|
From the
President’s Desk:
Drilling
Challenges in 2008 & Beyond & the Role of the AADE
Oil & Gas Drilling,
…mention the subject and the average American imagine a hazardous,
dirty business that creates lasting environmental damage, onshore
and offshore. Not exactly the image of a “hot sexy career with a
future”. Until recently, most students and the public at large
considered Oil and Gas, especially drilling, to be a career of the
past not the future. The reality of course in terms of safety,
environmental record and technology is quite different than
prevailing perceptions.
In Safety, the
Exploration & Production (E&P) business is actually one of the
safer industries, with an overall TRIR of 2.0 (OSHA 2006). TRIR is
the Total Recordable Incident rate, the number is meant to reflect
how many incidents occur in a workforce of approximately 100 people
over a full year. The Occupational Safety and Health Administration
or OSHA defines an incident as “recordable” if, prescription
medication or stitches are required or the person is unable to
return to work. For rig operations specifically, the TRIR is 5.1
onshore, 1.4 Offshore and averages 2.1 worldwide (IADC, 2007 YTD).
This compares to 5.1 for construction and 6.0 for manufacturing. To
really put Safety in perspective, the average 2.1 TRIR for rig
operations is lower than the 3.3 TRIR for Real Estate! You are
safer on the rig floor than driving around with a real estate
agent.
In terms of
environmental performance Drilling is perceived as being a major
risk to the environment from spills and blowouts. Once again
reality tells a different story with only 2% of the oil entering the
worlds oceans each year due to E&P operations; the remainder is due
to natural seepage, municipal runoff and shipping operations. Many
of us in the industry routinely discuss (perhaps defend is a better
description) the environmental performance of offshore E&P
operations. Most people do not distinguish between offshore drilling
& transport operations and few are aware of the cutting edge
technology and practices we employ to safely drill for oil and gas
offshore. Ask anyone not familiar with the industry when the last
oil spill associated with E&P operations reached a US beach. The
answer is over 40 years ago in 1967, in the Santa Barbara Channel.
Over __% of the US population is younger than 40. Yet too many of
the public feel the risk and frequency of spills associated with E&P
is too high.
From a standpoint
of careers for the future, Oil and Gas has not topped anyone’s list
for some time, however that seems to be changing. Since 1983, when
Petroleum Engineering enrollment in the US topped out at more than
6900 students, enrollments dropped to a low of 981 in 1990. Since
then enrollments have slowly climbed and in the last two years the
growth has picked up considerably with several universities
restoring or adding Petroleum Engineering programs. For the last 5
years Petroleum Engineers have had near 100% placement rates at the
highest undergraduate degree starting salaries. With Oil near
$100/bbl it is a busy time in the “oil patch”…in fact you might say
Oil and Gas careers have become “sexy” once again.
If the jobs and
careers in oil and gas are plentiful at a very competitive wage then
times must be good, and to a large extent they are, but there are
issues the industry faces that need to be addressed to sustain a
competitive business environment. Those issues include access to
resources, cost structures, and the “big crew change”. In each of
these areas the American Association of Drilling Engineers (AADE)
has a role to play.
AADE is
a non-profit, volunteer organization founded in New Orleans in 1978
it is made up of an affiliation of independent chapters licensed and
governed by a National Board. Formation of the AADE was based on
the fact that no existing drilling industry organization was
consistently providing technical exchange specifically for Drilling
technology and operations. The early success and acceptance of this
effort led to the expansion of AADE. Nine chapters are now active
in New Orleans, Lafayette, Houston, Dallas-Fort Worth, Midland
(Permian Basin), Oklahoma City-Tulsa (Mid-continent), Denver,
Bakersfield (West Coast), and Anchorage. National membership is
nearing 5,000 active members, and has remained steady despite the
fluctuations experienced by the industry. AADE offers a forum for
the exchange of information, among its members and guests,
specifically on drilling related topics. AADE chapters generally
meet once a month where knowledgeable industry leaders in an
informal luncheon or dinner environment present issues and solutions
to drilling challenges. In addition AADE chapters also offer
all-day forums as well as annual multi day technical conferences to
provide the opportunity for industry experts to present in depth
coverage on current topics and latest technology.
So how does AADE help address the biggest challenges
we face in the drilling industry? In terms of access to
resources, especially offshore, it is the view of AADE that
increased reserves can be accessed safely with minimal environmental
impact. However, as mentioned above, US public perception of the
environmental risk, associated with drilling operations onshore and
offshore are not consistent with the track record and reality. It
is this perception by the public and government that is at the root
cause of our restricted access to oil and gas reserves.
The United States
consumes close to 20 million barrels of oil a day, two-thirds of
which comes from outside America, and two thirds of which comes from
parts of the world where there is uncertainty in terms of the
continuous supply of that product. By implementing a comprehensive
energy strategy, involving increased domestic production of oil and
gas from conventional and unconventional sources, greater use of
renewable energy and increased energy efficiency and conservation
the US has the means to achieve energy security for the future.
This strategy involves a combination of technologies and programs,
with the two biggest impact areas being conservation and increased
development of conventional oil and gas. When basic economics,
feasibility, scale and yes, environmental risk are fully accounted
for, conventional oil and gas plays a major role in our economy and
for the foreseeable future will continue to play a major role in our
national energy strategy. Many feel domestic conventional Oil and
gas no longer plays a major role in our nations energy future. The
bottom line is the United Sates is still the third largest producer
of oil and gas in the world behind Russia and Saudi Arabia.
However, our domestic production peaked in the early ‘70s and we now
import the majority of the oil consumed in the US.
Have we
run out of oil in the US? No we have not. What we have run out of
is ”easy oil” that can be accessed at a relatively low cost. We
have chosen a strategy to import more oil and not further open up
federal lands onshore or the Outer Continental Shelf to oil and gas
exploration. The result of this policy is 110 billion barrels of
known conventional oil and gas that oil companies are not allowed to
access. That’s our choice. We could further open up the Gulf of
Mexico, we could open up the Outer Continental Shelf, but it would
take action by the President and cooperation from the Congress to do
so, action to date they are unwilling to take. Even if Congress and
the President approve the 5 Year MMS OCS Plan (which opens the coast
of Virginia, Alaska and the remaining Gulf of Mexico) that still
leaves 85% of the Outer Continental Shelf of the United States off
limits to gas and oil production.
Will
development of these resources both onshore and offshore make the US
energy independent? No, but access to these resources provides an
opportunity to increase our energy stability and security while we
work on a broader more sustainable energy policy for the future.
The bottom line is if the US is to achieve energy independence a
broad strategy must be developed that will include serious
conservation, additional development of conventional and
unconventional oil & gas, clean coal technology, nuclear, hydrogen
and renewable energy. Conventional Oil and Gas is still the
dominant provider of energy to the US and will remain so as we
develop a more diverse energy strategy.
To help counter
the perception that further conventional oil and gas development is
not needed or is just too risky AADE has partnered with the Offshore
Energy Center (OEC) to support public education of drilling and
energy issues. The two programs we sponsor through the OEC are the
“Knowledge Box “ and “Project E3 – Expanding Energy
Education” programs.
The Knowledge Box
is a free traveling classroom exhibit for students in grades 6-12
showcasing the oil and gas industry through interactive technology,
hands-on activities, posters and multimedia presentations.
Project E3: Expanding Energy Education is an
interdisciplinary curriculum guide for grades K – 12 featuring 24
hands-on discovery activities related to hydrocarbon-based energy
themes. This engaging resource features energy related activities in
the areas of science, social studies, math, physics, language arts,
and the environment. AADE supplied the funding for the development
and printing of Project E3. Curriculum in both programs
is correlated to State and national teaching Standards. After
completing a Training Workshop, teachers are provide a copy of the
Project E3 manual and are eligible to use the Knowledge Box for a
period up to 30 days for their classrooms.
Local
AADE Chapters provide the funding for the OEC program materials and
workshop facilitation; in addition AADE members volunteer their time
to assist with the teacher training workshops. “Magic” happens when
AADE members team up with teachers and spend a day reviewing the
materials and discussing the relevance of the concepts in drilling
and the career opportunities for students.
The overall goal
of the AADE Public education programs is to increase public//student
awareness of the role Oil and Gas plays in their lives, develop a
more fact based understanding of our business to fully understand
the benefits and the risks, and build interest for a career in the
E&P business.
The second biggest challenge the
industry faces is cost. In a time of record oil company
profits how can cost be an issue? Doesn’t $90 to $100/bbl oil
prices justify just about all projects? The answer is no. The hard
fact is that industry profits are at a record because industry
companies are at a record size. Profits are at a record size,
because private oil companies are at a record size. Profit margins
on the other hand are at 8-10% of revenue which is in line (if not
lower) than companies of similar size in different industries
http://www.fool.com/investing/general/2007/02/06/is-oil-too-profitable.aspx
Outside of the US
and the UK private oil companies have to compete with the large
National Oil Companies for access to resources. Most governments
favor the local National Oil Company (NOC) and grant them access to
the most promising low cost areas for oil and gas development,
leaving the high cost, technically challenging oil and gas prospects
for private companies to develop. Most people are surprised to
learn that private industry controls only 15 to 20% of global
production; the remainder is controlled by the NOCs. All these
factors add up to a cost structure that is rising almost as fast as
the price of oil. Total daily operating costs for Deepwater
Offshore Drillships and Semi-Submersible rigs is at $1 million per
day and major Deepwater Project costs involving massive structures
and sub-sea tiebacks from satellite fields are in the billions of
dollars. Under the mask of increasing oil prices these projects are
still going forward, but should oil prices drop to a level that is
commensurate with the energy value of natural gas (i.e. $41 oil = $7
gas in BTUs) many projects would struggle to be profitable. Thus,
it is critical that engineering and operations across the industry
work to keep costs as low as possible to maintain project
viability.
The only way to
lower costs that works for both operators and service companies is
through technology and improved operational execution. All publicly
held companies, oil companies, drilling contractors, and oilfield
service companies answer to shareholders and a Board of Directors
that expect them to capture the most profit from the market, legally
and as safe as possible. To complain about the price of goods and
services in the market is like a rocking chair…….it gives you
something to do but gets you no where! Which is where AADE comes
in. Our chapters strive to provide technology forums that address
well cost and operational issues in their regions to help improve
the overall cost structure of the well delivery process. Every two
years we have a National Technical conference that focuses on a
mixture of new drilling technology and operational case histories to
advance the safety and cost effectiveness of drilling operations and
well design. The next conference is scheduled for New Orleans in
the spring of 2009; this will be the first time our National Tech
Conference will be held outside of Houston. Opposite the National
Tech Conference the Houston AADE Chapter hosts a bi-annual National
Drilling Fluids conference, with the next one scheduled for spring
2008 in Houston.
Our next
initiative to enable knowledge transfer is to start local informal
discussion groups where members can review and discuss well design
and or operational issues on a regular basis. Given the current
staffing shortage and high drilling activity members are struggling
to find the time to attend monthly meetings let alone put together
presentations and papers. AADE believes it can fill a niche in the
industry by providing an open informal forum for members to discuss
challenges and issues they face in day to day well engineering and
rig operations. In these forums members can discuss the impact and
challenges of new technology such as drilling with casing, managed
pressure drilling, HSE, expandable casing, etc.
The third big
issue facing Drilling Operations is staffing.
The 'Big Crew Change" is now here. Various estimates in the
literature have the average age of oil and gas professionals in the
upper 40s with some disciplines in rig operations actually over 50.
Over the next 10 years staff replacement of 40% or more will be
needed to address growth in operations as well as retirements. What
do we do to draw more students / young engineers / workers at all
levels into the Drilling and Well Engineering disciplines? At AADE
we have a good core of Student Sections at 8 universities across the
United States; Colorado School of Mines, LSU, Montana Tech, Nichols
State, Texas Tech, Univ of Texas, Texas A&M, Univ of Louisiana –
Lafayette, and four new Student Sections at the University of Alaska
– Fairbanks, University of New Orleans, West Virginia University and
the University of Wyoming. These eleven Student sections are
aligned with local AADE Chapters that assist the student sections by
providing access to industry speakers for student functions,
scholarships, and assistance to attend industry events and
conventions. Vibrant and active student sections supported by the
Chapters is a great way to increase industry visibility to
interested students and increase the supply of talent in the
pipeline. Some student sections also utilize the Knowledge box
program to provide community service opportunities for students.
AADE student members have been active participants in teacher
training workshops, providing a college student perspective on the
industry and the opportunities that await Jr. and Sr. high students
interested in oil and gas careers.
The last issue facing the industry is a
relatively recent issue, global warming and CO2. The CO2/greenhouse
gas issue is likely to play a dominant role in drilling policy and
drilling activity, especially in terms of access to oil and gas
leases. What is the role of CO2 and global warming? For some the
relationship is clear, the debate is over the jury is in and there
must be a government policy and program to manage CO2 emissions.
For others the relationship is not that clear, they take the
position that other factors, solar, cosmic and long-term weather
cycles play a more dominant role and we should wait to see if the
CO2 dominated climate models are verified with actual data before
taking action on CO2 emissions. At AADE we do not take a
position on the relative impact of CO2 on Global Warming, it is an
area that is outside our expertise, thus we will defer to the
government to develop the proper national and global regulatory
frameworks.
Regardless of what
strategy the US chooses to address CO2 emissions we believe there is
a role for Drilling Engineering/Operations to play in executing
those potential strategies. Economically developing oil and gas
reserves with the smallest environmental footprint will require
continued development of cutting edge directional drilling, drilling
fluids, drilling and well tubulars and formation evaluation
systems. If policy and regulations require management of CO2
emissions; sequestration technology and CO2 storage will become
major issues. If current climate model projections are accurate
massive amounts of CO2 will need to be sequestered, transported and
stored. The most economical use/storage of that CO2 is down hole
flooding of oil reservoirs. This process provides safe storage and
also enhances production form existing mature oil fields. Any
subsurface storage of CO2 will require drilling expertise to design
and manage the operation.
Hydrogen, with no
CO2 emissions, is another fuel often cited as the energy of the
future. However the most viable and cheapest hydrogen source is to
convert natural gas into hydrogen by a process called reformation.
Hydrogen from electrolysis requires more energy that it produces and
cannot compete on a cost basis with hydrogen form natural gas.
Reforming natural gas into hydrogen produces CO2 but no more than
burning it. Combine natural gas reformation with CO2 sequestration
technology and natural gas looms as both a good bridge technology as
well as a potential base technology to a hydrogen-powered world.
The most likely source of that natural gas is from conventional
drilling.
In conclusion the
future is bright for the Drilling and Well Operations discipline and
for AADE. Conventional oil and gas development can be done safely
with minimal environmental impact; it will remain a viable industry
and career path for new technical professionals. As the world moves
into alternative energy sources to meet the ever-increasing global
energy demand those same skills will also be needed across a range
of scenarios. The AADE stands ready to assist and enable the
current and future technical professionals to meet their development
goals and advance the profession.
Your National
Board of Directors President,
Joseph Leimkuhler
|
