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Fighting low oil prices with innovation

The energy industry has fallen on rough times as of late causing a spate of layoffs, stacked rigs and budget cuts. But despite the market climate and reduced spending, production levels are holding steady, evidence of the ongoing technological advancements being applied to oil and gas production, allowing producers to do more with less.

Total CEO Patrick Pouyanne told the New York Times, “You are more efficient because you are forced to be more innovative.” About a year ago, he said, the break even cost for operators in the majority of the U.S. shale plays was about $75 per barrel. Currently, though, that price is approximately $60 per barrel due to continued improvements and reduced service costs. He predicts that the break even cost will continue to decline and could even drop to $50 in the near future.

The innovations being implemented vary widely across the industry and with the size of each company. Some firms are making changes such as toying with different chemical cocktails and types of frac sand as a means to increase production. Other companies are reevaluating how drilling systems are monitored, while some are adjusting how a well site’s power demands are met.

Rather than relying on pumps that operated 24 hours a day, for example, some companies are beginning to use systems that can turn on and off as needed. By using variable-speed controls and computing systems developed by GE Oil & Gas, companies like Statoil are able to decrease fuel consumption by up to 20 percent.

With pumps no longer operating continuously, the costs for repair and maintenance are reduced enough to shave up to three dollars from the per barrel production costs. As reported by the NY Times, GE Oil & Gas General Manager for Automatization and Optimization Ron Holsey said, “Our industry is very slow to adapt to change, so these shake-ups can be good for challenging operators to find better ways to do things.”

In addition to utilizing the new control systems, Statoil is working with GE to test the effectiveness of using energized fluids to replace water in the hydraulic fracturing process. This summer in the Bakken formation, Statoil will explore using an enhanced oil recovery process by injecting liquefied carbon dioxide. As reported by the New York Times, Statoil’s Eagle Ford Operations Manager Ben Mathis said, “We can’t control the commodity prices, but we can control the efficiency of our wells. The industry has taken this as a wake-up call to get more efficient or get out.”

Other firms are taking actions such as drilling multiple wells at once rather than one at a time by employing moveable rigs. By using these ‘walking rigs’ companies are drilling and completing multiple wells at a time, drastically reducing the time required to drill each well. As a result, the decline in domestic shale oil production has declined much slower than many analysts had predicted.

A Denver-based company, though, has developed an entirely new production system that promises to dramatically reduce operating costs. Liberty resources’ method aims to significantly reduce the need for trucks hauling materials to and from well sites by building an infrastructure network which supports a specific well site.

Realizing that truck traffic heavily impacts local communities and adds significant costs to the production process, the company is focusing on utilizing pipeline networks instead. “Our idea was to build the world’s greatest oil factory,” Chris Wright, CEO of Liberty Resources LLC told the Wall Street Journal.

The new system is a drastic change compared to the strategies used during the beginning of the Bakken shale boom in 2008 when operators were scrambling to secure acreage. As reported by the WSJ, Associate Director of the Energy and Environmental Research Center at the University of North Dakota John Harju said that today companies “are going about this is a much more methodical way.”

Rather than drilling impromptu wells to capitalize on peak oil prices as quickly as possible, Liberty is thoughtfully developing a 96-well development dubbed “Stomping Horse.” The 10,000 acre site will be developed as a unified project with centralized pipeline infrastructure to transport water as well as oil, a disposal well and a tank battery, all in the name of operating cost reduction. Additionally, the operation will require fewer workers leading to a 34 percent reduction of field-personnel costs. Chris Clark, the site’s production manager, told the WSJ, “We are spending more to make more. We’ll still make money at $50 a barrel.”

The continued innovations are a testament to the ingenuity being employed in U.S. oilfields. While many speculated that the dramatic fall in oil prices last year combined with the sustainability of Middle Eastern oil output could have a dire impact on domestic operations, innovations within the industry are proving the long-term viability of North American oil and gas production.

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