Avoiding oil field technical debt
Stung by the recent COVID-19 oil slide, oil companies are trying to avoid excessive financial debt. But technical debt must also be paid in the future. And its ravages can restrict cash flow and curtail reserves.
This blog post is brought to you by Proven Reserves Exploitation, one of our information partners. Nein commercial use of der AppIntel content.
One operator complained about the operating errors of properties acquired from another operator. She blamed this technical debt for current compliance problems. But the regulator required her to fix the problems anyway.
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What is technical debt?
At Proven, we borrow the term technical debt from the IT industry.
Technical debt is the amount of money that must be spent to correct an oil field from the way things were done before. Tech debt is incurred by using shortcuts in the past. It is also incurred by ignoring maintenance. It also comes from new and changing technology.
Whence Technical Debt?
Where does technical debt come from?
The tech debt matrix helps explain the sources oil field technical debt.
Some debts are deliberate. The operator that incurred them did so on purpose.
Some debts of inadvertant. The operator that incurred them we not aware of the problem they were creating.
This will be someone else's problem
A reckless way to incur tech debt is to pump up the production rate without concern for reserves, while cutting corners on operational stability and reservoir recovery.
The rationale behind this approach is the intention to sell the asset quickly and let the next owner deal with the problems created by neglect.
This type of tech debt doesn't show up on the seller's financial balance sheet, but it will certainly show up on the buyers later.
Example: Ignore workovers and abandonments and understate the future costs. Then sell knowing the buyer will be faced with spending all the workover and abandonment costs.
Example: Drill all your horizontal wells North/South, because it doesn't matter what's in the reservoir. When the next operator tries to flood the pool, they will have instant breakthrough. Too bad for them.
Reckless? Not always.
But not all deliberate debts were incurred recklessly. Some deliberate tech debts were incurred prudently believing that the resulting consequences would be acceptable in the future.
Example: A prudent agreement to grant an overriding royalty may get a deal done, but it will reduce the value of an oil field and shorten its life.
Oops. Inadvertant tech debt
When an operator incurs technical errors inadvertantly, he can either learn from the experience or go on in ignorance.
The more often an inadvertant technical debt is repeated, the larger it becomes and the more costly to fix. First generation horizontal wells are often riddled with this type of tech debt.
Tech debt incurred by changing technology - IT
In the IT industry legacy programs written yesteryear are now running on outdated hardware, operating systems and languages. For example, a business critical COBOL payroll program running on a PDP-11 is in danger of crashing when one can no longer repair the old mainframe nor update the data files.
The technical debt of this example is expressed in the cost of the new computer hardware, operating system and languages. But the biggest technical debt is the refactoring (IT term for reprogramming) a new payroll system in the new computer environment.
Tech debt incurred by changing technology - Oilfield
As oilfield technology changes, a technical debt is incurred as yesteryear's wells, pipelines and facilities require upgrades.
Example: 1960 vintage vertical wells drilled with surface casing that doesn't meet today's standards creates a future technical debt for repair, danger of failure, and costly abandonment.
Example: First generation horizontal wells drilled in the wrong place or orientation create a tech debt cost of reduced production when a flood is initiated. First gen horizontal well technology just didn't embrace directional permeability.
Horizontal well redrills and refracks are also manifestations of technical debt.
Avoiding tech debt by watching the operations of others
You may be able to find out how others are optimizing floods by reading regulatory applications. There are over 10,000 enhanced recovery applications in Alberta alone. If you want to learn, time to get started reading.
You can search for anything in an application using AppIntel. Just type into the KiP box
plugged injector or
tight flood or
You can even have AppIntel send you interesting enhanced recovery scheme applications as soon as they are registered.
Avoiding tech debt by piloting
Another way to avoid technical debt is by running a pilot of an operation. A small scale pilot can be used to iron out the bugs of a reservoir process.
There will always be additional problems with scale up, but at least these aren't intertwined with a poorly conceived reservoir process in a well piloted project.
Fixing technical debt in floods
Part of Proven's skill set is fixing the tech debt of legacy floods. The tech debt of a legacy floods is the cost of the lost production that could have turned into cash flow.
Most operators used the set and forget method of initiating a water flood. The neglect created a technical debt that is costing the industry in Alberta $10 billion this year.
Unfortunately there are very few flood engineers left.
Improving a flood takes a special set of skills. These are not taught in university. You cannot read them in a book.
Most of the experienced flood engineers left the industry over the last ten years. Some retired. Some moved to other industry. Some retrained to be doctors.
Tags: Tight, Flood, AppIntel advantage, Acquisitions, Cut costs
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