For many energy executives, market uncertainty is transforming capital spending planning from an annual process with quarterly updates to an exercise that plays out in real-time so that funds can be swiftly redeployed for greatest impact.
At a high level, it’s a reality driven by the need to identify whether capital is most effectively focused on existing assets or on new play development, acquisitions, dividends, debt repayment and share buybacks.
If the decision is to spend on existing assets, it’s become essential to have a deep understanding of those assets and to identify infrastructure to support production and address surface issues, as well as the associated risk.
To help create value amid such challenging conditions, many companies are now using cloud-based applications to access data and visualization tools, said David Hood, chief executive officer of geoLOGIC systems ltd.
“There are internal efficiencies realized by increased productivity as workflows are optimized and collaboration improves across asset teams using the same data as a single source of truth. Business intelligence tools speed decision-making, enabling companies to better manage capital spending plans in fast changing commodity markets.”
Immediate access to accurate, continually updated and curated data presented in a way that enables quick evaluation, analysis and forecasting can help ensure capital is invested wisely.
To focus capital spending where it will have the greatest impact relies on the ability to integrate data sets from across disciplines, within and across geographical areas, and across corporate boundaries.
Data can help answer several questions:
- Does the current and forecasted production mix in the context of the reservoir characteristics of the asset make investing sense in expected commodity markets?
- What can we learn from adjacent competitor assets to better understand the reservoir potential over time that could impact this decision?
- Does it make sense to spend on drilling or is capital better deployed on maintenance, repair and operations (MRO) to optimize production?
- If drilling makes sense, which assets will provide the greatest return on capital employed?
- Which individual drilling targets offer the highest return on investment?
- Which assets are nearing end of life and ready for decommissioning that could improve liability ratings and free cash for other purposes?
“In the current market environment, many E&P management teams believe investing in mergers or acquisitions, or new plays, is a better use of capital to grow free cash flow or to build the scale they believe is necessary to attract capital and keep shareholders invested,” said Hood. “The data and processes needed to evaluate acquisitions are similar to those required to understand existing assets.”
For most of the last decade there has been an intense focus on driving down costs in response to the “lower for longer” commodity cycle. Gradually, focus has shifted to finding a balance between costs and productivity gains. With most capital expenditure tied to drilling and completing wells, the attention is on optimizing performance in this segment.
“There is an extremely complex interrelationship between reservoir geology, rock characteristics and how different technologies applied during the process of field development interact with the reservoir and affect performance,” said Terry Jbeili, geoLOGIC’s president and chief operating officer.
“How well asset teams understand the reservoir and make relevant engineering and technology choices affects asset value. This requires the ability to validate and integrate numerous data sets and to be able to understand how shifting different variables impacts overall productivity.”
For example, in an unconventional play, the ability to manipulate key data sets and visualize and integrate these data and resulting models in a common platform is crucial to inform an understanding of which engineering and technology choices made during the field development process impacted productivity in specific plays at the well, pad or field level.
A common starting point during the exploration or appraisal phase is to gather key geological and engineering data that can be integrated to provide a more complete understanding of rock quality and reservoir productivity potential. Actual well and pad performance data can be collected and integrated to further inform the model.
“The ability to access, manipulate and visualize these multi-disciplinary data sets to refine reservoir models so they can be used predictively is fundamental to any field development plan,” added Jbeili.
Cloud computing can further enable this process by allowing integration of internal and external data sets on one platform to improve workflows, while providing opportunities for greater collaboration across asset teams.