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INTERVIEW: GP&SON
GEOFFROY PAIXACH
Founder & President GP&SON
“The pace of innovation right now in the oil and gas industry is accelerating.” This statement, from Geoffroy Paixach, Founder and President of energy technology consulting firm GP&SON, describes
perfectly the breakneck speed at which hydrocarbons firms are seeking to ramp up technology implementation in order to survive in the current environment.
THE LAW OF DIMINISHING RETURNS ...
Oil prices have recovered somewhat since their sub-US$30- per-barrel trough in 2016 but still waver around the US$50 mark—a far cry from the 2008 peak crude oil price of US$145. As a result, many oil majors are operating on razor- thin margins, and lowering production costs is of the utmost priority. Natural gas has to be transported from ever more remote locations, and most of the world’s “easy oil”—that which can be produced relatively cheaply—has already been extracted. What is left is either deep underground, requires unconventional extraction, or is offshore and requires costly efforts to retrieve.
Producing oil and gas is therefore both harder and more expensive than it used to be, with smaller returns. As Paixach points out, “Technology is the key factor to continue to make the oil and gas sector competitive.” He highlights recent advances in drilling, which have facilitated the emergence of the shale industry in the United States, as well as the implementation of data monitoring software in the drilling process, which enables companies to manage the performance of their drilling stations.
... GETS TURNED ON ITS HEAD
With liquidity lower, major capital projects such as new wells and exploration projects have been set to one side as companies refocus on maximizing the value they can get from operating existing assets. “If a company can increase by one percent or ten percent the recovery of oil in one reservoir, it is a game changer,” says Paixach. “To do that, you need to be able to have sensors in the wells and tools for the oil and gas engineers to optimize development and maximize your return.”
Another option companies are increasingly using is enhanced oil recovery. “Over the last decades, the average total recovery on an oil field has been about 25 percent, which means you are leaving in the reservoir 75 percent
of the oil,” explains Paixach. Enhanced oil recovery allows companies to minimize how much oil or gas remains in the reservoir. He further notes that much of the investment for enhanced recovery does not change: infrastructure, roads, platforms, and surface facilities are similar to the ones in conventional extraction.
SHOOTING THE GAP
In the past, oil producers operated their own fields alone, but over recent decades they have begun to bring in increasingly sophisticated oilfield services companies to select and integrate technologies into projects to deliver cost-efficient production. This area has been largely dominated by big companies, but as the risk environment changes and the need for ever more nimble approaches increases, a gap is opening for upstarts.
“When I started in the industry twenty years ago, this was a big-player industry,” recalls Paixach. Innovation occurred primarily within international or national oil companies. Large services firms did all their own research. Now, Paixach adds, “There is improvement, there is technology, there is talent, but there is still a need to leverage further the true capabilities of entrepreneurs.”
THE CAPACITY FOR RISK
Times are changing, however. Paixach explains that among large oilfield services companies there is a growing acceptance that while they are the best at deploying solutions at large scale, they are less capable at disruptive innovation because it means risk, which does not always tally with the objectives of stockholders. “There’s nothing wrong with that, but it means that disruptive innovation may come from independent small companies and even technology startups who have less to lose and have a great idea,” he says.
As a result, much like the banking industry, which has been revolutionized by the emergence of small, smart fintech firms, the oil services sector is starting to see an influx of new, highly focused firms who will both compete with and complement the work of the established players, disrupting the status quo to create a leaner, more efficient oil and gas industry able to survive and thrive in the most challenging of economic backdrops.
Oil and gas companies can’t afford not to innovate: According to research from the McKinsey Institute, improving production efficiency by 10 percentage points can yield up to a US$220 million to US$260 million bottom-line impact on a single brownfield asset.
When It Comes to
Energy, Who Leads
Disruptive Innovation?
With energy prices famously “lower for longer,” oil and gas companies face new challenges to maintain competitiveness in a tight-margin environment. Innovation in oilfield services delivery could be key.
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