oilfield technology - Rigzone

ΜARCH 2015

06 HOW TO ‘CROSS

THE CHASM’ IN THE ADOPTION OF DIGITAL OILFIELD TECHNOLOGY

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THERE’S PLENTY TO BE POSITIVE ABOUT IN UK OIL, GAS

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CONTENTS 10

MARCH 2015 ISSUE

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APAC EDITOR Cheang Chee Yew

EMEA EDITOR Jon Mainwaring

CAREERS EDITOR Valerie Jones

SENIOR EDITORS Karen Boman Matthew Veazey

WEB/GRAPHIC DESIGNER

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RENEWED FOCUS ON TALKS IN THE SOUTH CHINA SEA DISPUTE, FOR NOW HOW TO ‘CROSS THE CHASM’ IN THE ADOPTION OF DIGITAL OILFIELD TECHNOLOGY

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FTI: COMMUNICATION IS KEY TO MANAGING RISK IN MEXICO’S OIL, GAS MARKET

Abigail Peraria

MANAGING EDITOR Saaniya Bangee

CREATIVE DIRECTOR Eric Duenas

VP CONTENT


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RZNEWS MARCH 2015

CURRENT AFFAIRS

RENEWED FOCUS ON TALKS IN THE SOUTH CHINA SEA DISPUTE, FOR NOW By Cheang Chee Yew

@cheeyew_cheang

“To jaw-jaw is always better than to war-war,” Britain’s wartime Prime Minister Winston Churchill once said. The sentiment best reflects the latest move by the Philippines, one of the four Southeast Asian countries – including Brunei, Malaysia and Vietnam – locked in a territorial dispute over the potentially energy resource-rich South China Sea with Asia’s largest economy China. On March 2, Forum Energy plc, the U.K. incorporated upstream oil and gas firm focused on the Philippines, confirmed that the Philippine Department of Energy (DOE) has informed the company to suspend all exploration work at Service Contract (SC) 72 in the South China Sea, west of Palawan Island with immediate effect. The actual suspension began Dec. 15, 2014. Forum, a 60.49 percent subsidiary of Philex Petroleum Corp., revealed that the DOE made the decision because SC72 “falls within the territorial disputed area of the West Philippine Sea which is the subject of a United Nations (UN) arbitration process between the Republic of Philippines and the People’s Republic of China.” Philex Petroleum is the petroleum arm of Philippines-listed

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Philex Mining Corp. The suspension will remain in place until DOE “notifies the Company that it may commence drilling [at the Reed Bank, or Recto Bank according to Manila]. As a result, the second sub-phase of SC72 has been put on hold until further notice. The terms of the second subphase and all subsequent sub-phases will be extended by the term of the force majeure.” “Whilst it is disappointing that we have been unable, as a result of matters beyond our control, to carry out drilling under the second sub-phase of the SC72 contract, we remain committed to pursuing the project and continue to have the support of the Philippine Government as demonstrated by the extension awarded in respect of the second sub-phase,” Forum Chairman Robin Nicholson commented Feb. 23. Prior to this latest move, the DOE had approved Forum’s request to extend its drilling plan for two appraisal wells at the Reed/Recto Bank in the Philippines until August 2016. The extension was needed due to the territorial spat between the Philippines and China, which claimed almost 90 percent of the area based on its “nine-dash-line”. There was already a confrontation in 2011

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2011 between Chinese navy vessels and a survey ship contracted by Forum, leading to a stoppage in exploration work at the Sampaguita block. The Philippines argues that arbitration is the only route towards a just and lasting solution to the disputes over the South China Sea and opposes China’s contention that a court has no jurisdiction to hear a complaint, Reuters said March 3. According to the Philippine Department of Foreign Affairs, the UN tribunal may rule on the arbitration case early next year. The unresolved territorial spat has not prevented China from recently embarking on a charm offensive in South China Sea, particularly towards Vietnam – where anti-Chinese violence erupted last May when China National offshore Oil Corp. (CNOOC) conducted exploration drilling with its first deepwater rig Hai Yang Shi You 981 or HYSY981 (UDW 981 semisub) near Paracel Islands, an area also claimed by Vietnam. “China’s party and government have long set great store on China and Vietnam’s traditional friendship, and … are willing to promote healthy development of ties,” Reuters quoted China’s President Xi Jinping telling Vietnam Communist Party general secretary Nguyen Phu Trong in a telephone call Feb. 11. However the mistrust between rival claimants, particularly between the smaller Southeast Asian states against China, runs deep. Foreign ministers of the Philippines and Vietnam, two of the more vocal

contestants of China’s territorial claim in the South China Sea, have commenced discussions in January to establish a partnership on security and defense matters. “Discussions are still ongoing but both sides agreed to elevate the relations to a higher level,” Philippine Ministry of Foreign Affairs Spokesperson Charles Jose said. Recognizing the strong reaction from Southeast Asia countries to its more assertive posture in the South China Sea dispute, China appears to be changing tack. It seems to have adopted a less visible assertion of its territorial claims by conducting ad hoc dredging and construction work on contested islands instead. Last month, Beijing began dredging and other construction works at “Mischief Reef” in the disputed region, prompting the Philippines to voice its objections to the Chinese move. “China will continue with actions that it thinks it can get away with, like Island reclamations, but will not actively assert claims if the diplomatic cost is too high,” the International Crisis Group’s Yanmei Xie told the Financial Times Feb. 19. After last year’s anti-Chinese riots in Vietnam and the standoffs between Chinese and Vietnamese naval vessels in the South China Sea arising from China’s drilling activities near the disputed Paracel Islands, the renewed focus on dialogue would provide a welcome respite from the tensions that had engulfed countries in the region.

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RZNEWS MARCH 2015

TECHNOLOGY

HOW TO ‘CROSS THE CHASM’ IN THE ADOPTION OF DIGITAL OILFIELD TECHNOLOGY By Karen Boman @KarenBoman

A Silicon Valley veteran offered lessons from the technology sector on how oil and gas companies can further implement digital oilfield technology and “cross the chasm” of moving technology from ideas to mainstream use. Author, speaker and advisor Geoffrey Moore discussed with attendees at the recent Society of Petroleum Engineers Digital Energy Conference near Houston the frameworks of measuring the adoption of technology, such as how change diffuses through a population, how technology moves from early adopters to the rest of a population, and how to cross the chasm in technology innovation inside large companies, which have a lot of inertial momentum around legacy. “The latter also is known as crossing the chasm inside the belly of the whale.”

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It’s not a matter of if, but when digitization will transform the oil and gas industry, just as it has transformed education, transportation and healthcare, Moore said. Moore shared on thumbnail view of frameworks used in the technology sector, and how oil and gas companies can use these frameworks to determine when to move forward with a disruptive technology. It also can help oil and gas technology vendors identify and better understand what strategies to use with partner

companies in the oil and gas industry. “When you’re in the middle of a disruption or expecting a disruption, you need frameworks to help you anticipate what will happen,” said Moore. “Frameworks don’t predict what will happen, but lets you quickly recognize things very quickly when they happen,” said Moore. Frameworks are needed by industries such as oil and gas in good times, bad times, and in-between times such as now. During his talk, Moore outlined one type of framework, the diffusion of innovations. This model was developed in the mid-twentieth century by professor and sociologist Everett Rogers, said Moore. The idea that a community such as the oil and gas industry will self-segregate into five different responses – roughly proportional to the one sigma, two sigma, three sigma model – still holds true today. These five groups include: Technology enthusiasts: This group includes technology visionaries who want to learn about disruptive technology and like to be experts about new technology, even in their free time. (Think somebody like Dr. Sheldon Cooper from the TV show

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They want evolution, not revolution The Big Bang Theory) They also tend to want unrestricted access to top technology folks and have no money. They present challenges as customers, but they can serve as the “canary in the coal mine” in identifying the next big thing in technology. “Without these folks, the rest of us wouldn’t never really understand what the technology is about,” said Moore. Early adopters or technology visionaries: This group of people likes disruption in technology in terms of the leverage it can give them. Examples include Apple, Amazon and Uber, which have leveraged technology to change the rules of the game. These folks are great imaginations, are charismatic, and good at talking people out of money. “If you’re selling technology to a visionary, they’re there for you early on, but they want it now, they want it customized to their needs and they want exclusive rights to it.” The early majority, or pragmatists: These people want to be with the herd in terms of using technology, not ahead or behind, preferring proven applications and market leaders for technology. These people are usually responsible for spending at a company and don’t

want to make mistakes. They tend to poll their peers at industry conference to determine whether to move forward with a technology. “They want evolution, not revolution.” The late majority, or conservatives: This group doesn’t get along with new technology, preferring to stick with their existing systems for as long as possible. This strategy works but is in resistance to next wave. When that wave comes, they need it prepackaged, debugged and ready to go, and don’t want to hear that it only works 95 percent of the time. The laggards – This group is against new technology, and think technology vendors “don’t know when they’re lying.” Companies typically pursue disruptive technology for three reasons: one to create the early market, the second to solve a problem that conventional solutions can’t address, and the third to catch up with trends. In the end, there’s no right answer to when a company should adopt a technology, but it’s important to understand the value propositions and the reason why a company is making the move, said Moore. The strategies of all five groups in the model are valid, and should be honored, Moore noted.

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RZNEWS MARCH 2015

TRENDS

FTI: COMMUNICATION IS KEY TO MANAGING RISK IN MEXICO’S OIL, GAS MARKET By Karen Boman

@KarenBoman

Effective communication by oil and gas investors with Mexican authorities – and investor knowledge on finding the right partners to achieve the best results – will be critical for oil and gas companies, oilfield service companies and investors and others looking to participate in Mexico’s reformed energy sector. Addressing the challenges of Mexico’s regulatory and legal environment and risks presented by political opposition to energy reform and public opinion requires companies to have a comprehensive approach to public affairs, according to a January 2015 paper by FTI Consulting on Mexico’s oil and gas investment opportunity. Knowing how to send the right message through the appropriate channel to agencies such as the National Hydrocarbons Commission and National Safety Energy and Environmental Agency, which are building the Mexican oil and gas sector’s new regulatory landscape, will be critical to ensure regulations don’t set standards that make operations a logistical and bureaucratic nightmare. Monitoring on-the-record activities of key public officials to gauge progress of the reforms and detect policy changes also will be important.

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“Failing to engage closely with government regulators can create miscommunications and lead to missed opportunities,” according to FTI. Oil and gas companies will need to implement a successful communication strategy to deal with local environmental and social groups, and address land use issues along with left of center political opposition which continues to express strong sentiment against Mexico’s energy reform. In Mexico, land on the outskirts of communities traditionally has gone to public uses, and local activists could gain broad support by protesting against foreign companies instead of the Mexican government of state energy company Petroleos Mexicanos (Pemex). Companies will also need to be ready to deal with public protests during construction of infrastructure, and operations such as onshore well installation and hydraulic fracturing. The end of term limits this year in Mexico’s political system means that members of Mexico’s Congress will be campaigning to keep their seats, and are expected to be more responsive to their constituents. Their dissatisfaction, amplified through mass communications and social media, could create controversy for and potentially

| www.rigzone.com unseat congress members who support energy reform. Any combination of these developments makes it critical for oil and gas companies to develop a proactive strategy that drives positive news coverage and quickly rebuts factual errors in the press. This strategy includes building a power public coalition that will allow companies to speak out without being singled out. A successful coalition should focus on the positive and communitybuilding impact that expanded oil and gas production will bring Mexico. “Social responsibility programs, on top of the jobs issue, also can be part of a program for private companies to give local communities a stake in the private sector’s success.” Implementing a strategic communications program as quickly as possible allows for companies to set the terms for future debates ahead of the opposition’s efforts to do the same, FTI noted. Key elements for building supportive coalitions and quickly responding to opposition include website resources that can serve as a clearinghouse for facts, figures and information; looking for opportunities to engage with key target audiences on Facebook, Twitter and online social networks; monitoring media quickly to respond to misinformation; an aggressive strategy on “letters to the editor”, comments and story development; getting to know and assisting reporters; and preparing documents with research and messages that are easy to understand and actionable. “Across industries and countries, organizations that have failed to define

themselves first will be defined by opponents – even when the government is on their side,” said FTI. “A solid reputation is built over time but can be lost overnight.”

Failing to engage closely with government regulators can create miscommunications and lead to missed opportunities Despite corruption, political unrest and extreme drug cartel violence, the reform of Mexico’s energy sector and Mexico’s Round One opportunity of 3.782 billion barrels of oil equivalent (Bboe) in proven and probable reserves and an additional 14.606 Bboe have failed to shake the confidence of interested parties. The study authors shied away from saying that companies need to ramp up social media spending, but to spend as much as they need to address issues in Mexico. It would be naïve to think that smaller companies won’t be affected by low oil prices, but energy companies that have been waiting for a long time to establish a footprint in Mexico won’t be deterred, the authors noted. Oil companies experienced at working around the world have a high tolerance for risk, and know how to mitigate issues such as security, and know what they need to do in Mexico. While companies will likely have to change their business strategies in light of oil prices, the Mexican government will have to show some flexibility in making terms and contracts as attractive as possible to foreign and private investors.

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RZNEWS MARCH 2015

OUTLOOK


By Jon Mainwaring @oiljon

The results of a recent Bank of Scotland survey provided some welcome cheer for the UK’s offshore oil and gas sector. The Bank of Scotland said March 13 that out of 101 North Sea oil and gas companies it questioned, 92 were planning to expand – which was up from 69 percent of firms that were asked about growth in a similar survey by the bank last year. The latest survey also found that more than two-thirds of the firms it talked to were planning to increase staff numbers during the next 24 months. The optimism highlighted by the survey makes a refreshing change in light of far more negative headlines in the UK press during the past few months, with one or two excitable headline writers even suggesting something close to Armageddon for the UK’s offshore industry. Here at Rigzone’s offices in London, we continue to closely follow developments in the North Sea as well as in the wider European oil and gas industry and – in spite of the low oil price and announcements of many job losses in the sector – there is still plenty of good news to be had.

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Firstly, the industry is carrying on with plenty of development work in the UK North Sea. For example, BP plc is pressing ahead with two major projects on the UK Continental Shelf – Clair Ridge and Schiehallion – while GDF Suez and Centrica are developing the southern North Sea’s Cygnus gas project that is set to support up to 4,800 jobs during its current 5-year construction phase.

Smaller energy companies are also involved in developing fields on the UKCS, with independent energy firm Premier Oil plc set to begin development drilling on the Catcher field later this year. In the oilfield services subsector of the oil and gas industry plenty of comfort can be taken from the fact that important European offshore services companies – such as Aker Solutions ASA and Technip S.A. (both of which have significant operations located in the UK) – increased their order books last year. In Technip’s case, its backlog of orders achieved a record level of $23.8 billion by the end of 2014. In addition, after decades of producing oil and gas from the North Sea, Scotland – and Aberdeen in particular – is now an important global hub for oilfield skills and know-how. This is reflected by last year’s report from Scottish Development International that showed exports by Scotland’s oil and gas supply chain companies had grown to almost $17 billion annually – accounting for around half of the supply chain sector’s total revenue. While North America remains the main region for exports by the Scottish oil and gas supply chain sector, Africa is catching up fast as demonstrated by sales to the region doubling to $3.9 billion between 2012 and 2013. Times may be a bit tougher in upstream oil and gas at the moment, but the UK offshore sector is clearly far from finished.

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