Innovations abound in rig-site value creation as downturn stimulates contractors’ business savvy

Contractors finding creative ways to use existing personnel at well site to help operators achieve performance gains, reduce costs

By Linda Hsieh, Managing Editor

Kim McHugh is General Manager of Drilling and Completions at Chevron.

From your perspective at an international oil company, what do you see as the most critical challenges facing the drilling industry today?

I think it still comes back to people. We’ve spent a lot of time over the past few years building our workforce and their competency. Now, the critical challenge is how do we keep the talent around as we wait for the activity level to pick up again.

In the longer term, I’m also concerned that there are fewer students going into petroleum engineering. Four years down the road, there will be fewer petroleum engineers graduating when we’ll be needing them. That’s a big concern.

Does it seem like the industry is managing talent better than the way it did in previous cycles, so that we won’t end with a similar generational gap in our workforce demographics?

I think we’ve learned from that and are trying to prevent it from happening again. I see a lot more discussion around how to keep people and making sure that we’re keeping people at all levels. Obviously we won’t know how well we did until things pick up again, but I think we’re smarter this time. We’re talking about maintaining the right people so we don’t end up in a bind when things pick up. I’ve talked to my counterparts, and they’re all having the same conversations.

Regulations is another area of concern for me. Right now we have regulators, and we have operators and contractors, and we all kind of find our own solutions. We have to learn to work as an industry. Think of how airlines handle safety-critical issues – they approach them as an industry, regulators along with the airlines and plane manufacturers. They come together to develop the solution, and how you apply the solution is your technical advantage. We don’t approach things like that.

I do see the industry slowly moving in that direction. A great example is the BOP reliability database with IADC and IOGP (International Association of Oil and Gas Producers). Chevron is participating in it. It’s a way in which we’re trying to use data to drive to a better solution, not to find bad players. We’re realizing that the competitive advantage is not the technology of a BOP stack. The competitive advantage is maybe how you complete the well, what type of mud you’re using, or your BHAs to achieve better ROP.

Cost reductions remain a top priority for most, if not all, companies amid this difficult market. From an operator’s point of view, how can the industry make more cost reductions that are long term?

We’ve seen a lot of price drops that are not sustainable. The market will turn around, and prices will go back up. To me, the reductions must focus on performance and efficiencies. If I take a shorter period of time to drill a well, prices can go up but I can still keep that time efficiency. There is always a lot of focus on dollar per foot, but that’s not always the final answer. It’s really dollar per EUR, or dollar per barrel. That’s very important.

Do you see support from contractors on lowering that dollar per barrel?

Yes, I think they’re all trying to find their competitive edge, and efficiency performance is at a high across all of the service sectors. A lot of them are talking about bundling services. Some people refer to it as “one down, all down.” If I have this grouping of services and there’s a failure, then the charges to all of the services stop until that one failure is fixed. That’s a concept we’re starting to see.

We’re also seeing more performance incentive plans, and we’re seeing contractors wanting to help us, for example, in the completions space. People are looking at how they can take things off the critical path, what they can be doing with offline cementing, or making up casing offline so you have it racked back and ready to go. They’re starting to look at a lot more flat time type of opportunities.

I’m also starting to see a lot more companies looking at data-driven solutions, and I love that. It has already been going on for a while in the onshore space, but now we’re starting to see that in the deepwater world, where data is driving solutions and repeatability. Everything doesn’t have to be serial number 1 in deepwater. Our deepwater group is starting to look at how we can do some things with more repeatability so we can have more predictability and standardization.

Do you have any concerns that standardization might choke innovation?

To me, standardization does not take away the ability to be innovative. What it does is tell me what I am comparing innovation to. What does good look like? Here’s what I was doing before, so now if I change this thing, how does it change my performance? Take drill bits as an example. If I’m using a specific bit on several rigs and getting predictable outcomes, and there’s a new bit I want to try, I take it and put it on one rig without changing any other parameters so I can see how it impacts performance. But if I’m not standardized and each rig is running that bit a little differently, how do I know what’s working and what’s not working? To me, standardization tells you the rules in which you’re operating. It’s benchmarking.

Some people think standardization means you can’t change anything and you can’t be innovative. Yes, you can, but you must make a business case for what you’re trying to improve. Without standardization, how do you put a business case together on the advantage of trying this new thing?

It sounds like a lot of what you’re talking about requires having the right data.

Yes, we’re starting to see a lot more data usage in our industry, and I would love to see more conversations around data and how we can better utilize it to be more efficient. Already, big data analytics are taking us to a whole new level as far as making fact-based decisions. I see a lot of contractors doing this on their own – rigs are automated and computer-driven, and there’s tons of data. I’d much rather have a data-driven conversation than a gut check.

Look at BOPs and how often we take them apart. Some companies are looking at utilizing MRI-type technologies for a higher-tech evaluation, so we don’t have to tear it apart to see if it’s OK. Because every time you take it apart, you could diminish some of the life of the equipment. When a person is sick, the doctor doesn’t cut you open to say you have a cold. Why would we take apart this BOP stack just to say it’s OK?

Of course, high-tech solutions, especially for the BOP, will require collaboration between regulators and the industry. It would be a cultural shift, and we would have to develop data to show that it makes the equipment more reliable by evaluating it this way instead of tearing it apart.

Are you seeing enough advances in completions, or is that side of things moving slower than drilling?

It’s a bit slower, but I think that will start to change. The completion cost of wells can now be as much, if not more than, the cost to drill the well. If you drill a hole, you just have a hole in the ground. Until it’s completed, you don’t have a viable product. To me, that’s when the finesse of things start to happen. If you make an error in how you complete the well, you might not get the resources out of the ground that you need to make the project economically viable.

If you look at subsea wells, you’d rather not get back on one of those wells anytime soon, but sometimes it’s the completion that fails. We have to understand how to put better completions in the ground so we don’t have to come back and work the wells over. I think we’re starting to see a lot more focus on the completions, and I believe the intervention part has a lot to do with it.

Can there be more standardization in completions, too?

In some cases, yes. The standardization can be as simple as how you select a gravel pack screen. The screen could be different based on the rock quality and the data you have on your reservoir, but the method to choose it can be standardized. Standardization doesn’t have to be the tool itself. Sometimes our best investment is in the planning of the well.

Drilling automation is being adopted to varying degrees on drilling rigs. How is automation – as it is used today – improving the efficiency of drilling operations? How can the industry evolve its use of automation to get more out of those technologies?

I think we’re still at the early phase of automation. Take an autodriller, for example. That’s been on a lot of rigs for a long time, but what’s our expectation about how they’re used? If you go into data support rooms where you can see data coming from several different rigs, you might see a light that indicates the autodriller is turned off on a rig. Why is it turned off?

I’ve been on rigs that have offline capabilities, and they’re still making up BHAs over the well. Why would we do that? The automation is there, yet we’re still doing it the old way. There’s a lot of room to grow, but I think we’re starting to set more expectations around automation: how we’re using it, what it’s for, what outcomes we want to get.

In fact, we just met with one of our drilling contractors, and they are coming to us with more automation on stick-slip and getting a more consistent ROP. Together we’re looking at how to make those systems learn as we drill, especially when the same well is drilled over and over. How can we use data so the system gets smarter with each well that’s drilled? Up until now, automation has mostly been about getting people out of harm’s way. Now the conversation is shifting, and we’re starting to see automation for better results and more efficiency.

I also think we’re seeing amazing ideas from early to mid-career individuals. They’ve grown up with the virtual reality space, and they’re extremely creative with data.

Is it difficult to create meaningful KPIs to measure the value of automation?

I don’t think it’s difficult. You just have to remember it goes back to your business case and what you’re trying to change with that automation. The automation may make a huge difference in one area of my business, but in another area it doesn’t move the needle at all.

The hardest part is actually identifying the problem you’re trying to solve. Sometimes we don’t really know what the problem is, so we apply a solution that’s not solving the real problem. You can apply technologies where it looks like it may have helped, but at the end of the day it hasn’t improved cost or time.

Three years ago I reported on Chevron’s WELLSAFE program, which was just getting started at the time. Can you provide an update on that program?

At this point, we have implemented WELLSAFE in our drilling and completions operations around the world. I have seen improvements in well control awareness and competency, both in Chevron employees and with our contractors. Some contractors have even implemented it in their own fleet without Chevron being a part of it.

As part of the program, we’ve developed what we call Drill Pad. It’s available to the industry, and it allows us to design and build specific drills for our crews. I’ve seen it done in places from Sumatra to Thailand to Kazakhstan. Crews run the drill and, at the end, they talk about what they learned and what they could have done differently. They also discuss certain scenarios – if a specific piece of equipment had failed, what would you have done? This interaction builds a true learning organization.

In the old days when we would run well control drills, people were just concerned with how fast they could get to their location. But what do you do when you get there? What are the expectations? WELLSAFE is truly allowing us to get smarter at well control, and it’s increasing well control awareness even for people who typically are not very engaged. We have roughnecks and mud loggers asking questions and communicating at a level I’ve never seen before. Ultimately it allows us to identify competency gaps so we can work on them.

Does this type of program have applications in other parts of Chevron?

We are in the process of broadening it to our rigless operations and looking at applying an assurance process to operations like perforating, coiled-tubing work and fracking. We want to ensure competency in those areas and make sure we’re doing everything we say we’re doing.

What else can the industry do to improve safety?

I think the industry, including Chevron, is really focusing on the significant incidents and how to prevent them. We’ve done studies on serious and fatal incidents and looked at the assurances against those events. What’s different is we’re no longer just looking at the actual incidents that occurred but also at the potential. Even for near-misses. No one was hurt in this incident, but could they have been and at what severity?

We’re also focusing on ensuring the overall competency of our engineers. We’re putting in place a program called Pathways that looks at assuring the competency of our people, identifying and closing the gaps as their career progresses. We can’t do what we do without our people, so it’s important to make sure that we have the right people and then to continue investing in them.

There’s a big surplus of rigs in the offshore market. When you’re considering hiring rigs, are you only interested in the newest rigs with the most advanced technologies? How can contractors bring value with their older assets?

Some projects require the latest technology, but there are still situations where companies can take their older assets and, with a little bit of upgrades, they’re still applicable. However, if it’s an older asset, you really have to evaluate whether the asset should still be out there. Also, what things are you doing to ensure safety, well control, quality assurance and the competency of your people? The kit doesn’t have to be the most advanced out there, but what have you done to make sure it’s a quality piece of equipment and that it offers the things that we need to be successful? Certainly I’m not going to put a kelly on one of my rigs, but if it doesn’t have the latest software or control system, you’ve got to make sure you have the best crew and they can perform.

Ultimately, I believe that you can have a great piece of equipment, but without the right people running that piece of equipment, it won’t matter. So I always go back to people – their quality, their competency, their development.

The other aspect of this conversation is the economics. If you’re going to use an older asset, it might not be competitive with the high-tech rig on performance. For operators, it comes back to the total cost of ownership.

What innovations do you expect or hope will come out of this downturn that we’re going through now?

I’m seeing contractors getting very innovative about how they approach business. They’re looking at value creation contracts – how do we do more for you with the people we have so you don’t have to call out a third party to do that work? Oftentimes their people can be trained very quickly to do that piece of work, so we don’t need as many people on location. For example, how can we utilize mechanics who are already onsite so a third party doesn’t need to come out with another mechanic?

I’m seeing a lot of innovation in how we use our people on location and how we approach logistics. There’s still technology development going on – for example, how we can use less water in fracking and how can we make a smaller footprint on land – but the real innovation is around these value-based outcomes. In this downturn, people are getting more business savvy in how to make themselves more relevant in ways they weren’t before. I’m enjoying this creativity, and it’s not the operators driving it. Contractors are coming to operators with these opportunities. I think the business innovation is pretty spectacular.

Prices for all goods and services have decreased across the industry. Why aren’t more operators taking advantage of these lower prices to position themselves for the next market rebound? What are the challenges to doing so?

The answer to the first question is obviously capital constraints and long-term contracts. The second question is more interesting. When operators try and lock up these low prices for longer periods, there are actually a lot of service providers who don’t want to do that. They don’t want to be locked into the low price and miss out on an uptick. It’s an interesting dynamic.

I didn’t know that optimism was so high for prices to pick up again.

There is optimism that activity is going to pick up near term and eventually for prices. We’re already seeing the rig count increasing onshore. We are an incredibly resilient and innovative industry, so I think we will find a way to make things economic at $50 oil. We will find ways to make deepwater projects economic. But it’s going to take creative people and out-of-box thinkers, and we really have to learn to maintain our cost discipline even when commodity prices go up. DC

Click here to read DC’s coverage of Chevron’s WELLSAFE program from September 2013.