoire, Egypt, Russia and the Gulf of Mexico.

Looking after 4,000 production wells scattered around the world was, to put it mildly, a headache. Not only that, but trying to pull together disparate data each year for the annual budget projections was eating up valuable engineering resources.

In 1997, Ocean contracted with Merak Projects Ltd., a software firm that specializes in petroleum economic analysis, to install their Living Business Plan. “A Living Business Plan is a best-practices planning tool that routinely updates and manages information, allowing Ocean to react quickly to changes in their portfolio and the industry,” says James Henry, Merak’s manager of value development.

Merak uses several integrated applications to pump data through Ocean. One cornerstone application for the Living Business Plan is Peep, the Petroleum Economics Evaluation Program, that allows engineers to do economic and decline analysis. Another Merak application, PetroDesk, visualizes the entire operation for management. “It will map pipelines, well productions, land and all sorts of facilities,” says Henry. “PetroDesk’s open system can map various data sources together, and graph and report the results for total asset management.”

For an oil company with an annual E&P budget of $250 million, the Living Business Plan system can be installed for 0.1% to 0.5% ( $250,000 to $1.5 million). The system’s hardware requirements include a central server and minimum Pentium 300 desktop computer for each user.

While the software itself takes only one month to install, integrating all of the affected departments within a company can take up to one year. “Implementing the Living Business Plan process at a company requires a change in corporate philosophy,” says Henry

For mid-level managers at Ocean, the system has been a boon. “By having a Living Business Plan, we can grab the entire portfolio and run the entire 2000 budget, or the next quarter,” says Mark Furber, an international resources and planning engineer for Ocean. “Before, my time was split 50-50 between finding prospects and budgets. Now, it’s only 15% on budgets.”

Bringing it all Together

One of the keys to building an off-the-shelf, real-time system is using applications that can interact seamlessly with one another. “The oil and gas industry has a myriad of programmes that allow real-time information, but they don’t often talk to one another,” says Brad Phillips, a senior director for XWAVE Solutions, a network consultancy. “Building applications is no longer key, but integration is.”

XML, or extensible markup language, is being developed as a non-proprietary standard to aid integration. “XML allows applications to talk to one another,” says Phillips. “It allows the Internet to be used to pass information back and forth.”

BizTech for Energy is another standards initiative. It integrates technology-to-business (T2B). It will tie geology, geophysics and drilling to business systems like SAP.

Advantages

Those who have experienced real-time systems agree that they perform valuable service. “All the information is at your fingertips,” says Ocean’s Furber. “It allows you to maximize the potential of a field.”

And, many experts in the field predict substantial cost savings. “Look at the cars that were being manufactured in Detroit 40 years ago,” says Landmark’s Lewis. “You had poor fuel economy and high emissions. Now, you see cars with excellent mileage and low emissions. That’s because the engine is highly integrated with a suite of IT components that monitor air temperature, road conditions and a host of other factors to optimize performance.”

“It’s the same with the oil and gas industry,” says Lewis. “When you go from a dis-aggregated to integrated, you’ll get another phase of productivity gains in the neighbourhood of 2%. Oil companies spend $35 billion annually on drilling wells. A 2% saving is $700 million.”

Drawbacks

One of the biggest drawbacks to integrating systems isn’t hardware or software, but personnel. “You can hardwire land data into financial accounting, but the landmen don’t want financial to manipulate their data,” says Bev Draper, of XWAVE Solutions. “When it comes to an integrated system, getting buy-in (bilateral acceptance) is a huge issue. You must set up protocols and security and access. It’s a very complicated process.”

A system that is over-designed can also quickly become a dinosaur. “To have a totally-integrated, monolithic solution might take a lot more than 10 years to develop, and 10 years is a lifetime in the information business,” says Imperial’s Côté.

Thirdly, and perhaps most importantly, even the best-designed computer system can crash. “The more authority you give a system, the more interesting the failures become,” says Jacob Stein, of Sybase. “Complex systems can fail in complex ways.”

Conclusions

Regardless of the challenges inherent in creating the perfect real-time system, it would be far worse to ignore its potential. “While software can’t predict the future, it can help build flexible, data-rich “what if” scenarios that will allow companies to react quickly to market changes and rapidly evaluate new business opportunities,” notes Jeremy Walker, a sales and marketing director for Merak.

“Without flexible tools that keep pace with the rate of industry change, companies may never know what opportunities they are missing, or what disasters they could have avoided.”