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DRILLING
D RILLING & S T I M U L AT I O N
STIMULATION
COMPLETION & PRODUCTION

Cement Additives:
improves cement Drilling Chemicals: Production Chemicals:
performance and bonding Inc
Increase drilling speed, efcient cuttings fewer interventions and more
for better zonal isolation. removal
rem
re moval and reduce downtime. production.

Casing Accessories:
ensure the integrity of
the well construction and
cementing operations.

Drilling Motors: Downhole Drilling Tools: T Stimulation Chemicals:

Sti
Stimu
vertical and directional motors full range of drill string
g components to increase
increa
inc a load recovery,
with Sealed Bearing and Mud make drilling more efcient
cient and reduce hydrocarbon
hydro
hyd ro production, lower
Lube congurations. non-productive time. pumping friction and increase ROI.

Teledrift Measurement While Stemulator: Articial Lift:

Drilling: improve penetration rate ate by inducing
induc
in ing axial
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continuous measurements to surface vibration in the drill string
ng to reduce friction
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ri support to help lower cost, improve
while drilling, satellite-based remote drag and sticking. reliability and deliver more
monitoring and certication for faster production.
and more accurate drilling.
 CommentDavid Bizley, Editor
Contact us
david.bizley@oilfieldtechnology.com
Editorial
Managing Editor: James Little

T
hese are interesting times for the upstream oil james.little@oilfieldtechnology.com

and gas industry, with the last six months or so
throwing up both new opportunities and new
challenges.
OPECs unexpected decision to instigate production
cuts from 1 January revitalised an ailing industry and
Editor: David Bizley
david.bizley@oilfieldtechnology.com
Design
Production: Charlotte Reynell
charlotte.reynell@oilfieldtechnology.com

saw oil prices bounce back up above US$50/bbl, marking the beginning of a
tentative recovery. Sales
Donald Trumps victory in the US presidential election also provided Advertisement Manager: Ben Macleod
ben.macleod@oilfieldtechnology.com
something of a morale boost to the industry. Trumps pro-fossil fuel
Business Development Manager: Chris Lethbridge
comments and promises to cut red tape and open up federal lands for chris.lethbridge@oilfieldtechnology.com
drilling sent a clear sign that the new administration was seeking a more
industry-friendly approach. Website
As a result, a renewed sense of (cautious) optimism has emerged, with Website Manager: Tom Fullerton
stalled projects finally being given the go-ahead and new plans being tom.fullerton@oilfieldtechnology.com
made. Over the course of the downturn, the industry was forced to evolve Digital Assistant Editor: Angharad Lock
into a leaner, more efficient entity. New technologies, and an increased angharad.lock@oilfieldtechnology.com
focus on the digital oilfield concept have meant that even hard-hit sectors,
such as offshore, are beginning to see a recovery. Whilst, we may not see Marketing
US$100/bbl again, it seems that much of this newly dynamic industry can Subscriptions: Laura White
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This special supplement takes highlights from recent issues of Administration: Nicola Fuller
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Oilfield Technology, which cover some of the key challenges facing the
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Oilfield Technology | 1
2|
MICHELLE GOMEZ,
DOUGLAS-WESTWOOD, PROVIDES AN
OVERVIEW OF THE UPSTREAM INDUSTRYS
PROSPECTS IN ASIA.

T
he effects of the oil price collapse have been widely
published with headlines in the upstream sector often
containing themes of Capex cuts, postponements
and cancellations, lower oil prices for longer, seemingly a daily
ritual. Yet amidst the unwelcome news over the past one and
a half years, comes a long awaited 1.2 million bpd supply cut
committed to by OPEC an agreement which was reached on the
30 November 2016 following several futile meetings by the cartel.
While this early Christmas gift presents significant hope for the
wider oil and gas sector, the industry continues to go through an
extremely rough period. Douglas-Westwood estimates upstream
Capex declines of 35 and 14% in 2015 and 2016, respectively.

|3
 As with the rest of the world, Asia has not been spared from the
realities of the oil and gas downturn. The region has seen divestments in
Asian E&P assets from the likes of Chevron and Murphy Oil. The services
sector has also been impacted and has witnessed the liquidation
of leading provider Swiber and Swissco fall in the red. Additionally,
headcounts have been reduced by some of the bigger industry names
such as Petronas and Keppel Shipyard amongst others. Exacerbating the
state of the industry are Capex cuts by end users Petronas and CNOOC
who have announced RM15 billion (US$3.4 billion) and RMB10 - 20 billion
(US$1.4 - 2.9 billion) cuts respectively, inevitably having a knock on
effect to the rest of the supply chain service providers and equipment
manufacturers. However, while dark clouds loom, the industry should
not lose sight of a number of opportunities.
Accounting for 42% (BPs Statistical Review) of energy demand,
Asia-Pacific (APAC) will continue to be the backbone of global
requirements. From a macro-economic perspective, the regions
long-term demand fundamentals remain robust. China and India, the
regions economic powerhouses, collectively account for 37% of the
global population and 28% of world energy consumption. Present
GDP growth rates are estimated at 6.9% and 7.6% and are expected to
remain positive in the foreseeable future. Continued positive growth
rates for key leading indicators (GDP and population growth) will drive
energy requirements, with BP expecting associated energy demand for
both China and India to reach nearly 5893 mtoe by 2035, a 61% increase
compared with the 2015 figure and an estimated 34% share of global
requirements. Looking at the region as a whole, APACs oil and gas
demand is estimated to grow by 37% and 73% respectively.
On a supply front, Asias hydrocarbon production accounted for
approximately 10% of global output in 2016 and is expected to increase
from the current 15.9 million boe/d to 17.3 million boe/d by 2022 (6%
growth), with gas accounting for all of this growth. Notably, recent
years have seen traditional hydrocarbon producers such as Malaysia,
Indonesia and Brunei challenged by oil production decline from mature
fields. Longer term, however, the regions investments in offshore,
unconventional as well as deeper water plays are expected to offset the
decline, particularly in natural gas.
Over the next four years, more US$150 billion is expected to be spent
on offshore developments in APAC, contributing 38% of global offshore
expenditure. With activity expected to pick up as commodity prices gain
momentum, the following themes will characterise Asias upstream
development in the coming years:
NOCs have been and will continue to be key investors
in upstream E&P field development programmes
Over the next five years, 62% of fixed platforms, and 32% of
subsea tree installations in Asia will be accounted for by NOCs, the
majority of which will be rolled out by CNOOC, ONGC, Pertamina,
Petronas and PTTEP. Associated with NOC dominant countries are
protectionist measures and local content policies, which favour
local businesses/partners as well as vessel owners. This is unlikely
to change in the mid to long-term, unless an undersupplied market
surfaces. Markets such as Myanmar, which have less protectionist
measures in play, will in turn see significantly more IOC involvement.
Gas will take centre stage
Whilst oil production is set to decline in all of the key Asian producers
over the next six years, gas output will see significant gains. The majority
of this gain will come from shallow water gas plays across the region as
E&P companies take advantage of gas- and LNG-hungry local economies.
Additionally, the five-fold increase in Chinas recoverable shale gas
reserves, lifting of sanctions in gas-rich Myanmar and the development of
Indias untapped gas market (whose development has been impeded by
4 | Oilfield Technology
economic viability and transmission infrastructure) supports anticipated
growth in gas output. Chinas three NOCs currently have shale gas projects
operational and starting to produce notable volumes, though none are
at a stage of full commerciality. Gas consumption in APAC is anticipated
to grow by 73% by 2035, with LNG being a key enabler in facilitating
distribution. The shutdown of Japans nuclear reactors following the
Japanese Fukushima accident in 2011 saw associated LNG requirements
skyrocket. Japan is currently the largest buyer of LNG, accounting for
34% of global demand. The next largest buyer, South Korea, accounts
for 13% of global LNG demand. While the two North Asian countries
collectively import nearly half of the global total, associated requirements
are expected to weaken as both countries look to substitute to alternative
energy sources such as coal and nuclear particularly in the case of Japan
as it looks to restart nuclear reactors shut-down in 2011. Despite this, an
anticipated growth in regasification import capacity (and consequently
an increase in LNG demand) in China and India are likely to cushion the fall.
Interestingly, on a country level, national strategies have evolved
to capitalise on the burgeoning gas market in the region. Singapore,
whilst not endowed with hydrocarbons, is positioning itself as a natural
gas hub, tapping into its favourable geographic position of being in the
centre of East Asian LNG-hungry nations and large LNG export centres
in the Middle East, South East Asia and Australasia. Presently with a
storage capacity of 800 000 m3, Singapore is looking to venture into LNG
bunkering as well as nitrogen blending of regasified LNG.
Whilst traditional Asian producers will remain,
Myanmar has grabbed the headlines
Traditionally dominant producers in Asia such as China, Indonesia and
Malaysia are facing challenges in maintaining hydrocarbon output.
Acknowledging its plight, Malaysia has an economic transformation
programme (ETP) in place to revive its oil and gas sector through marginal
field development, rejuvenation of fields through enhanced oil recovery
(EOR) amongst other E&P and supply chain directed initiatives. Indonesia
has seen long-term production decline until recent production additions
from Banyu Urip in 2016. However, it will take more discoveries and
developments to delay further production decline given the maturity of its
fields. Myanmar, however, is attracting the limelight even in a depressed
macro-economic environment. Notably, the country has in recent
years attracted the attention of international players such as Shell and
Woodside. The latter made two significant deepwater gas discoveries this
year, one big enough to justify a fast-track to production within three years.
Growing competition amongst Asian nations
expected
Increasingly apparent is the intensifying competition amongst countries
for resources and business opportunities. The ongoing South China Sea
territorial dispute amongst Brunei, China, Malaysia, Philippines, Taiwan,
and Vietnam for the Paracel and Spratly island groups, has led to
underlying political tension. The shifting of shipbuilding and subsea hubs
away from Singapore in favour of more cost competitive centres such as
China (for ship and rig building) and Malaysia (subsea clustering) creates
immediate rivalry amongst nations trying to compete for the same
volume of work.
The industry must continue to trim the corporate fat, align
business segments to best capitalise on the move to gas, deepwater and
unconventional production and simultaneously look to gain traction
in new or expanding Asian markets, whilst taking into consideration
potential protectionist measures. Where cost is no longer a differentiator
or an advantage, businesses/national strategies should be centred
on developing a niche or rather a unique selling proposition. Exciting
opportunities lie ahead but until this hurdle is overcome, market forces will
be ruthless in eliminating the uncompetitive.
 LD
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O
n April 20, 2010, the Deepwater Horizon drill rig
blew up in the Gulf of Mexico, killing 11 workers and
releasing almost 5 million bbls of crude into the
sea. By the time the well was sealed five months later, it had
caused massive damage to marine creatures and habitats,
tourism and fishing. BP, rig operator TransOcean and service
company Halliburton were found largely responsible; BP
paid over US$60 billion in fines and civic settlements.
But the tragedy had repercussions that reached far
beyond the event itself. In a report commissioned by the
administration of President Obama, the authors noted
that the incident resulted from cost-cutting decisions
and an inadequate safety system. Chillingly, it said;
Absent significant reform in both industry practices and
government policies, (another equally serious incident)
might well recur.

|5
 In the aftermath, the oil and gas industry formed trade
associations such as the Centre for Offshore Safety (COS), which
helped develop and implement the Safety and Environmental
Management Systems (SEMS) audit. It also established the
Marine Well Containment Company, with the express purpose
of designing, building and maintaining a rapid response
well-blowout containment system for offshore wells.
In addition, the government agencies responsible for
overseeing offshore oil and gas activities were overhauled,
leading to the creation of, among other bodies, the Bureau
of Safety and Environmental Enforcement (BSEE). The
BSEE established a commission to elevate safety beyond
a mere checklist-inspection attitude, toward a systemic,
comprehensive approach to compliance. Prescriptive
regulations can reduce risks to worker safety and the
environment, but they alone are not enough, says BSEE
Director James Watson. Everyone working in the offshore
industry must adhere to a set of core values that places safety
above all else.
In 2013, the BSEE released the Safety Culture Policy
Statement (since enshrined in legislation). The agency defined
Safety Culture as the core values and behaviours of all
members of an organisation that reflect a commitment to
conducting business in a safe and environmentally responsible
manner.
The statement contained nine characteristics that are
indicative of a robust safety culture;
Leadership Commitment to Safety Values and
Actions. Leaders demonstrate a commitment to safety
and environmental stewardship in their decisions and
behaviours.
Hazard Identification and Risk Management. Issues
potentially impacting safety and environmental
stewardship are promptly identified, fully evaluated, and
Figure 1. Elements of a compelling business case.
6 | Oilfield Technology
promptly addressed or corrected commensurate with their
significance.
Personal Accountability. All individuals take personal
responsibility for process and personal safety, as well as
environmental stewardship.
Work Processes. The process of planning and controlling
work activities is implemented so that safety and
environmental stewardship are maintained while ensuring
the correct equipment for the correct work.
Continuous Improvement. Opportunities to learn about
ways to ensure safety and environmental stewardship are
sought out and implemented.
Environment for Raising Concerns. A work environment
is maintained where personnel feel free to raise safety
and environmental concerns without fear of retaliation,
intimidation, harassment, or discrimination.
Effective Safety and Environmental Communication.
Communications maintain a focus on safety and
environmental stewardship.
Respectful Work Environment. Trust and respect
permeate the organisation with a focus on teamwork and
collaboration.
Inquiring Attitude. Individuals avoid complacency and
continuously consider and review existing conditions and
activities in order to identify discrepancies that might result
in error or inappropriate action.
Dr. Scott Shemwell is a Houston-based oil and gas
consultant and principal with The Rapid Response Institute
(RRI). In the last several years, he has been participating in the
implementation of safety culture, and has seen a mixed bag of
compliance. The largest companies have mapped it into their
operating systems, he notes. But many companies are having
a hard time adhering.
Part of the challenge originates in the impetus that impels
a company to improve its safety. In the event of a tragedy,
the emotional case for change is easy to make, says
Shemwell. I once spoke to the head of a service company
that had an accident in which a worker was killed. The CEO
had to go to the family and personally tell the news. He
said: Im never going to do that again, and revamped the
company from top to bottom using a scenario analysis that
covered everything from soup to nuts. Since then, they have
had a very strong track record.
Most companies are motivated by the bottom line,
however. The business case is different from the emotional
case, says Shemwell. You are looking at events that could
potentially jeopardise the viability of the corporation.
Management has a responsibility of safety to their
employees and their clients, but also their investors.
Creating a business case for safety is all part of a larger
corporate strategy, commonly referred to as operational
excellence (OE). There are several main criteria for
operational excellence, says Shemwell. You want to be in
the top quartile of asset performance, have an immaculate
reputation and distinctive capabilities. In addition, you
want to have a high performance culture, world class HSSE,
and best-in-class processes and systems. You do all of this
in order to achieve a competitive advantage. According to
McKinsey, world class OE can add 30% to the value of your
asset base.
While it is relatively easy to pin numbers (such as key
performance indicators, or KPIs) on many of the OE criteria,
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safety is not something easily quantified. Thats where the
business case methodology comes to bear. The concept comes
from the book called From Good to Great (by Jim Collins,
HarperCollins), says Shemwell. It is a five-step process to
build an economic model to justify any business action. It is
the missing link between the recommendations of studies and
regulatory compliance requirements.
The step process includes scenarios analysis, cause and
effect, KPIs for each expected benefit, economic risk of no
investment, and alignment with strategic objectives (Figure 1).
With scenario analysis, a number of well-defined
safety cultural assumptions and possible benefits must be
developed, says Shemwell. This may include the most likely
scenario as well as best and worst case states. It is important
that a suite of scenarios be developed for a more robust look at
options.
Cause and effect is a step in which the corporation links and
explains how each feature or function of the transformation to a
safety culture contributes to the overall end game.
KPIs for each expected benefit are necessary in order to
define success with a set of metrics.
Economic risk of no investment explores the impact on the
organisation if the transformation to a vigorous safety culture
is not undertaken. For example, The BSEE has suspended the
right-to-operate offshore for some companies, says Shemwell.
Those contractors will not be allowed to bid on projects if
they do not demonstrate a high level of safe performance. The
impact may not only be revenue and/or profit, but the stock
price, as well.
Alignment with strategic objectives; safety culture must
be aligned with the overall organisational objectives and its
governance model. If this is not the case, it will fail, says
Shemwell.
A rigorously-pursued business case for safety culture
eventually gets down to nuts-and-bolts consequences. There
were 545 oilfield deaths between 2008 and 2012, and 1667
violations and shutdowns in 2011 alone, says Shemwell. I have
seen negative cost estimates for equipment and personnel in
the US$200 million dollar range (per year), but I think that is
low.
Contractor management
When it comes to safety culture, one of the significant areas
of concern for an upstream oil company involves contractor
management. Your company may have a strong culture of
safety, but you can have a rig site on which 90% of the people
are contractors or subcontractors, says Shemwell.
The situation was recently addressed by the American
Petroleum Institute (API), which updated API RP 75;
Recommended Practice for Development of a Safety and
Environmental Management Programme for Offshore Operations
and Facilities, to include contractor management.
Much of the new recommended practice revolves around
continuity. Staff on an offshore rig work 12 hours on, 12 hours
off, says Shemwell. The crews rotate out every 14 days.
During a shift change or a rotation, you run the risk of critical
information not being passed on. The Piper Alpha tragedy
(in which a North Sea platform exploded in 1988, killing 167
personnel), occurred because crew had been working on a valve
and it had been left open. The next crew didnt know, and they
turned a pump on, says Shemwell.
8 | Oilfield Technology
Unfortunately, communication between rig operators,
service companies and management has not improved
dramatically over the intervening 28 years. Part of the problem
rests with security measures taken to ensure that sensitive
information is safely stored. Virtually all offshore operators have
a firewall built into their head-office computer systems to stop
unauthorised personnel from accessing sensitive information.
In the case of most offshore rigs, however, this firewall is a
barrier between the client and the contractors operating on its
behalf. The result is that critical field data is trapped in silo;
there is manual consolidation of information, limited actionable
information, and no real time visibility.
After several years of discussing needs with several dozen
service companies, independents and government agencies,
The RRI worked with computer specialists to develop OARS 360,
a software application that documents workflows (the acronym
stands for operational agility, resiliency and sustainability).
Since its initial release in 2015, a dozen upstream, midstream,
and downstream companies have been piloting the application.
The value proposition of OARS 360 is that it bridges the
firewall gap without compromising security. In terms of safety,
OARS 360 allows the complete range of participants to follow
a job from start to finish. As an example, Shemwell points
out that blow-out-preventers (BOPs) need to be periodically
examined and certified for use. The OARS 360 application safely
allows access to everyone from the offshore service company
mechanics and supervisors to onshore client management, and
shows all stakeholders who is responsible for what, and what
has been done. It interfaces computer applications to deliver
real time actionable information, says Shemwell. As a result,
operational excellence and safety go up.
The future
In the short term, The RRI is releasing a new version of OARS
360 (on both Android and iOS platforms), one that will appeal
to not only the O&G industry, but also to other sectors. I am
talking to a very large aerospace organisation, and engineering
companies, says Shemwell. Essentially, if you have a critical
process that involves technology, it works.
Shemwell has also been developing an application that will
allow companies to build a business case for safety. The RRI
is making available, for free, the Economic Value Proposition
Matrix (EVPM) that allows the user to measure the value of not
having litigation, fines or injuries, he notes. It helps you walk
through the process to get the business case. You can measure
safety realistically.
In the longer term, Shemwell sees a focus on safety that
goes far beyond rules-based thinking. I think that regulations
have covered off most of the hard-hat requirements, he notes.
In the future, one of the big challenges of safety will be the
Human-Systems Interface (also called the Human Machine
Interface), in which we work to enhance how humans deal
with technology and processes. Humans can rely too much on
machines, and that can create an environment in which people
dont really understand whats going on; we might find ourselves
someday in a situation where the error rate is going up, not down.
That will take significant resources, and the way to ensure
that the issues are addressed is to make a business case that
safety is integral to the bottom line, that accidents and injuries
are going to negatively affect how your corporation is seen by
the local community and investors.
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 Derek Boulware, PwC, South Africa, describes how the digital transformation of the oil
and gas industry will make operations more cost-effective.

DiGiTAL
DiSRUPTiON
iN THE
iN THE

AfRiCAN
OilfielD

10 |
A
sk anyone in the oil and gas business today about their greatest challenges, and cost
control will likely come out near the top of the list. With depressed global oil prices, the only
way to improve margins is through efficiency gains doing the same with less. Traditionally,
this means reduced staff headcounts and applying pressure for reduced pricing from service
providers. Strategy& analysis has shown that revenue from the 18 leading upstream, midstream
and oilfield services companies in the US have decreased by 40% between Q3 2014 and Q3 2015.
Over the same time period, operating expenses have declined only 9%, and PwC believes that the
reason for this is that traditional methods of cost optimisation are approaching their limit, due to
the high fixed costs associated with the industry. For a long time, business success has been based
on cost competitiveness, but now there is a real desire to compete instead on value, created through
innovation. Digital transformation may be the answer.

| 11
 It is clear that oil and gas organisations must take the time
now to apply transformational digital applications. Not only will
new technologies increase margins and improve efficiencies, they
also have the potential to disrupt the entire market, changing how
people think, how business is conducted, how people learn, and
how they conduct themselves on a daily basis.
The problem is that oil and gas companies are slower than other
industries to respond to using new technologies. This has been
especially the case when it comes to digital. According to a recent
CEO survey, oil and gas companies are much less likely to use social
media, data analytics and CRM systems than other industries, such
as financial services. The energy industry tends to be inherently
conservative, considering the high capital investments and long
payback periods. Energy executives tend to prefer proven solutions
as opposed to new ideas that may or may not get the job done.
Some find this quite surprising given the reception that new
technologies and engineering solutions have always had from oil
and gas companies over the years. The difference is that these
solutions have always provided tangible and measureable benefits
at an operational level, many times improving recovery rates or
overall production.
Digital must be seen as an enabler. It is a way of doing
things underpinned by the technology trends of social, mobile,
analytics, cloud and cyber (SMACC). Digital means that companies
and individuals are using new technologies to achieve a variety
of outcomes in a variety of ways previously unimaginable or
non-feasible. Figure 1 summarises the five elements of SMACC.
Digital in oil and gas is not just about technologies. It is about
redefining the operating model, simplifying underlying systems,
empowering people and enabling deep organisational change.
Digital must be broader than the historical digital oilfield concept
which has a strong focus on oil and well production optimisation.
Some of the areas that are and will be affected include: asset
tracking; safety alerts; drilling data; fleet management; operations
data; inventory management; equipment performance; field data
capture; problem area scanning; and facility optimisation.
There are five major market themes that will have an effect
on digital transformation in the oil and gas industry, including:
the internet of things (IoT), building alliances, simplification and
standardisation, solution-based buying and knowledge transfer
from international oil companies (IOCs) or national oil companies
(NOCs) to oilfield services companies (OFS).
In addition to these themes,
there are a number of specific
digital solutions which are already
being implemented across the
upstream space from exploration
through to production. When
these capabilities are present and
working as a system, the digital
oilfield becomes a reality. An
example follows in Figure 2.

Digital in the African

context
So, why digital? Why now? Why
Africa? Simply put, disruption is the
way of the future. Organisations
who find themselves doing
business the same now as
they did fifty years ago are in
for an inevitable wake-up call.
Figure 1. The five elements of SMACC.
Digital represents disruptions.
It is all about connectivity
and communication. Business
executives need to create more
insight in real time in order to be
able to make decisions in an agile
and ever-changing environment.
Organisations that do not embrace
it now will find themselves
adapting to it later. While many
may argue that Africa must start
from the basics as it is a continent
full of developing nations, Africa
may actually be the prime space for
innovation.
Take the banking industry in
South Africa as an example. It has
managed to be at the forefront
of new, innovative ideas from
enhanced security to improved
Figure 2. The implementation of digital solutions. customer offerings. Clients have

12 | Oilfield Technology
Old Battle.
New Weapon.
WITH POSITIVE COMPLIANT
SCREEN TECHNOLOGY
Halliburton Endurance Hydraulic Screen helps achieve
2017 Halliburton. All Rights Reserved.

superior completion results in deep water, multilaterals,

heavy oil elds, or wherever sand migration is a problem.
This positive compliant system removes the annular gap
between the screen and open hole to provide long-term
sand control. Plus, strong wellbore support is provided
for the life of the well. With a rapid, safe, and reliable
single-trip installation, operators are already achieving
35 percent and more reductions in overall completion
time compared to openhole gravel packs. Contact us
to learn how you can improve completion efciency
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halliburton.com/endurance
been very receptive to these new ways of doing business. This is
proof that Africa can deliver innovative solutions to the market and
that industries dont necessarily have to build up from the basics.
For oil and gas players on the continent, why not harness the
knowledge and learning that has taken place in the rest of the world
and use it to leap-frog the competition?
As a continent, another important challenge that must be
addressed is the lack of infrastructure. This is an issue for many
industries looking to operate in and around the continent. For
extractive companies, the lack of infrastructure means that it is
difficult to get parts, equipment and people to remote work sites. It
is equally challenging to get produced natural resources to market.
While digital does not hold the promise to teleport produced
gas from remote locations, it does have the potential to improve
communication, information availability and response times. In
fact, digital solutions may prove most viable and beneficial on a
continent lacking in physical infrastructure.
There are a number of other digital projects disrupting
the African continent. Facebook is currently working on its
high-altitude drone solution which will be used to bring internet
connectivity to large rural areas through a linked network of the
drones. With the ability to fly for three months straight without
landing, these drones will use lasers to transmit data to a base
station on the ground. Additionally, drone surveillance is being
utilised to protect rhinos and elephants from poachers. Lastly,
drones are being utilised to provide humanitarian aid to remote
areas. The World Health Organisation (WHO) estimates that some
1.3 - 2.1 billion people on the planet have no access to essential
medicines because they live in hard-to-reach places. To help
alleviate this problem in Rwanda, California drone maker, Zipline,
signed a deal with the Government of Rwanda to shuttle supplies to
remote areas on demand. With Zip drones, which cover a roughly
50 mile radius, a health centre in Rwanda can send a text message
to order blood for a patient, and it shows up via parachute within
40 minutes. These are just three examples of how digital innovation
Figure 3. PwCs six areas of digital fitness.
14 | Oilfield Technology
is being used to connect the continent, despite infrastructure
challenges.
Drones also have a place in the digital oilfield from safety
inspections to part delivery. Drones can be utilised to complete
costly (and sometimes dangerous) inspections including those of a
routine nature as well as those conducted to determine why/how
equipment or systems might be failing. If digital innovation is really
put to use, the industry could even see 3D printing of spare parts
and drone delivery to the remote oilfield.
Overall, the emerging global market for business services
using drones is valued at over US$127 billion according to PwC.
Leadership at the newly-mobilised Global Drone Centre in Poland
says that the application of drone technologies in existing
business processes is allowing companies to create new business
and operating models. Each industry has diverse needs and as a
consequence requires different types of drone-powered solutions
and various drone functionalities. Some of them value flight speed
and payload capacity, while others wish to concentrate on solutions
delivering high-quality, real time data in a cost-effective way.
Prompting the disruption
In order to prompt the digital disruption in an organisation, one
must begin by understanding the digital fitness of the company to
ascertain if it has the right capabilities to succeed in a digital world.
An organisations maturity across six key areas should be assessed
including: know, define, evolve, create, accelerate and protect.
These areas are summarised in Figure 3.
The ability to think disruptively is not second nature for most
people. In fact, for the most part, they do not like change, preferring
to stay in their comfort zones for fear of rejection or failure.
Innovation and disruption require people to think differently,
and they require people to be comfortable in uncomfortable
circumstances.
In order to open the mind to disruptive thinking patterns,
it is often a good idea to run a disruptive innovation leadership
workshop or course. It is a way to get leaders
to push themselves with a line of questioning
which sparks thought in an unconstrained
manner. Questions starting off with what
if can be explored in a safe environment
with a clear and open mind What if a
competitor introduces a new service that
made a previous offering in the market
irrelevant? Answering those hard questions
really gets one to think about how to be the
disruptor, not the disrupted! Disruption is
a divergent shift in perspective both an
opportunity and a challenge. There are a few
good ways to start the disruptive thinking
journey including:
Constantly focus on challenging current
paradigms and the status quo.
Do not worry about the reactions of
others, but build on them.
Be open to failure.
Do not be afraid to think or say something
drastic or bold.
In the end, it is essential to remember the
wisdom of Albert Einstein: if you always do
what you always did, you will always get what
you always got! In todays world, this could
mean getting put out of business.
Eternal bond
The Valkyrie Abandonment System is the last step in the life cycle of
your plug and abandonment operation. The system improves concentric
cement coverage through axial oscillation, creating an improved bond
that is safe for the environment. The permanent, protective barrier
reduces time-consuming pipe removal challenges and minimizes
abandonment costs, increasing the efficiency of your operation.

To learn more about how the system helps you reliably abandon a well,
visit nov.com/abandonment.

2017 National Oilwell Varco | All Rights Reserved

TURNING A PROFIT IN

JOHOR

16 |
A
s a key exporter of oil and LNG, Malaysia has been hit harder finance and trading epicentre capable of rivaling Singapore.
by the oil price slump than any other nation in Asia Pacific. In Of course, international interest in developing Malaysian oil
particular, state-owned oil company Petronas has reported is not new. The peninsula is renowned for its Tapis crude,
net-losses due to market oversupply and decreased demand from an exceptionally high quality, extra light, low sulfur
China. But despite deferring other projects, Petronas has remained product that has been the oil trade benchmark in
committed to continuing some, such as the US$16 billion refinery the region for years. The oils excellent quality
and petrochemical integrated development project (RAPID) has reigned in foreign investors in the past
complex in Johor as part of the larger Pengerang Integrated and gained international attention for
Petroleum Complex (PIPC). In addition to RAPID, the PIPC facility the ease in which it can be refined
will bring six other facilities to the southern Malaysian province: to produce premium petroleum
a co-generation plant, an LNG re-gasification terminal, an air products.
separation unit, raw water supply facility and a deepwater terminal. Remaining attractive
Although the majority of Petronas capital investments are to foreign companies
going to this downstream megaproject, its success is predicted to
significantly expand the areas upstream business as well: building
is increasingly
PHILLIP MOREL,
the diversity in petro operations and expanding downstream TA COOK,
capabilities is likely to draw more investors to the region for upstream
exploration and production projects. Improving strategic industry
HONG KONG,
opportunities with new infrastructure has the potential of improving DESCRIBES HOW
the whole oil and gas industry value chain but only if Petronas
can make operations more controllable and efficient. This article THE RAPID PROJECT
will outline the advantage of this downstream capital project for
the Malaysian upstream oil industry and the ways the country can
WILL MAKE UPSTREAM
increase their operational efficiency to turn profits. OPERATIONS IN MALAYSIA MORE
Attracting foreign experts ATTRACTIVE.
One of the RAPID projects objectives is to create
a hub for oil storage and trading that will
transform the country as an oil and gas

| 17
important as the Tapis field ages. Although drilling in the region is
slightly easier than in other areas such as the North Sea because
the water is comparatively shallow, development in the Malaysian
continental shelf has serious challenges. The field has already
supplied 400 million bbls since the 1970s. As a mature region,
expanding the upstream business will require more advanced
exploration and production technology than in the past. Any new
exploration projects will span a greater area than they once did and
drills must be able to go even deeper. As is the case with many fields
that have been developed for decades, exploiting the current fields
with conventional drilling methods is no longer economical.
In order for Malaysia to truly stay competitive, companies need
to find a balance between the way things have been done historically
and developing new sustainable exploration and production
development strategies to process the most profitable opportunities.
Development sites that require high-technology drilling techniques
for extraction and unconventional E&P methods are complex and the
intricacies of which can present a variety of potential complications.
Although Petronas has an impressive portfolio and projects
worldwide, it can still be a great asset for Malaysian resources if
international corporations invest in development alongside the
state-owned company. Collaborating with foreign businesses can
improve the likelihood that Malaysia will have access to the latest
exploration technologies and discover new reserves. The best
example of this taking place is the Tapis project Petronas is heading in
cooperation with ExxonMobil. By using enhanced oil recovery (EOR)
technologies, the partnership plans to extract an additional 10 - 15%
of past production reserves and extend the life of the Tapis field for
another 25 years.
Glocalisation
International commodity companies are also attracted to Malaysia
because its location in the South Asian Sea is close to large energy
consuming nations in the region. However, for companies to stay
truly competitive, they must understand the country and the local
workforces way of life. Malaysia is a cultural melting pot. From lush
rainforest and indigenous tribes to skyscrapers, ancient mosques and
Hindu temples, the nation has remarkable growth opportunities for
companies who can take advantage of the diverse and vibrant state.
In the region the RAPID project is based in, Johor, oil companies
are expected to invest in local resource development. Petronas had
some local issues during the initial construction of the Pengerang
facility. The English language Malaysian newspaper, the Star,
reported that during the initial construction phase, a Chinese
cemetery needed to be moved to make way for the project. Company
leadership postponed relocating the graves until after the Qingming,
also known as Tomb Sweeping Day, a traditional Chinese festival to
honour deceased ancestors. This celebration is particularly important
for the Chinese population of the region and thanks to Petronas local
cultural sensitivity, they were better equipped to handle the situation.
The project at PIPC is expected to create tens of thousands of jobs
for people in the community from construction and downstream
activities. To reap the largest financial rewards possible, companies
need to have a keen understanding of local specificities in order to
thrive and establish themselves in Malaysia.
Improved efficiency
Not so long ago, the oil and gas industry was regarded with extreme
optimism and companies enjoyed a period of rapid expansion
and increasingly high growth. However, despite the countrys oil
18 | Oilfield Technology
and gas potential, the drop in energy prices has prompted a large
number of companies to scale back their upstream operations. Last
year, Shell Malaysia announced plans to reduce their workforce
by 20% (1300 positions) in an effort to minimise expenditures.
This was regarded as a surprisingly bold move but in the current
commodity business, bold moves are seen as necessary to keep
up with competition. Be that as it may, cutting big expenses off the
top is not going to balance the budget alone. Rather, reducing costs
and spending in a sustainable way through lean processes and
optimisation is the best way to be successful in the long run.
In the past few years, Petronas has cut funding to new deepwater
upstream projects because of high break-even costs. In order for
more large Capex projects to secure funding, producers need to
increase the prospective value and returns by focusing on operational
excellence. Committing to investing time and resources to train the
team and foster an environment of continuous improvement will
benefit the organisation, employees and shareholders. Companies
can eliminate waste (any effort spent on a work site which does not
add value or benefit an activity) by taking a lean manufacturing
business approach. If a team thoroughly understands what activities
should be eliminated, they will be able to accurately assess their
output and aim their attention at the highest priority tasks, leading to
increased craft productivity.
While development expenditures may be cut, there will still be a
budget shortfall if companies cannot bring their operational expenses
down through improved efficiency. Employing fewer people can help
cost management to some extent, but it certainly is not a decision
to be taken lightly. It is very likely that companies who have cut
full time staff, such as Shell, will have to look to contractors in the
future. Operating with contractors requires increased organisational
competence from managers and more competitive bidding skills.
Training to improve these skills for the remaining staff represents
more time and resources. A more sustainable way to compete in
the current commodity market is by making any and all potential
efficiency improvements.
Conclusion
Successful oil development is a crucial element of Malaysias
economy. In fact, oil and gas represents 20% of the nations
GDP and that revenue directly correlates with the price of Tapis
crude. Development in upstream and downstream is synergetic.
Although weak oil prices discourage increased output, RAPID is the
project to keep Malaysian energy investors interested. When the
site is up and running, it will be able to produce 30 000 bpd and
develop petrol that will meet Euro 4 and Euro 5 fuel specifications.
The two material offloading facilities are expected to handle
4 million t of cargo over the next three years and in the future, they
can accommodate very large crude carriers (VLCC) along major
international shipping lines, developing a regional hub for oil
storage, trading and oilfield services.
Overall, the Malaysian petrochemical ecosystem may be in a
lull, as others are globally, but the future looks bright. The positive
influence of downstream investment and the opportunities presented
by the countrys location makes refining oil in the area very attractive
and offers a unique opportunity to transport finished products to
regional demand centres. International cooperation has increased
technological expertise and improved the extraction techniques
for Tapis crude. If companies in the region can bring down their
operations costs to match current market commodity prices, they are
sure to see more profit in the years to come.
 Set your sights.
Gulf of Mexico
Declaration WAZ 3D covers 8,884 km2 (381 OCS blocks) in the Mississippi
Canyon, DeSoto Canyon, and Viosca Knoll protraction areas of the Central Gulf
of Mexico and was acquired to better image deep structural elements while
improving subsalt and salt flank illumination.

Through integration with TGS underlying orthogonal Justice WAZ 3D survey,

Declaration provides broadband multi-azimuth (M-WAZ) data with offsets to
16 km. The data is being processed using the latest TGS imaging technology
including Clari-Fi and Orthorhombic migrations. Final data will be available by
December 2016.

Lets explore.

See the energy at TGS.com

2017 TGS-NOPEC Geophysical Company ASA. All rights reserved.

F U M BT H EL I N G
DIGITAL BATON

20 |
 OILFIELD TECHNOLOGY
CORRESPONDENT, GORDON COPE,
SHOWS HOW DRILLING A WELL IS
A COMPLEX BUSINESS, BUT DATA
MANAGEMENT BOTTLENECKS MAKE IT
EVEN HARDER.
nyone who has witnessed the power, skill and coordination of
an Olympic relay race knows that the sport is fraught with the
potential for disaster; one slight case of butter-fingers during
the passing of the baton, and all is for naught.
But few realise how closely the process parallels the drilling
of a well, which requires the handoff of highly complex data sets
from one profession to the next. These handoffs, or information
exchange moments, force organisations to look beyond the silos
and solve the problem of enabling integrated or cross-functional
workflows, says Jim Crompton, O&G data manager of Reflections
Data Consulting. These are the often-quoted information
bottlenecks and sources of productivity barriers for just about
everyone in the organisation.
On paper, the procedure for drilling a well is relatively simple.
A prospective O&G region is initially explored using seismic
surveys; the information gathered is interpreted by geophysicists
in order to identify promising structural and stratigraphic plays.
Geologists then take the interpretations and use existing well logs
and geological models to further high-grade the information into
| 21
targets with the highest potential for hydrocarbon deposits. Their
analysis is then passed on to drilling engineers, who put together
a programme to drill the best prospects.
Successful wells are then handed over to production
engineers, who build surface and subsurface facilities to produce,
clean and send the oil and gas to market. All through the process,
operators are required to file pertinent information with state
authorities in order to meet regulatory requirements.
What can go wrong
Along the way, there are many potential data pratfalls. Sue Carr
is a data manager in the Canadian and international O&G sectors.
O&G is very archaic when it comes to handling data, she notes.
In the banking or health care sectors, you would never get away
with the way that many O&G companies handle things.
Many of the complications surrounding data handover
have been in existence for a long time. At a fundamental level,
silos within companies have not dealt with data as a long-term
corporate investment; geologists dispose of valuable information
when they stop exploring wells, and engineers abandon
production data when the field is no longer operating. Carr
was working for a company based in Alberta when they had to
decommission the Balzac gas field, which is located just north of
Calgary. The field is sour gas, with around 40% hydrogen sulfide,
so it was very important to have detailed information to guide the
decommissioning. Unfortunately, there was insufficient corporate
culture when it came to data management. As a result, they had
not kept sufficient production data. The company had to spend
tens of millions of dollars to duplicate tests in order to safely
comply with the decommissioning process.
The naming of a well is a basic attribute for identifying the
asset. Yet such a simple process is bedevilled with irregularities
that create data handover snags. A major issue is using a
non-geographic name for a well, such as BP Unicorn 5A, says
Trudy Curtis, CEO of the Professional Petroleum Data Management
association (PPDM). The name can easily change on later
documents, or someone can reuse the name on an entirely different
well.
Even when a system uses surface geographic coordinates to
identify a well, (commonly called a universal well identification,
or UWI), modern drilling technology can quickly make it
obsolete. Several years ago, Carr was working with a company
that was developing a new shale play in Western Canada called
the Duvernay. The Alberta regulators UWI is based upon the
wells surface geographical location, using township and range
designations. But the company was using horizontal drilling
technology, which meant that the bottomhole location for a
horizontal wellbore was at an entirely different township and
range location. Some wells had several different boreholes, which
complicated matters tremendously, because you would have log
sets for each borehole under the same UWI. By the time we had 20
wells drilled, you couldnt identify what belonged where with any
accuracy.
Interdiscipline problems
While handoffs can be confused by well-name issues, many of
the major complications arise due to the ways that different
disciplines use data. The initial interpretation of seismic
is commonly referred to as the shared earth model (SEM).
22 | Oilfield Technology
Geophysicists take seismic data and, using complex software
applications, calibrate that data with well logs, petro-physical
(rock formation) information and formation top picks to create
a sophisticated picture of what the subsurface looks like. This
model then has to be up-scaled and reformatted to fit the input
requirements of reservoir simulation programmes (RSPs), says
Crompton. The challenges these days are to get more data about
the stratigraphy and fluid properties from the seismic model for a
better understanding of the reservoir.
But the handoff between SEM and RSP is complicated by
the fact that the SEM contains an immense amount of data,
which is often difficult to shoe-horn into other applications.
When geophysicists work with seismic data, they are creating
interpretations based upon granularity on the millisecond scale,
says Carr. But when you pass that over to reservoir simulation,
that huge mass of data is too large for their simulation programs
to run in realistic time frames, so they discard 90% of the data.
This creates much less detail, which is especially important if you
are trying to delineate stratigraphic or fluid boundaries.
The issue is further complicated when the SEM and RSP
models are handed off to drilling. Engineers use the models to
design the wellbore from surface to its final destination, often
through dangerous zones. Todays challenge is more than just
identifying the desired bottomhole location and letting the driller
take it from there, says Crompton. Complex well paths need to
avoid drilling hazards (salt, low pressure zones, etc.) as well as
follow specific horizontal drilling paths to enable wellbores to
stay within a shale reservoir for thousands of feet. This integration
requires a close coordination between the subsurface model and
the proposed and actual drilling path.
Even among disciplines such as engineering, significant
handover impediments emerge. Crompton was employed as the
IT manager for his companys offshore business unit. The facilities
drafting group was a part of the business unit IT function, which
was responsible for keeping master plans of each platform. The
drafting group worked primarily from two-dimensional plans and
documents.
The problem with paper-based design is that the original
copies are rarely accurate after the facility begins operating; when
building a facility, there are changes to the plans right from the
start. But if no one gets back to the drafting group whenever
a pipe or valve or connector is altered, they dont know what
is actually out there, says Crompton. When it came time to
do an upgrade to a platform, the drafting group had to send a
technician out to survey what was actually there. It added weeks
of unnecessary delay to the project.
Several years ago, when a new platform was required,
Cromptons company hired an EPC engineering firm that was using
some of the most advanced CAD/CAM digital design software.
The EPC firm created a design model that was rich in valuable
detail. The problem was that the operator couldnt handle the
model; they could have spent US$30 000 annually in software
license and storage fees, but they didnt want to, so the EPC
created mountains of paper plans, change orders and equipment
descriptions, and threw it over the wall.
In all, poor handovers can create expensive do-overs, cause
the loss of valuable data and allow potentially hazardous drilling
situations to occure. Even abandoning a well can have serious
hurdles. Take the situation of a company that goes bankrupt,
abandoning some of its wells, says Curtis. The responsibility to
deal with the abandoned wells often falls back on the regulator,
but they may not have sufficiently-accurate information, as the
only information available may be what the company filed as
planned for the well, and not what was actually built.
Solutions
Stakeholders agree that overcoming handover issues is not going
to be easy; it is a hydra-headed beast that will require concerted
efforts on many fronts. A significant advance has recently been
made on the issue of well identification. For the last several
years, PPDM has been overseeing the modernisation of well
identification systems in the US and Canada. After consultations
with operators, regulators, vendors and service companies,
the association launched the USA API D12a and the Well
Identification Canada systems. Designed for global application,
the systems allow for the integration of both modern and legacy
data to create UWIs in a manner that eliminates the major
sources of confusion.
Other organisations have been working on the technical
aspects involved with handing data from one set of professional
applications to the next. Major vendors, such as Schlumberger
and Halliburton, have developed integrated suites that allow
geologists to pass data from their interpretation applications to
engineering systems, but corporations (especially those formed
through mergers), may have a host of different vendor applications
embedded in the way their day-to-day work processes. Various
bodies have been working to create vendor-neutral formats in order
to move information from discipline to discipline. Energistics, a
global, non-profit organisation, develops open-exchange standards
for O&G data. It has created WITSml, RESQml, and PRODml,
software mechanisms to move well, reservoir and production
information from application A to application B, regardless of the
proprietary application.
As for inter-disciplinary concerns over handovers, the solution
may not be so much the number of barriers, but the way the issue
is approached in the first place. Most work is done within a silo
because that helps maintain focus; EPC engineers concentrate
on designing a project, and production engineers oversee
operations and maintenance, says Crompton. Each has their
own perspective on data that is central to what they do. The goal
of data management is to create a common data view that each
silo can look at with their unique perspective, whether they are
EPC, operations, geology, geophysics or accounting.
Even when companies value data, they often approach it from a
limited direction. The primary challenge is that users treat data as
a tactical process, as opposed to a strategic process, says Curtis.
A tactical process is one in which the data is used in a
fit-for-purpose solution, such as a seismic interpretation
application; traditionally, data managers are taught to think
of data in such a tactical manner. The geoscientists want it
now, and they want it in a manner that they can immediately
use, says Curtis. But there are many more professions besides
geoscientists who are going to use data; it has to be a corporate
asset capable of interoperability.
Strategic processes, on the other hand, are attached to the
business as a whole, and retain their value and availability to
the entire corporation. Data managers strive to keep the data
above the tactical level, so that it remains an asset throughout the
company and all its myriad users.
The future
Although technological fixes are valuable, a longer-term solution
to the issue of handovers is going to have to involve the evolution
of both how companies view data, and how O&G data managers
view their profession.
For too many years, the fall-back position in O&G companies
has been to treat data as a secondary consideration, instead
of giving it the critical value it deserves. When recounting her
experience with a firm that had to spend tens of millions of dollars
to duplicate information on a sour gas field that it had lost,
Sue Carr notes that, unfortunately, such lapses are more the norm
than the exception; Companies have to take data management
seriously on a high level, rather than viewing it as glorified clerical
work.
Even when a company promotes a data manager to the
C-suite, the message is still being lost. Chief Information Officers
are usually concerned with the boxes and wires, the bits and
apps, says Carr. They often dont have a clue as to the usage or
value of the information generated by the data. Its like being in
charge of the chicken coop and asking, So, what do you do with
this egg? Theres a big disconnect, one that we have to work to
bridge.
Elevating data management itself is also an important goal
in the effort to not only aid handoffs, but to achieve better
value from data throughout the sector. For decades, O&G data
managers have been recruited from a wide assortment of
backgrounds, everything from computer science, geology and
engineering to such esoteric disciplines as Bible scholarship.
While many industries have developed professional development
programmes for data managers that lay out training, certification
and practices, the O&G sector is just beginning to address these
necessities.
Working with industry, regulators and veteran data managers,
PPDM has created a data management curriculum, and is
overseeing classes that allow junior data managers to achieve
formal certification. The user community needs to trust that data
managers know what they are doing, says Curtis. By pursuing
data as a strategic asset using professionally established norms
and behaviours, we can all build that trust.
Data management is often a subset of IT, often buried in the
operations and earth science groups, says Crompton. Except
for a few companies and jurisdictions, there isnt a recognition of
professional standing for data managers. But the good news is, for
those companies who do recognise the value of data managers,
the light bulb goes on and they realise the many possibilities of
being able to do so much with data.
O&G companies are beginning to understand the vast
potential of digitised information. People still think in terms
of flat sheets of paper, but the train is starting to move out of
the station, says Crompton. Software developers have created
training applications on gaming engines so that operators can
now use the design model created by EPC companies to train
personnel in procedures long before the facility is constructed.
When they finally commission the plant, staff have a year of virtual
experience with various scenarios.
In the longer term, finding fixes to handover bottlenecks will
facilitate the immense potential of big data, allowing operators
to implement forecasting and analytics based upon superior
digital data quality. The better the data model, the better the
prediction, says Crompton.
Oilfield Technology | 23
IRANS
REVIVAL
AT RISK
Ali Al-killidar, GllobalData, UK,
explains why political wrangling
leaves Irans long term future in
doubt.

24 |
I
rans upstream sector has been opening up to foreign
investment since the implementation day of the Joint
Comprehensive Plan of Action (JCPOA). However internal
power struggles, a lack of clarity on residual sanctions and the
absence of the finalised terms of the Iran Petroleum Contract (IPC)
are hampering progress. Currently, most IOC activity has been
limited to non-binding agreements, leaving the upstream sector at a
standstill. Analysis conducted on the reported IPC fields has shown
significant upside potential, but this can only be realised if the
terms of the contracts include adequate remuneration fees, license
durations and cost recovery mechanisms to justify investment.

Upstream performance
Irans liquid production reached peak levels of 6 million bpd in 1974.
This level of production was short lived and fell to 1.3 million bpd by
1981. Despite some dips in following years, Iran steadily increased
production to 4 million bpd by 2005. This level was maintained until
2009, when production fell to 3.6 million bpd. The tightening of
sanctions and an embargo in 2010 and 2011 led to a further decrease
in production levels, falling to 3.2 million bpd by 2014. The National
Iranian Oil Company (NIOC) attributed this decrease in production
to delays and cancellations of upstream projects as a result of IOCs
leaving the country. Additionally, a large number of wells were shut-in,
as the embargo substantially reduced Irans available liquid export
market.
Prior to the implementation of the JCPOA, Iranian production
had not been able to meet its pre-sanction levels despite measures
in place to offset the challenges presented by the sanctions and
embargo. However, since its implementation in January of this
year, the JCPOA has allowed Iran to restart its oil shipments to
European countries such as France via Total, Spain via Repsol and
the Netherlands via Royal Dutch Shell. Renewed access to this
export market and state of the art technology has allowed Iran to
ramp up production from approximately 3.2 million bpd in 2015 to
3.85 million bpd by August 2016. Forecast near-term production is
expected to continue to increase and the growth of production has
been established based on three factors. The first factor is the speed
at which Iran can bring greenfields online and ramp up production.
By 2020 these fields are expected to contribute to approximately
1.5 million bpd of the countrys production. The second factor
is how quickly Iran can restart shut-in wells from the time of the
embargo. Shut-in wells are expected to contribute to approximately
0.9 million bpd of production. The final factor that will dictate
near-term performance is the countrys ability to mitigate the
natural decline rates of its mature fields, which are expected to
decline to just under 2 million bpd by 2020.
Natural gas is an abundant commodity in Iran with 2016
production forecast at 25 billion ft3/d. The South Pars gas field
will remain the major contributor, with more than 14 billion ft3/d
yet to come online. Production from this field will provide natural
gas for domestic demand and enhanced oil recovery, as well as
gas and condensate for the export and petrochemical sectors.
The development of remaining phases has been fast tracked by
the Pars Oil and Gas Company (POGC), a subsidiary of the NIOC,
shifting the expected completion dates for the final phases to
2018. As a result of the sanctions, the NIOC relied on inexperienced
and less equipped Iranian contractors to continue with the field
developments, resulting in delays of a minimum of 3 - 5 years.
The POGC has attributed its ability to fast track the South Pars
developments to being able to source more sophisticated European
equipment directly from manufacturers, as a result of the JCPOA.

| 25
Apart from the JCPOA Iran has also unveiled preliminary terms of
a new contract, which has the objective of attracting financing and
technical experience to the upstream industry. 51 oil and gas fields
are expected to be offered under the framework of this new contract,
referred to as the IPC. Although the terms of the IPC are yet to be
ratified, it is expected to offer more flexible terms and reduced risk in
comparison to the preceding buy-back contracts.
Licensing process
The route to being awarded one of the 51 oil and gas fields has
commenced via an ongoing process referred to as the expression
of interest phase. Here potential investors sign a memorandum of
understanding (MoU) and engage in direct negotiations with the
NIOC. The latter has potential to offer preferential treatment to
companies favoured by the NIOC, which steps away from the clear
and transparent process Iran is trying to implement. The activity
of foreign companies can be split into three distinctive categories,
the first being preliminary licensing agreements, where a number
of MoUs have been signed by companies who were previously
Figure 1. Irans liquid production forecast.
Table 1. Priority NIOC upstream projects
Priority (Recoverable reserves - STOIP/OGIP) [Source: NIOC]
Ahwaz- Bangestan (2955 million bbls - 31 570 million bbls)
South Azadegan (3462 million bbls - 25 642 million bbls)
Darquain-3rd Phase (238 milion bbls - 7945 million bbls)
Dehloran (363 million bbls - 5184 million bbls)
Salman (1742 million bbls - 4148 million bbls)
Foroozan (583 million bbls - 3432 million bbls)
South Pars Phase 11 (470 million boe - 3355 million boe)
Changuleh (273 million bbls - 2367 million bbls)
Khami Fields (377 million boe - 2183 million boe)
Farzad-A (499 million boe - 1748 million boe)
Arvand (345 million bbls - 1114 million bbls)
West Paydar (62 million bbls - 1077 million bbls)
Paydar (157 million bbls - 1047 million boe)
Balal Gas Field (177 million boe - 1042 million boe)
Sohrab (120 million bbls 736 million bbls)
Aban (4 million bbls - 138 million bbls)
26 | Oilfield Technology
inactive in Iran. A common link between the MoUs is support
of the development of a variety of fields, in the form of either
investment, evaluation, equipment, technology or experience. The
second category of activity is that of ongoing agreements, whereby
companies which remained active in Iran during the sanctions
continue to secure agreements, such as Sinopec and China National
Petroleum Corporation (CNPC). The third form of activity is the
re-establishment of relationships, by restarting oil trade and the
opening of offices in Iran. Collectively, IOCs have the same stance in
stating that no concrete steps will be made until a solid framework is
in place.
The next step to being awarded an upstream project is the
pre-qualification process, whereby the NIOC determines if a potential
company has the necessary experience and resources to develop the
fields on offer. According to Iranian oil officials, only around 37 oil and
gas companies currently possess the necessary criteria to participate
in the bidding process. Operators expect the pre-qualification
procedure to continue over the next year and half, with projects
offered in stages. South Azadegan is expected to be the first field on
offer, in a closed bidding process starting
this quarter. This will allow the ministry to
gauge investor interest and refine the bidding
process. Further projects are expected to be
offered from 2017, but it remains unclear
whether the process will involve closed
bidding, open licensing rounds or a mixture
of the two.
The initial licensing rounds are expected
to target 17 high priority fields shown in
Table 1. These fields are prioritised because
they are shared fields with neighbouring
countries and/or are high impact fields which
are expected to contribute to significant
production growth. Examples of shared fields
include the South Pars Phase 11 and the
South Pars Oil layer, shared with Qatar, North
and South Azadegan shared with Iraq, Salman
shared with the UAE and Farzad-A shared with
Saudi Arabia. As well as the risk of depleted
Table 2: Other NIOC upstream projects
Others (Recoverable reserves - STOIP/OGIP) [Source: NIOC]
Ferdowsi Oilfield (2181 million bbls - 31 700 million bbls) Sefied-Zakhour (151 million boe - 1382 million boe)
Mansuri-Bangestan 9786 million bbls - 15 142 million bbls) Tang-e-Bijar (147 million boe - 1362 million boe)
Soroosh (569 million bbls - 14 230 million bbls) Sepehr (113 million boe - 838 million boe)
Ab-Teymour (5539 million bbls - 12 202 million bbls) Halegan (47 million boe - 772 million boe)
Dorood (2642 million bbls - 11 007 million bbls) Naft Shahr (75 million bbls - 580 million bbls)
North Pars(5992 million bbls - 9511 million boe) Sefeid-Baghoun (29 million boe - 395 million boe)
Kish (825 million boe - 9167 million boe) Karun- Bangetan (29 million boe - 395 million boe)
Susangerd (490 million bbls - 6996 million bbls) Dalpari (29 million bbls - 367 million bbls)
Golshan oilfield (1692 million bbls - 4505 million bbls) Sumar (207 million bbls - 333 million bbls)
Aghra (946 million boe - 4298 million boe) Dey (30 million bbls - 292 million boe)
Norooz (378 million bbls - 4201 million bbls)
*Recoverable reserve estimates are based on recovery
Golshan gas field (2296 million boe - 3750 million boe)
factors of analogous fields.
Danan (262 million bbls - 3738 million bbls)
Jufair (351 million bbls - 3514 million bbls)
Band-e-Kakheh (381 million bbls - 3468 million bbls) Remaining recoverable reserves of
Cheshmeh-Khosh (646 million bbls - 3232 million bbls) 40 billion boe
Ferdowsi Gas Field ( 351 million boe - 1467 million boe)
reserves from shared fields as a result of competitive draining from the business with Iran are likely to take advantage of the situation by
neighbouring country, most fields on offer also contain poor quality charging premiums of their services, as there is limited competition in
hydrocarbons. 20 of the 29 oilfields contain heavy or ultra-heavy oil and the market. Further financial concerns also include the risk of higher
18 of the 22 gas fields contain a high proportion of hydrogen sulfide, interest rates, transaction costs and rapid inflation.
resulting in increased corrosion of field facilities and risk of leaks.
Additionally the conditions present at offshore developments will also Upside potential
present a risk of hydrate formation. If untreated, hydrates can cause Despite these challenges the country does have a host of benefits which
blockages in pipelines and equipment. These operational challenges make it appealing from an investment perspective. From a medium-
require constant monitoring and additives to minimise their impact. term point of view, the fields offer a variety of opportunities with 18
exploration blocks, 33 greenfields and 18 brownfields, producing
Investment challenges crude oil, condensates, NGLs, natural gas and LNG. Companies with a
Further short-term challenges facing potential investors include the particular focus such as exploration, production and/or enhancement,
uncertainty looming over of the IPC. The internal conflict between will be able to apply their expertise to target specific fields of interest.
the conservative party and Rouhanis cabinet has caused delays and Long term benefits include low cost field development and
substantial variation to the framework of the licensing contracts. operating costs with an average combined Capex and Opex of
In addition to the IPC contracts, reports cite the potential for the US$6 - 16/boe. These costs fall at the lower end of the spectrum of
NIOC to offer fields under the previous Engineering Procurement global development and operating costs, despite the heavy oil or sour
Construction and Financing (EPCF) and buy-back contracts. The gas nature of the fields. The ability to develop and operate fields at
buy-back contracts are expected to have improved terms, extending low cost is mostly attributed to Irans favourable geology and terrain.
the contract from around seven years to 20 years and being The country also has existing infrastructure and export terminals
rebranded an advanced buy-back contract. The publicly available which reduce the risk of bottlenecked production, which has been
data provided by the NIOC is also very limited and of poor quality, experienced by neighbouring countries. Irans geographic location
making it very difficult for those evaluating prospects to assess the is also an advantage as it has a nearby export markets with growing
economics of investing in a field. More detailed field data is only demand from India, China and other countries in Asia, which receive
offered to IOCs at the discretion of the state, and many fields still lack more than half of Irans exported crude and condensate.
technical evaluation. This issue leads on to the potential of over- or
underestimating biddable parameters during the bidding process, Conclusion
such as the plateau production target or remuneration fee. Operators in Iran share the underlining sentiment that the lack of
The threat of sanctions continues to present a challenge as progress on the bid round, such as the contract terms and dates,
the current agreement can be reversed, particularly as a result and the lack of clarity over the residual sanctions, have delayed the
of a change of US or Iranian foreign policy. The current status progress of foreign investment. However given time, both counts are
can significantly change based on the outcomes of the US and expected to diminish and local operators believe the prospects on
Iranian presidential elections over the next two years. The current offer have substantial value. The JCPOA has granted Iran the ability
dtente could be derailed by continued hostilities between various to showcase its investment opportunities, which are expected to be
establishments within both governments. Iran has also continued lucrative ventures. However, progress is highly dependent on short
to test its ballistic missiles and according to a German domestic to mid-term challenges being addressed and the final terms of the
intelligence company, has continued to attempt to buy nuclear contracts.
compatible technology. This is a concern for foreign
companies considering investments in Iran, as the
snapback mechanism automatically reinforces punitive
sanctions if the terms of the JCPOA are violated. There
is also a regional threat to conducting business in Iran.
Though not currently directly engaged in Iran, regional
conflicts are common in neighbouring countries, such as
the presence of Daesh and the Arab spring. As a result of
Irans involvement via proxies in these conflicts there is
potential for a spill over into the country and therefore
foreign companies can find themselves operating in a
rapidly escalating hostile environment.
Medium-term challenges include the lack of clarity
over residual US sanctions, including dollar dominated
transactions. Fears of violating remaining sanctions are
enough to stop financial institutions from engaging in
business with Iran. BNP Paribas has previously been fined
US$8.9 billion for violating sanctions against Iran, Cuba
and Sudan. The bank maintains that even if the residual
sanctions were to be removed, they still would not get
involved in Iran. Many banks and companies share a similar
sentiment. However, some European banks have started
processing transactions or are preparing to do so, such as
Belgiums KBC, Austrias Erste Bank, Swedens SEB and
Italys UniCredit. Financial institutions that do conduct Figure 2. Irans natural gas production forecast.

Oilfield Technology | 27
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