News Release

How digitalisation transformed the US Lower 48

Unconventional operators reap rewards of lateral thinking

1 minute read

As upstream companies move to adopt Big Data and digital technologies to help transform their businesses, players in the US Lower 48 have led the way.

Anuj Goyal, US Lower 48 upstream analyst at Wood Mackenzie, said: "Historically, US shale oil and gas production has been characterised by innovation and technology.

“After all, it was US  independents who led the innovation boom in  shale 10 years ago, developing and adapting new technologies at a faster clip than the Majors or other conventional players at the time.

"As the industry continues its path into the digital age, this propensity to rapidly adopt new and innovative technologies has helped many Lower 48 operators stay ahead of the curve and be further along the path to realising the benefits of digital transformation."

A new study by Wood Mackenzie, Digitalisation in upstream: show me the money, examines how companies are employing digital technologies and estimates the potential cost savings digitalisation could deliver across every stage of the upstream cycle.

The report estimates annual cost savings of US$75 billion per year could be achieved by the global upstream sector through digitalisation – and nowhere is this more evident than in the Lower 48.

From increased drilling speeds to better production management, companies operating in the Lower 48 have embraced the benefits digitalisation offers. On new rigs, drill floor tasks are at least partly automated, increasing drilling speed.

In the past four years, drilling speeds across the Lower 48 have increased by an average of 10%, with the best operators seeing 20% increases. Machine learning algorithms, using production, completions and subsurface data, are starting to help Lower 48 operators develop better completion designs.

These advances in drilling and automation have enabled companies to maintain production growth, achieve faster and more accurate drilling, all while using fewer resources and keeping costs low. In fact, Lower 48 oil production is at an all-time high despite running only half the rigs as at the peak of oil prices four years ago.

One of the biggest undeveloped opportunities digitalisation offers E&P operators is the ability to optimize production from wells already on stream. Managing production from mature wells manually is repetitive and labour-intensive. Current artificial intelligence systems detect production anomalies and recommend adjustments to operating parameters. The production results are fed back to the algorithms, and changes to field operations are implemented in real time.

Typically, Lower 48 horizontal wells start generating positive cash flow within three years.  After that, remaining returns depend largely on Lease Operating Expenses (LOE) – making these wells prime targets for optimisation.

The report estimates that placing these mature wells on smart production management systems that lower LOE by 10%, could add US$25 billion of value to fields across the L48. A more aggressive approach, placing all wells on secondary recovery earlier, could take the value uplift to US$45 billion. Value gains of this scale are larger than the entire portfolios of some of the top Lower 48 operators.

Despite the size of the prize of digitalisation, and the wide range of digital technologies available, upstream oil and gas companies have been slow to seize the opportunity. Still, Lower 48 operators have been quicker to adopt digital solutions than their conventional peers. Some of that has been through technologies that sort and operationalise data to create structurally lower cost bases, one such example being Wood Mackenzie’s sister company, PowerAdvocate.

"The cost curve for tight oil has materially shifted down and to the right, and digitalisation has been a critical role," Goyal said. "Those companies that utilise their data as an asset and scale the application of digital technologies will be the ones to benefit the most."


Digitalisation: upstream's silver bullet?

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