Schlumberger: Innovating in a Low Price Environment

How one oil services company is leveraging digital technology to become a low cost, high quality service provider.

Oil & Gas: No longer a horse and carriage operation
Imagine you are an oilfield engineer and have just started logging a well on your client’s rig that costs tens of thousands of dollars per hour to operate. Suddenly, your tool stops working downhole. You troubleshoot common issues without any luck. You don’t have a backup tool with you in the field because there were none available when you loaded up for the job. With no other options at this point, you call into your local shop for a replacement tool to be sent to location, but you will have to wait many hours as the only tool available is coming from a different location. The company man comes by every thirty minutes to remind you that you’ve wasted time and money. After the job, you run some maintenance tests and find out the tool had been ignored and not serviced for over a year.

This is a common issue in oil field operations today. While there have been many technological improvements over the last century, upstream production still relies heavily on human labor and analog asset tracking tools, leaving room for inefficiencies in execution.

In the early 1900's, operators realized that it was more efficient for mule teams to transport crude in large tanks rather than barrels [11].
In the early 1900’s, operators realized that it was more efficient for mule teams to transport crude in large tanks rather than barrels [11].
Kern River Oilfield in Bakersfield, CA today [1].
Kern River Oilfield in Bakersfield, CA today [1].
 

 

 

 

 

 

 

 

 

The Oil Slump: Need for Efficiency
In June 2014, Brent crude oil prices began to free fall from $113/bbl to $28/bbl two years later, and have been lingering in the $40-$50/bbl range since [13]. This blow to the oil industry presented many challenges, including massive layoffs, price cuts for service companies, and the need for companies to trim operations costs across the board.

Schlumberger: A Tradition for Innovative Technology Development
Schlumberger is an integrated oil services company that provides exploration and production services to operating companies (e.g. Chevron, Exxon, etc.). Since Schlumberger’s inception in 1927, with pioneering wireline logging technology, the company has put innovation first. Recently, however, they have realized the new oil paradigm requires a company-wide operational transformation to reduce costs through increased labor and equipment utilization, improved asset management, and reduction of non-productive time for the client [3].

Keeping Track of Travelling Assets
As Schlumberger assessed its operations in the wake of the downturn, it considered where the greatest inefficiencies consistently appeared. They concluded that reduction in field capital equipment costs and integration of their decentralized tool management system would improve service delivery, while cutting costs.

To do this, they needed to predict their tools’ maintenance needs, history, and location. Thus, they developed software applications to monitor field equipment, and alert personnel when the equipment required maintenance or had an urgent issue. Schlumberger also centralized use of their asset tracking system, allowing greater flexibility to transfer tools around the globe to the districts with high job type variance (requiring a diverse range of tools), leading to reduced capital expenditures and higher tool utilization [3].

Spanners to Barcode Scanners: Training Field Personnel
While tool reliability issues account for one quarter of Schlumberger’s non-productive time, the core issue they need to address is reliability related to operational processes. Schlumberger has implemented strict procedural adherence policies for all checklists and standard work instructions. Schlumberger is also training all field crews to use digital tracking (barcodes & RFID) to accurately measure key tool metrics (number of jobs deployed on, commission date, calibrations, failures, etc.) when they perform maintenance or jobs [3]. These methods help each district deliver higher service quality and ensure each task is performed correctly the first time, every time.

Implementation of these digital technologies in the field, however, requires significant behavior change from all field crews. While this is an enormous undertaking, the downturn is the perfect time to implement these process changes due to reduced activity.

Oilfield Digital Technology: The Future

Remote logging engineer working from his office while operators, tools and truck are deployed on the job in the field [2].
Remote logging engineer working from his office while operators, tools and truck are deployed in the field [2].
Schlumberger has taken a few big steps towards a digital overhaul of their operational processes and asset management, but they have many more opportunities to further reduce costs. Schlumberger is currently working on remote logging and drilling operations—a drone pilot model that eliminates high wage engineers from the field [2, 7]. While this program is in its early stages, it has shown some promising results that can contribute to efficiency and higher service quality.

Example of maintenance workflow in Parsable mobile application [4].
Example of maintenance workflow in Parsable mobile application [4].

 

A start up, Parsable, has developed a mobile application, allowing Schlumberger to publish all standard work instructions to field operators via mobile device [4]. As operators complete their work in the field or shop, they can track progress in real time. Management can then use data collected through the app to track, analyze and ultimately improve operations across multiple user groups and individual contributors [4].

Schlumberger’s response to the new low price environment requires a major overhaul of processes and technology, but they’ll be ready to beat the competition if oil production ramps up soon.

What other digital technologies do you think could improve Schlumberger’s operations?

Word Count: 798

References
[1] http://www.nytimes.com/2014/07/08/us/california-drought-chevron-oil-field-water-irrigation.html.
[2] Schlumberger, “Remote Monitoring Enables Critical Drilling Surveillance on Platform with Limited Space.” 2014 http://www.slb.com/~/media/Files/geoservices/case_studies/gs_remote_mud_logging_interact_cs.pdf
[3] Schlumberger 2015 Annual Report; 2015 file:///C:/Users/sonja/Downloads/SchlumbergerLimited2015AR.pdf
[4] https://www.parsable.com/
[5] Choudry, Harsh, et. al., “The Next Frontier for Digital Technologies in Oil and Gas,” Mckinsey & Company: August 2016
[6] Whittaker, Phillip, et. al., “Killing the Complexity Monster in E&P: Eight Critical Actions for Upstream Oil and Gas Companies,” Boston Consulting Group: January 13, 2015
[7] Ramakrishnan, Terizhandur S., et al. “Methods and apparatus for remote real time oil field management.” U.S. Patent No. 7,096,092. 22 Aug. 2006.
[8] Mahdavi, Mehrzad, P. P. Darukhanavala, and Donald Paul. “Bringing the Digital Oil Field to Production Operations.” Journal of Petroleum Technology61.11 (2009): 18-20.
[9] Feblowitz, Jill. “The big deal about big data in upstream oil and gas.” Paper & presentation, IDC Energy Insights (2012).
[10] Crawford, Mark L., and Rick Morneau. “Accelerating Progress Toward Achieving Digital-Oilfield Workflow Efficiencies.” SPE Annual Technical Conference and Exhibition. Society of Petroleum Engineers, 2010.
[11] http://www.sjvgeology.org/old_stuff/trucks/taft_barrels2.jpg
[12] Jiang, Zhi-Qiang, Wen-Jie Xie, and Wei-Xing Zhou. “Testing the weak-form efficiency of the WTI crude oil futures market.” Physica A: Statistical Mechanics and its Applications 405 (2014): 235-244.
[13] Bloomberg Markets https://www.bloomberg.com/quote/CO1:COM ; Accessed November 13, 2016

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3 thoughts on “Schlumberger: Innovating in a Low Price Environment

  1. Companies such as Schlumberger must continue to leverage technological innovation to reduce operating cost. As oil becomes more scarce in our world, the cost to access it will become increasingly more expensive and, with current technology, uneconomic. Projects such as the Canadian Oil Sands require a break-even point (in price per barrel) ranging from $65-$70 to $90-$100 and higher. Furthermore, as renewable capacity continues to grow, fossil fuel based costs will be increasingly unappealing to consumers. After all, who wants to pay for energy when the marginal cost of an additional unit of solar power (once installed) is zero? According to McKinsey, the oil and gas sector could “reduce capital expenditures by up to 20 percent; it could cut operating costs in upstream by 3 to 5 percent and by about half that in downstream” by leveraging digital technologies. [2] To accomplish this objective, they identified three main categories for the application of digital technologies:

    • Operations of the future (e.g., enhanced monitoring and maintenance)
    • Increased reservoir limits (e.g., 4-D seismic imaging in tandem with 3-D imaging typically increases the recovery rate by as much at 40%)
    • Digital-enabled marketing and distribution (e.g., better understand customer habits to optimize pricing models and better manager supply changes)

    As the globalized world continues to develop, energy demand will continue to rise dramatically and, despite the introduction of clean energy, oil & gas will have a significant role to place in powering (affordable) worldwide growth.

    [1] Tony Seba, “Clean Disruption” (Silicon Valley, California: Clean Planet Ventures, 2014), p. 176.
    [2] Harsh Choudhry, Azam Mohammad, Khoon Tee Tan, and Richard Ward, “The Next Frontier for Digital Technologies in Oil and Gas,” McKinsey & Company Online, August 2016, [http://www.mckinsey.com/industries/oil-and-gas/our-insights/the-next-frontier-for-digital-technologies-in-oil-and-gas], accessed November 19, 2016.
    [3] Ibid.

  2. Thanks for a great post! In a commodities business like oil & gas, it’s important for companies to continuously innovate and stay ahead of the curve. With oil prices bottoming out, Schlumberger is in a great position with its digital overhaul. I found it interesting that Schlumberger has also strengthened its innovation during this downturn with the acquisitions of companies such as Cameron and Omron Oilfield and Marine. The company has positioned itself with a suite of technology products. It will be interesting to see how successful the company is with the integration of these businesses and the impact these acquisitions have on existing operations.

  3. Great post, Sonja! What strikes me most about digital innovation in the oil industry is the fact that the whole industry seems to have underestimated the impact of digitization and only now ramped up major research into digital oilfields. Do you think that the low oil price and generally heightened price volatility in global markets was the ultimate trigger for the recent focus on digital oilfield activities for many oil and gas companies? Were oil and gas companies complacent for too long, underestimating the competitive angle of renewable energy sources, such as wind and solar? It seems to me that the renewable energy industry has included digital/big data initiatives from the beginning and as a result is now way better equipped to use big data for competitive activities, not least pricing.

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