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Producers employ tech innovations to keep lid on costs

ALBUQUERQUE, N.M. — Devon Energy Corp. manages all its oil operations in southeast New Mexico directly from a command-control center on the 44th floor of its Oklahoma City headquarters.

Teams of engineers continuously monitor everything happening in the field and deep underground from the company’s 24-hour Well Construction Center, a state-of-the-art, computer-based work station where operators track and guide activity through fiber sensors embedded alongside the drill bits that bore into hard shale-rock formations.

Through cyber-steering, the team troubleshoots everything from Oklahoma, guiding drills in real time as they bore into the earth.

“WellCon operates 24/7 to monitor all the information being pulled by fiber sensors from the holes,” said Devon spokesman Tim Hartley. “Those technology tools tell us where drill bits are at any given time to adjust and steer them up, down and sideways.”

It also allows engineers to manage a myriad of problems that can plague operations, such as “screen outs” caused by cuttings clogging up the drill hole.

“That happens when you go too fast, and it mucks up the works,” Hartley said. “The system senses it before it happens and automatically slows things down for protection.”

Technology like WellCon, combined with a broad array of other high-tech innovations directly in the oil fields, is helping producers like Devon streamline operations and cut costs to a minimum. That, in turn, is fueling a new surge in activity in the Permian Basin in southeast New Mexico and West Texas.

Longtime energy analyst Daniel Fine says it’s the next wave in the technological revolution that began about 10 years ago, when hydraulic fracturing and horizontal drilling helped crack open hard shale-rock deposits that operators couldn’t reach before.

That first wave of technology gave new life to aging basins like the Permian, while opening up vast new oil fields in places like North Dakota. This next stage is now radically lowering the costs for those operations, allowing producers to continue drilling and producing despite today’s low oil prices.

“This new wave of innovation is all about doing more for less,” Fine said. “It’s a revolution in service operations that’s allowing drilling rigs to do a lot more at much lower cost than before prices crashed in 2014.”

That includes multi-well pads where drilling rigs now typically dig up to eight, or even 10, horizontal holes, rather than the two or three they dug before. And lateral wells are being extended much farther, boring up to two miles or more through different layers of shale rock to extract oil from hard-to-reach nooks and crannies.

Companies use 3-D seismic imaging to pinpoint precise locations in the most productive zones before drilling. They co-locate multiple well pads in a single area to rapidly move rigs around, significantly cutting the number of days and rigs needed to pull crude from the ground.

“A few years ago, it took about 40 days at a cost of $50,000 a day to drill a well,” Fine said. “But with all the new technologies and operational efficiencies, that’s been cut to two or three days.”

Most companies now hedge their operations with long-term contracts that lock in sales at above-market prices. They also negotiate lower drilling and operational costs with service companies.

Devon, for example, now pays different companies for individual services and often brings its own supplies to operations, such as sand for fracking. That’s cheaper than paying for bundled work and supplies from one service company.

Given all the innovation, many companies say they can break even, or even operate profitably, with oil prices at $50 per barrel or less. That’s especially true in the Delaware Basin in New Mexico’s side of the Permian, where extremely productive shale-rock reservoirs bring immediate returns on investment.

Devon expects to grow its oil output there by 20 percent this year.

“We’re going to thrive in the $45 to $50 world, and we’re not counting on higher prices,” Devon President and CEO David Hager told investors this month.

Still, hundreds of small, independent producers don’t have the capital to deploy the cutting-edge technologies used by bigger players like Devon. Most need $60 or more per barrel to invest in new production.

But given today’s innovations and New Mexico’s lucrative reservoirs, the oil patch could come roaring back when prices climb again.

“Many producers are still struggling in this low-price environment,” said New Mexico Oil and Gas Association Executive Director Ryan Flynn. “But we take the long view. When prices eventually do come back up, the state will be in a great position.”

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