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Volume 17 • Issue 6 • December 2017
In Case You Hadn't Heard

The Oxford Dictionary has just announced "Youthquake" as Word of the Year 2017. Their announcement is in recognition of a noticeable increase in usage of this particular term in the media and general public. Youthquake is not a new term. It was first coined in the sixties, then describing the political and cultural changes of those times. Today, according to the publisher of The Oxford Dictionary, it is a befitting description of a certain mood in this period of change in our world.

In April 2016, according to the U.S. Census Bureau, Millenials overtook Baby Boomers as the largest segment of the U.S. population. The oil and gas industry has been a part of this change. As we look around at organizations in the oil and gas industry, it is easily noticed that the crew change is underway and that the first group of Millennials, born in the early 1980s, are coming of age and are growing into leadership positions.

Much has been made about the differences in outlook between the different generations. The Harvard Business Review conducted a study with the overall conclusion that in the end "people are people" and everybody is looking for very similar things in their professional lives. We all want the chance to grow, work with other good people, and somehow make a positive difference in the world for our children.

The "quake" in the word of the year might imply some upsetting forces at play, but those fears appear to be unwarranted. We are simply in another period of transition and there are more commonalities than meet the eye between generations and plenty of opportunities to learn from each other. Each generation has valuable lessons to teach the next. Baby Boomers and Generation X have a wealth of knowledge and tricks of the trade that Millennials can use. In turn, Millenials are very good at adapting new technologies; there are ample opportunities to improve our workplaces and develop the businesses of the future.

Of course there are challenges. We need to learn to empathize and to motivate each other, because we all had different tools and experiences in our own formative years.

This is asking managers of an organization to address communication styles and related skills, and not ignore them as less important "soft factors." In the end, if individual differences are not handled well, it might lead to disappointment. On the other hand, well-managed communication will make for a more congenial and effective workplace. The word to the outside will be, that you managed the youthquake well and are providing a great place to work for members of all generations.

Wishing you happy holidays and all the best for 2018!

 Upcoming Events ^ Back to Top 

IPAA Private Capital Conference

JW Marriott Houston Galleria
5150 Westheimer Road
Houston, TX 77056
January 25, 2018

New Artificial Lift Designs & Production Optimization Technologies

The Westin Oaks Houston
5011 Westheimer Road
Houston, TX 77056
January 23-25, 2018

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Spend Money to Save Money?

This month, I wanted to expand upon the topic of cost reduction by going back to the fundamentals of capturing investment opportunities associated with small projects. When capital is constrained, we tend to stop major investments, most notably for drilling and large-scale developments. In this environment, we might find it to be an ideal time to evaluate putting that reduced capital to work by spreading it around in smaller amounts, so more chances for improvement and optimization can be captured. Maybe, instead of drilling one well for, say, $5,000,000, which is a relatively risky proposition, there may be opportunities to spend that money on a number of lesser investments, which usually have both lower risk and higher rates of return. Some examples of projects that might contain low-hanging fruit are:

Capital investments to increase production include recompletions to secondary zones in wells that are not producing or are producing near their economic limits. They might also include drilling to deeper horizons in wellbores that are idle in order to test or develop new reserves. Both of these possible opportunities require less capital than drilling new wells and, when successful, add to reserves, production, and cash flow.

Other subsurface capital investment opportunities could involve replacing tubing with different sizes or different materials. Deep to moderately deep gas wells in depleting reservoirs can benefit from velocity strings in some cases and from coated tubing to improve the friction from flow through rough, corroded tubing. This incremental improvement can be estimated using nodal analysis.

Improvements in surface equipment that require capital include adding compression, reconfiguring the gathering system, and adding pumps, which of course also involve subsurface components. These will have elements of increased rate and reserves and may also cause reductions in operating cost, especially by virtue of reducing the field life in some instances.

Expense investments targeted to increase production include stimulation and re-stimulation, remedial workovers in many different forms, compressor restaging, artificial lift installation or change, and gathering system reconfiguration that is less significant than capital. It could also involve installation of digital data management systems to reduce manpower for information collection, management, and reporting.

Projects that may decrease operating cost include opportunities to purchase (versus lease) equipment, especially of major pieces like compressors, pumps, and generators, and installation or expansion of water disposal/management systems, particularly moving wells from a hauled-water to an injected-water situation. Also, there may be opportunities to install fuel efficiency measures, such as heat exchangers or insulation, or investing in generation, co-generation, or solar energy versus buying power from the grid. Finally, there could be opportunities in abandoning or selling fallow assets. This last may consist of savings in ad valorem taxes, real estate taxes, and in maintenance of safety systems and reporting that over time could be significant.

Incremental analysis is the key to a proper financial evaluation of any opportunity. When making an initial investment, like a new well, where the alternatives are to drill or not to drill, the value of the "base case" is zero, so the incremental benefit to adding a new well is the same as the value of the new well itself. However, when the value of the status quo is an ongoing operation, the current situation and the proposed investment cause revenue and cost, and both must be modeled financially; then the cash flows associated with the status quo are subtracted from those associated with the investment. Then, the financial indicators for the investment proposal will be correctly reflected, answering the question, "How much more will we earn (save) by pursuing this project?"

People call the status quo case for the economic model the "do nothing," or "continue to operate" scenario. The proposed investment economic forecast is compared to that. It is important to model both, including production, working and net interests (do they change over time?), product prices, fuel use, fixed and volume related costs, taxes, and, of course, the investment. The reason for including all these elements is that some of the cost savings investment measures have the additional benefits of increasing production and reserves. This often applies to a compressor project if it also increases ultimate recovery or just extends the field life if the costs are lower; it also is very applicable to co-generation projects, which have elements of cost reduction and possible revenue increases from selling power back to the grid where the law allows.

Except for income tax effects and possible joint operating agreement constraints, the financial evaluations of capital and expense investments are the same. We seek to find the efficiency of cash flow generation measured in terms of rate of return, return on investment, and net present value among other profit indicators. Now that we are just a couple of years past the shale drilling frenzy, it is likely that we have the time to stop and seek the opportunities for post-drilling improvement that undoubtedly exist. And, don't forget, that a production increase of only 25 BOPD will pay an engineer's salary, and a cost reduction of, well..., you can figure that out.

Small investments will have more of an impact on smaller companies, of course, but there are important side effects of pursuing such a program, even for large independents and majors. Finding, quantifying, evaluating, and justifying these optimization projects takes time and experience, and sometimes the investment may be as much in manpower as it is in direct monetary outlay. Because of that, this effort provides an important vehicle for training young professionals, including engineers, geologists, and support people, in the study of brownfield performance and the search for opportunities for improvement. So, if you can adopt a philosophy that embraces this value in the midst of G&A reduction, you might also save and build a strong technical and commercial work force for the future.

Finally, good practice using these methods extends to everyday life for all of our people, and encouraging them to use them keeps skills sharp. At home, we consider insulating our homes, buying more efficient heating systems, replacing windows with insulating models, and in some cases, using generators, fuel cells, and solar panels to heat and cool our homes. They all use the same math to evaluate, though sometimes, we don't use only the numbers to make our personal decisions!

As always, let us know if we can be of service. Many of us have done these evaluations hundreds of times over.

Cheryl Collarini, P.E.

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The following biographies are just a small sampling of over 24,000 industry professionals who participate in our network. Please drop us a note or check out our website for more available talent.

Executive with a bachelor's degree in civil engineering and 40 years of experience in production engineering and operations management for large and medium sized independents. Extensively accomplished in diverse projects in the areas of production, drilling, completions, construction, gas processing, exploration, HSE, and government relations. Experienced in managing construction and production operations onshore, offshore, and in inland waters in the U.S., Africa, and South America including fabrication and installation of new platforms and facilities through decommissioning. Recognizes value overlooked by others, and can balance high technology and common sense. Possesses extraordinary problem solving skills and is capable of managing multiple crises simultaneously using creative, innovative, and three-dimensional thought process. Ask for P759

Senior Production and Completions Engineer and Manager with a master's degree in petroleum engineering and over 35 years of experience with two independent oil companies. Detail- and technology-oriented professional skilled in asset management, reservoir engineering and simulation, completions, production, and fracture stimulation in conventional and unconventional resources. Experienced advisor and manager of completions team ensuring sound engineering concepts and practices were employed, aligning with company values, and protecting company assets, people, and environment. Collaborated with other disciplines, including reservoir, production, land, and corporate planning, optimizing use of capital and ultimate recovery. Diagnosed and developed solutions for trouble wells, including casing restrictions, casing leaks, and sustained annular pressures, allowing completion of wells and capture of reserves in inaccessible sections of reservoir. Geographic areas worked include the Permian Basin, Rocky Mountains, and most recently the Eagle Ford shale. Software proficiency in ARIES, PHDWin, FracPro, Wellview, Spotfire, WEM, Rose Risk Analysis Suite, and others. Ask for P857

Petroleum Engineer with a master's degree and over 30 years of domestic and international experience in reservoir, production, project management, and drilling and workover projects. An accomplished reservoir engineer in estimation, evaluation, and performance prediction. Experienced in reserve estimation, field studies, portfolio and project economics, field development, artificial lift design and operations (all types), and production log analysis. Geographic areas worked include south Louisiana, the Gulf of Mexico, the Rocky Mountains, southern California, and southeast Asia. Proficient in various computer programs including Microsoft Office, and ARIES. Ask for P247

Petroleum Engineer with a Bachelor's degree and over 30 years of experience in upstream oil and gas exploration, production operations, and acquisitions. A seasoned professional with broad operations and technical expertise. Excellent communication and management skills complementing a strong leadership background. Career experience includes domestic onshore, offshore, and international sectors, working in a wide variety of environments to include independents, majors, and privately held companies. Ask for M37

Engineering Technician with an associate's degree in general studies and 25 years of experience working for major operators and small independents. Experience includes workover process management, operations and reservoir support, compiling well reviews, researching well histories, creating ternary diagrams, lithofacies logs and maps, rig scheduling, assembling daily operations reports, regulatory reporting, HS&E compliance, maintaining and tracking well costs, budget reconciliation, economic analysis, creating financial data, data QA/QC, database creation and maintenance, data integration and reorganization, softwaremanagement, and technical training and support. Geographic areas worked include California, the LA basin, the Permian Basin, and the San Joaquin basin. Computer skills include AdminView, ARIES, Business Objects, BOLO, Carte, CIW Fundamentals, DIMS, Documentum, DrillingInfo, DSS, Filenet, Ground Spring, EDM Administration, Enertia, HIS Kingdom, Macromedia Contribute, Microsoft Office Suite, Neuralog, OpenWells, Petra, Raisers Edge 7, SAP, Visual Studio, and Wellview. Ask for TE678

Engineering Technician with bachelor's degrees in structural engineering and fire and safety engineering and 20 years of experience working for a chemical company and a service company. Experience includes creating well files and preparing files for datarooms, creating charts, graphs and wellbore diagrams, entering and tracking production data, organization and analysis of technical data, auditing of production volumes and related statements, vendor selection, tracking and analyzing well costs, compliance hearings and meetings with state and federal agencies, well permitting and completion reports with the BLM, TRRC and MMS, operational site visits, and onboarding new field consultants. Geographic areas worked include Colorado, the Gulf of Mexico, Louisiana, New Mexico, North Dakota, the Permian Basin, and Wyoming. Computer skills include, ARIES, Drilling Info, Microsoft Office, Ogsys, Open Wells, Primavera, Procount, RIO, Roughneck, Spotfire, WellView 9, and Wenn Soft. Ask for TE559

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A respected name in its field, Collarini has been providing upstream consulting services since 1985. Founded by engineers with major oil and gas company experience, the firm's specialties include reservoir engineering, geoscience, land administration and management, asset development, acquisition evaluation, divestment support, data management, reserve appraisal, and producing asset optimization. With one of the largest networks of subject matter experts in the industry and a strong leadership background in oil and gas, Collarini has the ability to select the right people for your needs.

We help achieve goals, improve asset performance, and are confident in our ability to find solutions to your complex and dynamic challenges.

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1500 S. Dairy Ashford Road, Suite 350
Houston, Texas 77077

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