Meetings with investors are nerve wracking for all involved. Figuratively speaking, anything can become a money pit. But when oil wells have more money thrown into them than is returned it becomes a very stark reality that imprints itself on the retinas of company executives and investors alike.
Costing hundreds of thousands of dollars – if not millions – an oil or gas well is a major investment by any measure. And when it comes up dry, the results can be dire. However, in recent years equipment innovations have allowed for new strategies which are paying off with dramatically increased oil and gas production as well as environmental benefits.
Better Underground Imaging
In medicine three-dimensional imaging using MRI and ultrasound technologies is improving healthcare in every facet of exploration into the depths, contours, and capacities of the human body. The same is true for 3D seismic imaging techniques that give geologists a better idea of whether or not a given rock formation has the potential to bear oil or gas. It has revolutionized oil and gas exploration by enabling optimization of functionality in the depths of wells in all ranges of geological formations. Complex regions that have in the past proven challenging to maintain, are now regulated and functioning at high capacity. Facts and data are easily assessed and evaluated and production is increasingly streamlined.
Now geological areas that have complex substructures can be explored. For example, salt formations cause huge problems for two-dimensional imaging techniques but are dealt with handily when the new 3D systems are employed. Being able to get a better understanding of what's happening thousands of feet below the surface results in drilling fewer dry holes. And when a clearer picture of the geology is combined with new drilling capabilities, operations become even more efficient.
New Directions in Drilling
Slant drilling in oil fields has been around since the 1930s, but advances made in the 1970s made it measurably more practical and much more common. It was slant drilling, at least in part, that led to Iraq's 1990 invasion of Kuwait when Saddam Hussein accused the Kuwaitis of slant drilling into Iraqi oil reserves. After the war, the border was redrawn to bring the oil field into Kuwait. Fortunately, despite the often-heated debate about U.S. oil drilling, things don't get quite that fractious in the states.
It was after the U.S. Naval Facilities Engineering Service Center in Port Hueneme, California successfully ran horizontal drilling tests in 1993 that things really started to change. Water drill bits and pipe innovations successfully allowed drillers to go sideways for the first time. Oil and gas deposits are much bigger horizontally than vertically, so this was a game changer.
One of the immediate benefits was that horizontal drilling allows oil and gas developers to access deposits under environmentally sensitive land without having to erect drilling rigs on the land itself. Also, one horizontal well can sometimes be used instead of several vertical wells, which significantly lessens environmental impact. Horizontal drilling in combination with hydraulic fracturing (fracking) has led to the oil and gas boom in the Bakken Formation area of North Dakota and Montana as well as increased production in Texas and Pennsylvania.
Mixing Oil and Water
Offshore oil production continues to be an important component of U.S. energy production, and Morningstar named Merrill (Pete) Miller Jr. of National Oilwell Varco its "2012 CEO of the Year" in large part as a result of innovations he has made in offshore oil rigs.
Miller recognized a major problem with offshore oil rigs – they were virtually all custom designs. There was little or no standardization. Taking a page from Henry Ford's playbook, Miller realized that if the rigs could be standardized, it would dramatically decrease costs.
Along with creating standard cabins, rails and derricks, Miller went further. Just like a computer has an operating system that enables it parts to work together, so does an oil rig. Miller standardized the oil rig operating system. This resulted in more productive and efficient day-to-day operations and made repairs significantly less expensive.
It was the near magic formula to produce much more profitability, allowing increased investment and exploration. At the same time Miller was making his improvements, the fleet of offshore rigs was aging, and oil prices were starting their dramatic rise. The company he leads became the "go-to" guys for new oil rigs.
National Energy Policy
While politicians from both parties debate national energy policies, it's interesting and important to note that it's innovation and evolution within the industry itself that have perhaps the biggest effect on domestic oil and gas supplies.
Paul Moore works with several housing providers and covers a variety of business topics. He works with Bakken Residence Suites, a corporate housing provider in the booming oil region of North Dakota. You can find him at his Linked-in profile.
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