Cenovus opex costs already under $9/b, can it be reduced another 20% to 30%?
In Part 1 of this column on Cenovus Energy, I reported on the company’s drive to lower it operating costs by substituting light hydrocarbon solvents for steam generated by burning natural gas. In Part 2, I’ll look at how Cenovus is using big data/analytics and improved well/well pad design to further reduce costs. Why is this important? Because oil sands producers are determined to be competitive in a global oil market where $50 to $60 may be the new normal far into the future.
“We believe we need to keep driving innovation and technology development to ensure that we’re globally competitive on cost and on carbon, while working to reduce other environmental impacts associated with our industry.” – Cenovus Corporate Social Responsibility Report, 2016
Big data and analytics
Two years ago, Mark Mills of the Manhattan Institute wrote a study entitled, Shale 2.0 – Technology and the Coming Big-Data Revolution in America’s Shale Oil Fields, in which he argued that unlike conventional drilling and production, shale operations are more like factories that lend themselves to using data to optimize inefficiencies. Mills predicted that big data and the ability to understand it using analytics software and machine learning would drive down American shale production costs to remarkably low levels.
“Shale 2.0 promises to ultimately yield break-even costs of $5–$20 per barrel—in the same range as Saudi Arabia’s vaunted low-cost fields,” he said in an interview.
I also interviewed Atanu Basu, the CEO of Austin, Texas-based Ayata Prescriptive Analytics, which has spent the past four years helping American shale producers reduce their costs. How low? Take fracking as an example.
“There are hundreds of variables – sand volume, water pressure, and so on – and we prescribe settings for those hundreds of variables,” Basu said, adding that his company will create a “custom recipe” for each well – with significant results.
“We get on average 13 per cent improvement over the first 12 months of production.”
As it turns out, Mills could have been talking about SAGD 2.0 because their observations apply to the kind of leap forward in efficiency Harbir Chhina, Cenovus’ chief technology officer, is looking for in SAGD. He says Cenovus collects five to 10 million data points every three seconds, providing insight into every facet of the company’s field operations.
“Data-analytics is the future and we have partnered up with ConocoPhillips, who’s been applying that technology through the Eagleford [basin in south Texas], where they were able to cut their costs by 30-40%,” he said.
“Rather than re-inventing the wheel, we are learning through partnerships with companies that have already done this before.”
Steam flooding and heat management in the reservoir is one area where Cenovus engineers can see improved performance, according to Millington.
“You find better ways to regulate steam and where it’s going, to optimize the different pressures of steam that you would inject,” she said.
Chhina agrees, and points to Cenovus’ “better forecasting of our wells and a better steam usage to make sure we’re distributing the steam properly throughout the field.”
Millington estimates analytics can reduce production costs by up to 20 per cent. Cenovus says analytics is part of a $125 million in operating costs reduction it forecasts for the near future.
Well and well pad design
The company has targeted another $500 million savings through “capital efficiencies,” including re-designed well pads and longer-reach horizontal wells, an approach which is common throughout SAGD operations.
“We went from four to now we’re seeing 12 or even 16 well pairs per pad. That standardizes and modularizes your operations, reduces your land footprint,” says Millington.
Cenovus said in an email that it is implementing a “zero-base design approach,” which begins with the most basic equipment and infrastructure required for each phase in the production cycle, then adds more equipment or infrastructure as it becomes necessary, repurposing the equipment.”
Cenovus also provided a presentation that lists some of the well design and well pad innovations it is implementing:
- Longer reach horizontal well pairs, drilling improvements, inflow/outflow control devices, improved start-up techniques that lead to quicker start-up, better conformance and faster recovery
- Superior steam circulation methods, avanced sub-surface equipment and design, and high pressure ramp up that lead to better conformance along the full horizontal well length, lower steam/oil ratio, higher oil rates per well pair
- Improved conformance allows longer wells to capture a larger drainage area, leading to fewer wells and surface facilities (~25% reduction)
One SAGD project CERI studied gained a 20 to 50 per cent reduction in the cost of wells and pads, which generally account for 20 per cent of the total capital expenditure of any SAGD project, according to Millington.
By her calculations the savings could be as high as 10 per cent of total project costs. Assuming a price of $43/b, that would net the operator about $4/b in cost reductions.
Good article – Double check spelling of Harbir’s last name in your article. Feel free to delete my comment.
Found one spelling error. Thanks for the catch. ;0)