The Business Case for a Comprehensive Well Lifecycle Management Platform

The Business Case for a Comprehensive Well Lifecycle Management Platform WHITE PAPER

Executive Summary

Effective cost, productivity, and revenue management is a primary concern for all E&P companies when look-ing at their well lifecycle management programs. Managing these programs manually is time consuming and labor intensive and makes meeting these objectives a key challenge, as critical data is often decentralized and difficult to track down. In addition, lack of visibility and easy access to the status of any given project by all team members means that there is an increased risk of incurring fines and penalties for regulatory non-compliance. Revenues can also be sub-optimized when future project opportunities are not all captured and prioritized in one central location.

Automating these processes not only helps to optimize costs and revenues, via real-time visibility into all project critical information, it also significantly reduces the FTE time required to collect, enter and manage the data, thereby substantially improving productivity. This paper summarizes the research findings regard-ing the business opportunity associated with each of these key areas and the overall ROI implication for E&P companies.

Key well lifecycle management challenges facing E&P companies: The lack of centralized, real-time data that is accessible by multiple users at the same time, make cost optimization and pro-active strategic decisions about where to explore next, very difficult. Increasing regulatory and compliance pressures have: i) made it vital to ensure everyone knows the status of any given project at all times to make sure fines/penalties are not incurred; and ii) significantly increased workload as many of the required regulatory forms and submissions are still done manually. Finding a way to reduce the substantial amount of unproductive time spent by people out in the field just collecting data on drilling and completions and transmitting it to the home offices. Finding a way to reduce the time and costs associated with decommissioning wells.

The value of having a comprehensive well lifecycle management platform is immediate and demonstrable. A sample mid-sized E&P company can experience over $1.4 million in increased productivity and cost efficien-cies alone. Through increased revenue, annual benefits can reach up to $1.9 million.

Key well lifecycle management challenges facing E&P companies

After interviewing Sr. Geologists, Accounting Managers, Well Life Cycle Business Analysts, and Data / IT Managers in the U.S. and Canada, four key challenges were identified:

Challenge 1: The lack of centralized, real-time data that is accessible by multiple users at the same time, make cost optimi-zation and pro-active strategic decisions about where to explore next, very difficult.

In an industry where revenues can be highly variable from year to year, a constant focus on cost optimization and cost reductions is a must. In order to optimize these costs, companies must have full visibility on all of the costs for any given project, and these costs must be available in real-time. When well lifecycle management processes are managed manually this becomes very hard to do as there are often long lag times between when data is collected in the field and when it is transmitted to the home offices. In addition, visibility into the data tends to be limited as most of the files are in hard copy form and accessible by only a few people. This makes it very difficult to know how actual costs are tracking versus budget, resulting in issues such as a significant number of AFEs being overspent. Across a collection of companies the number of AFEs that were overspent ranged anywhere from 10-50%.

In addition, the lack of centralized databases to house all of the known data and exploration information can make it difficult to develop and maintain an optimized, dynamic pipeline of future revenue opportunities.

We needed a central database for housing all future opportunities, priority lists of future project locations and reserve potential, etc. Before this everyone just kept their own records, either on individual spreadsheets or even just in their heads. This resulted in missed drilling

opportunities and lost information, as people moved around the company or left the company, that were costing us millions of dollars a year.

Challenge 2: Increasing regulatory and compliance pressures have: i) made it vital to ensure everyone knows the status of any given project at all times to make sure fines/penalties are not incurred; and ii) significantly increased workload as many of the required regulatory forms and submissions are still done manually.

When well management processes are decentralized and managed manually it can be very difficult to know where a project stands at all times and to make sure that everyone on a given team is on the same page with respect to project status. Not knowing this can result in regulatory fines and penalties if, for example, drilling begins on a project that did not yet have all of the required permits in place. Manually managed processes can also mean significant FTE time is taken up on filings and submissions with the various regulatory bodies. Companies can have as many as 400 800 or more regulatory forms/filings a month and completing these manually can take a minimum of 3-4 hours each.

We needed to find a way to capture all of the data in one central location, where every depart-ment could input and everyone can see the real time status of any given project. This was

especially critical for us when it came to getting ready to drill, so that we never drill in advance of having full permission to do so, which could result in fines and penalties.

The Business Case for a Comprehensive Well Lifecycle Management Platform

Challenge 3: Finding a way to reduce the substantial amount of unproductive time spent by people out in the field just collecting data on drilling and completions and transmitting it to the home offices.

With manual processes a significant amount of field workers time is being spent on capturing drilling infor-mation, sorting through spreadsheets and pulling up historical information, and then manually transmitting this back to the office via fax or e-mail. This work takes up significant amounts of time, limiting the number of wells any one geologist can manage, but is largely non-value added. The same is true when facilities and completions processes are handled manually, where again significant time is spent by field users trying to capture completions information or pipeline/facilities information, including hours spent looking through spreadsheets and trying to locate historical data.

The key benefit for us was the significant reduction in manual work, at least 50%, and in the sheer amount of paper/hard copy files that needed to be managed previously. One of our managers even said: My office used to be entirely filled with files of paper, and now my

department is paperless!.

Challenge 4: Finding a way to reduce the time and costs associated with decommissioning wells.

Companies are spending significant portions of capital and time in order to process reclaimed and abandoned sites as currently information gathered throughout the reclamation and abandonment phase is decentralized. Managing large amounts of reclamation work and data that has accumulated within a lapsed period of time and synchronizing this with data gathered by consultants or third party environmental groups is extremely time consuming. When this process is managed manually it can be essentially a full-time job for one or more FTEs. In addition the process of submitting regulatory environmental documentation, referencing original lease conditions and organizing to abandon a well, is complicated and is all done manually, again requiring significant FTE time.

Reconciling internal and external well reports as part of the decommissioning process used to be a full-time job for an FTE, a position weve since been able to eliminate.

Key Business Areas

The value of having a comprehensive well lifecycle management platform is immediate and significant. Based on interviews with geologists, accounting managers, well lifecycle managers, and data managers at a number of U.S. and Canadian E&P companies, the value falls into four main business areas:

Planning Exploration Development Decommissioning

Each business area can be further broken down into a set of specific benefits. A sample of the benefits for each are summarized below and will be fully explained and supported in the following section.

BUSINESS AREA SPECIFIC BENEFITS

Planning AFE overspending virtually eliminated

Time to get approval to and manage AFEs greatly reduced

Time to get geological data to/from the field greatly reduced

Optimize revenue via prioritization of future projects

Exploration Fines for non-compliance and missing permits eliminated

Time required to submit reports significantly reduced

Time spent planning/managing construction greatly reduced

Development Drilling costs and the time required to manage the drilling process greatly reduced

Time required to manage completions data greatly reduced

Manual management of pipelines data virtually eliminated

Risk of lost revenue due to shut-in production eliminated

Decommissioning Well reclamation costs significantly reduced

Time to gather reclamation data significantly reduced

FIGURE 1: Business Area and Specific Benefits

The following case study illustrates the potential value of a comprehensive well lifecycle management plat-form for each business area based on a sample E&P Company with the following inputs:

Annual revenue = $100M Average revenue per added opportunity = $1M Number of AFEs per year = 2,500 Percent of AFEs that come in over budget = 1% Average amount of overspending per over-budget AFE = $20K Fine/penalties incurred per year for regulatory non-compliance = 100 Average cost per fine = $1K Number of regulatory reports filed per month = 200 Average annual drilling costs = $5M Number of shut downs a year due to regulatory issues = 5 Average annual well reclamation costs = $2M Full time equivalent internal staff devoted to each business area = 1 FTE Average salary per FTE = $80,000 / year


BUSINESS AREA 1: Planning1. AFE overspending virtually eliminated. Widely dispersed cost tracking can make it difficult to make timely and effective decisions to optimize costs versus budgeted AFEs and results in significant overspending. Well-cores AFE and Cost Control improve capital spending management through daily cost updates. In addition it captures and allocates costs to the appropriate AFEs while enforcing predefined spending ceilings and approval processes.

Even reducing the number of overspent AFEs, from 1% of AFEs to 0.5%, had a major impact on the sample E&P Companys costs.

The key benefit of the AFE product is that we can now easily capture costs, which has helped to significantly reduce overspending. We can calculate variances, can see where the money is being spent, and can track whether there are areas where errors are being made and ensuring

that they dont get repeated.

The importance of Wellcore in tracking the costs tied to AFEs for field estimates is a 10 on a scale of 1-10.

Impact on sample E&P Company:$250,000 in annual cost savings n

2. Time to get approvals to and manage AFEs greatly reduced. Manual management of the AFE process, including getting approvals and on-going updating is time consuming and prone to error. Wellcores AFE module eliminates the need to manually track and record data in the on-going management of AFEs and greatly improves approval time as AFEs can now be routed electronically to all required parties for sign-off.

The sample E&P Company was able to reduce AFE approval and management times by 20% and 80% respec-tively.

With Wellcore we reduced time for AFE approvals by 30%, eliminated manual time spent managing AFEs, and reduced engineer time spent looking for data from an average of one

week a month to half a day.

Impact on sample E&P Company:$275,800 in annual productivity improvements n

3. Time to get geological data to/from the field greatly reduced. Getting geological data back and forth from the field is often a manual process that results in delays in getting RTDs approved and limits real-time, or even daily, access to well site data. With Wellcore Geology initial well prognosis and specific instructions can be cre-ated in the office. In addition the data can be securely transmitted between the office and the field, and well site data can be analyzed daily as it comes back in from the field.

The sample E&P Company was able to improve productivity by 40%.

We reduced our time to get RTDs approved from 2-4 weeks down to a few days at most.

Impact on sample E&P Company: $130,800 in annual productivity improvements n

4. Optimize revenue via prioritization of future projects. Keeping track of future opportunities and prioritiz-ing potential projects in the pipeline can be difficult to do manually and can often only provide a short term view. With Opportunity Inventory the ability exists to get data on potential money makers in the pipeline and prioritize these via next most likely candidate. Having this data in a central database allows this prioritization to change as new information is gathered and provides longer term planning horizons.

If the sample E&P Company added even one new opportunity every four years the impact would be sub-stantial.

Impact on sample E&P Company:$250,000 in annualized incremental revenues n

BUSINESS AREA 2: Exploration1. Fines for non-compliance and missing permits eliminated. Not being in compliance and/or having all permits in place results in having to incur fines. Wellcore Regulatory allows companies to stay on top of their deadlines and requirements so that they can quickly and easily track the different attributes of a well or facil-itys liability related to production, completion, and government regulations.

The sample E&P Company was able to reduce the number of fines incurred a year by 95%.

With Wellcore we can now capture all of the data in one central location, where every department inputs and everyone can see the real time status of any given project. This is especially critical for us when it comes to getting ready to drill, so that we never drill in advance of having full permission to do so, which could result in fines and penalties.

Impact on sample E&P Company: $95,000 in annual cost savings n

2. Time required to submit reports significantly reduced. Regulatory and compliance reports are numerous, with some companies filing as many as 700 1000 forms/filings per month, and time consuming when they are written by hand. Wellcore Regulatory & Compliance automatically populates drilling permit forms and files with governing bodies. In addition it provides a complete audit trail of all permit and regulatory filings.


The sample E&P Company submits 200 regulatory filings per month and was able to reduce the time needed per filing by 70%.

We submit 700+ forms/filings per month. Prior to having Wellcore each of these would take 3-4 hours to complete, now this has been reduced to less than one hour each.


3. Time spent planning/managing construction greatly reduced. Many hours are spent manually planning and managing the lease construction process, and decentralized databases mean time is also spent entering data in multiple locations or being searched for by hand. Wellcores Construction module helps manage all phases of constructing a lease with quick and easy data entry facilitated by: drop downs; pick lists; libraries; check lists; and attachments. In addition all of the data is held within the Wellcore database its entered once and then always accessible.

The sample E&P Company reduced FTE time needed to manage construction by 50%.


BUSINESS AREA 3: Development1. Drilling costs and time required to manage the drilling process significantly reduced. With manual drilling processes and tracking it is hard to control costs as there is a lack of real-time information highlighting what has been spent as of any given time. In addition, a significant amount of field workers time is being spent on capturing drilling information, sorting through spreadsheets and pulling up historical information. Wellcores Drilling module is the most up-to-date, most complete drilling package. Ad hoc queries and reports on costs and operations can be produced instantly, helping to ensure wells are drilled on time and on-budget. It also provides a powerful means for monitoring drilling operations. Conservatively, drilling engineers can double the number of wells they are responsible for managing.

The sample E&P Company reduced costs by 0.5% and FTE time by 30%.

We were able to reduce FTE time needed to manage the drilling process by at least 50%.

Impact on sample E&P Company:$41,500 in annual cost and productivity savings n

2. Time required to manage completions data/reporting greatly reduced. Significant time is spent by field users trying to capture completions information, including hours spent looking through spreadsheets and trying to locate historical data. Wellcore Completions enables companies to capture and manage all comple-tion information, including completion programs and daily operations data. Quick and easy data capture is facilitated by: drop downs; pick lists; libraries; copy and paste functions; and attachments.

The sample E&P Company was able to save the equivalent of half an FTE a year.

We were able to save 3-4 hours every day of a completions admins time after moving to Wellcore.

Impact on sample E&P Company: $27,500 in annual productivity improvements n

3. Manual management of pipelines virtually eliminated. Manually handling all areas of pipeline inventory management and maintenance is extremely time consuming. Wellcores Pipeline & Facilities module auto-mates all of the key processes in pipeline management including: compliance; maintenance; and assets capturing a more accurate account of pipeline assets from acquisitions and divestitures. And, all of this data is stored in a central hub.

The sample E&P Company saw a 75% reduction in FTE time needed.

Before we had Wellcore we had four facilities groups each taking 2-3 days per quarter on facilities reporting, time we have since eliminated.


4. Risk of lost revenue due to shut-in production eliminated. Pipeline E&P managers are being affected by increasing regulatory compliance requirements and exposure to liability that could result in shut-in produc-tion if pipeline inspection requirements are not met. Wellcores Pipeline & Facilities module allows for dis-crepancy reporting against a regulatory database of pipelines to compare corporate vs. government data, so corporations can ensure they are in compliance with regulations. It maintains optimal corporate governance with regulatory bodies.

The sample E&P Company was able to reduce shut downs per year from 5 to 0.

Impact on sample E&P Company: $237,500 in annual incremental revenue n


BUSINESS AREA 4: Decommissioning1. Well reclamation costs significantly reduced. Today companies are spending significant portions of capital in order to process reclaimed and abandoned sites. Wellcores Reclamation and Abandonment module auto-mates and simplifies the processes of submitting environmental documentation, referencing original lease conditions and organizing to abandon a well, reducing the costs it takes to reclaim a well.

The sample E&P Company was able to improve costs by 10%.

Impact on sample E&P Company:$200,000 in annual cost savings n

2. Time to gather reclamation data significantly reduced. Significant amounts of time can be required in order to process reclaimed or abandoned sites as the information that needs to be gathered throughout the reclamation phase is decentralized. Reclamation and Abandonment manages the eight different phases of the Regulatory reclamation, capturing daily information for each phase and allowing companies to retain electronic records of all documents in an integrated central repository.

The sample E&P Company reduced FTE time needed to collect completions data by 75%.

Pre-Wellcore reconciling internal and external well reports was a full-time job for an FTE, a position weve since been able to eliminate. All of these reports are now imported into Wellcore

and we can very quickly and easily identify which wells need attention.


Overall Value

For the sample E&P Company, the investment of $269K in the first year generates a positive return in 6.9 months. The three year net present value (NPV) and return on investment (ROI) are very strong at $2.7M and 956%, respectively. The key financial metrics for the sample E&P Company were calculated by standard meth-ods and are shown below. The NPV calculation assumes a 10% cost of capital.

FINANCIAL METRIC 3-YEAR VALUE

Payback (months) 6.9 months

NPV $2,735,816

ROI 956%

FIGURE 2: Tabular Display of Key Financial Metrics

Within each business area there are three value drivers: Cost Savings; Productivity Gains; and Increased Rev-enue. The chart below shows the extent to which each value driver contributes to the total value of having a comprehensive well lifecycle management platform. For the sample E&P Company, productivity gains repre-sent the majority of the value.

Benets by Value Driver

Cost Savings

Productivity Gains

Increased Revenue

29%

45%

26%

FIGURE 3: Pie Chart Display of Value Drivers

The Business Case for a Comprehensive Well Lifecycle Management Platform WHITE PAPER

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2010 P2 Energy Solutions

The Business Case for a Comprehensive Well Lifecycle Management Platform

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