Oil and Gas Project Management - Report Example

Oil and Gas Project Management in BP Introduction While addressing a seminar for the members of staff of BP, the Group’s Chief of Staff and Executive Vice President said that the company was facing three main challenges which if well addressed, they could be used as opportunities (Sanyal, 2012). Looking at the challenges and prospects for energy globally, BP’s projections estimate a future in which the global GDP is expected to double to over $150 trillion by 2030. Energy demand by during the same period is expected to rise by 40% which is equivalent to16 billion tonnes of oil per year. Over 95% of this increased demand is expected to come from non-OECD countries like India and China. Williams (2012) also concurs that in the next 25 years, the demand for liquid fuel may rise to over by 26% which is a demand of over 110 million barrels a day. In china for instance, the vehicle fleet is likely to triple in the next two decades to around 600 million vehicles. China’s oil demand is expected to double by 2030 to reach almost 1.5 times the current United States demand level. Faced with such realities in demand of oil, companies like BP and many other oil and gas companies have a huge task in matching supply for this demand. The challenge of supply comes with that of finding and producing reserves that will match the demand at a scale over a sustained period of time. Matching supply also means that this industry has to be ready to delve into new series of frontiers whether they involve deeper reservoirs or drilling in more sensitive ecosystems. Bp’s regime of risk management must be commensurate with such challenges that are associated with the need to match demand and supply. The following are three areas that require improvement by BP since they generally pose critical challenges to the company if not well resolved. Projects to address them will respectively be outlined. The Environmental challenge in offshore drilling On April 20th, 2010, a British Petroleum offshore oil rig located in the Gulf of Mexico exploded. 11 workers on the rig were killed and tens of thousands of barrels of crude were spilled into the gulf. Two days after the explosion, the rig sank leaving behind a gushing open well that caused the largest offshore oil spill in the history of the United States (Shogun, 2013). Schleifstein (2013) places the figure of the amount of oil that was spilled into the Gulf of Mexico from the gushing well at 4.9 million barrels. Due to the delicate ecosystem that is present at the Gulf, the oil spill disrupted the regimen of different species of flora and fauna. Other environmental damages to the ecosystem included direct impact on foodstock and fisheries. Economic losses on the tourism sector at the Gulf were attributed to the spill’s environmental constraint due to contamination and pollution of the land and waterways. To prevent oils spills in future offshore drilling expeditions, BP needs to think and provide possible solutions on how to cap a gushing oil well. When there was an explosion at the Deep Water Horizon offshore drilling site, it took two days for the rig to sink. The damages caused by the explosion itself were very catastrophic since 11 people lost their lives. However, these could not be compared to the environmental and economic impact of the oil that started to spill from a gushing well when the rig sank. Last year, BP agreed to pay close to $8.5 billion to settle lawsuits that had been lodged by most plaintiffs. The company also agreed to pay criminal penalties totalling to $4 billion to the United States government (Fisk, 2013). If BP had put in place a better cupping technique that would have controlled the gushing of oil into the sea in the shortest time possible, the company would have greatly mitigated effects of the oil rig explosion. Use of new technology in drilling Forty years ago, drilling of oil was mainly a hit or miss expedition. Many companies would take a huge risk in drilling oil only for the companies to later categorise their wells as ‘dry hole’. Oil drilling crews would punch holes in prairie grounds, only later to disappear as quick as they arrived when those holes came up empty. Today, success rates in locating oil wells with commercially viable oil reserves have improved to the impressive technological advances. Years ago, drilling could only go in one direction; which is down. Today, technology has enabled many companies like BP to drill at any angle even if its straight out horizontal New Technological advances in seismic imaging, sensors and remote monitoring, and visualisation have made countries like the United States to estimate growth in oil production from 700,000 barrels per day in 2010 to 3 million barrels per day in 2020 (Irwin, 2011). According to BP, based on the already discovered reservoirs, current oil usage levels mean that these reservoirs would last for another 40 years from today (BP, 2013). BP’s oil fields like the Our Prudhoe Bay oil field in Alaska were initially expected to extract close to 40% of the oil in the field but with the use of new technology, BP raised this estimate to 60%. This shows that there is still need for improvement in technology and techniques used to maximise on the amount of oil extracted. The use of low saline water injection technology, BP may up its current extraction rates and successes. Asset management As companies are recovering from the economic recession and demand for products and services is increasing, most manufacturers are facing an unprecedented challenges in controlling operation costs. In the oil and gas industry, the key drivers of growth, irrespective of the prevailing economic situation, is the need to optimize production and efficiency while at the same time reducing operation costs (Ritchie, 2012). Asset management in BP is guided by two main strategic drivers – compliance and availability. Managing operation costs is another key area that BP places emphasis upon. However, the requirement to deliver assets that are safe to operate and whose use has manageable impacts to the environment is paramount in BP’s asset management regime. When BP struck commercially viable oil deposits in the Greater Plutonio field in Angola in 1990s, it soon shifted from years of exploration phase to the operation phase. This means that BP had to conduct an operation readiness phase to enable the company meet this huge challenge. A lot still has to be done to ensure that asset management is optimised by companies such as BP. This will obviously involve the application of best practices available in the industry, and the use of technology in asset management. This project seeks to design a GPS enabled, wireless network asset management system that will change the way BP’s oil and gas pipelines are managed. There is a great risk in oil and gas production if especially when corrosion in pipelines are not detected early and repaired. Designing of wireless network asset management software will positively impact on corrosion management. Project Briefs Project 1 Brief Rationale: To develop a comprehensive and rapidly deployed deepwater containment system to cup offshore oil spills. Scope: To control deep, high-pressure wells in the event that a BOP is inoperable. Objective: To develop a system capable of containing spills of up to 55,000 b/d and 95 MMcf/d of gas in water depths of up to 10,000 ft (3,048 m). Constraints: How to test the equipment in a situation that is perfectly similar to an oil spill situation. Project 2 Brief Rationale: To improve on the enhanced oil recovery by low salinity water injection. Scope: Injection of low saline water that can force crude to separate from underlying rocks to maximise on extraction. Objectives: To have the capability to run an effective enhance oil recovery technique that will maximise extraction. Constraints: Availability of large volumes of low-saline water and the sustainability of these supplies. Project 3 Brief Rationale: Improve on early detection of oil and gas pipelines to enhance production. Scope: Develop wireless operated software that monitors corrosion in oil and gas pipelines. Objective: To ensure that there is a system that detects corrosion of oil and gas pipelines as early as possible Constraints: Availability of equipment and staff that can operate this wireless system. Project Selection Form the three project briefs, BP has daunting task in choosing the project that best addresses the challenges that it is facing and one that will provide probable opportunities for the company. It’s then important to note that the biggest challenge that BP like most other oil companies is facing is the problem of matching supply of oil and gas to the current and future demand. As mentioned earlier, the oil and gas industry is today faced with a huge task of matching the demand of oil with adequate supply. As economies are developing and industrializing, the consumption of oil consequently rises. The second project will undoubtedly provide better opportunity for BP since it seeks to improve on oil production. The challenge of supply that BP faces means that the company has to find and produce reserves at a certain scale over a sustainable period (Sanyal, 2012). To much a sustained supply to the growing demand require the company to embark on major projects that will integrate a large financial resource, the best and leading technology and advanced engineering techniques. The low salinity water injection project has been selected because it provides BP with an opportunity to exhaust the capacity of its current reservoirs before investing in exploration of new oil fields. It is common knowledge in the industry that the traditional water flooding technique that is used to bring more oil to the surface of wells only succeeds to pump a third of the crude oil while two thirds still remain beneath the waves (Macdonald, 2012). Feasibility Study For decades, there has been an argument that if water with low concentration of salt would be used to flood an oil reservoir, there would be damages to rocks and thus impede on recovery. But one should take a closer look at what happens at the molecular level of flooding a reservoir with low salt concentrated water. Ordinarily, rocks have pore spaces which water creates a thin layer of charged particles that binds oil to the rock surface (BP, 2013). When low salinity water is used to flood these rocks, the thin water layer thickens thereby releasing some of the charged particles which frees more oil from the rocks surface. This new technology has the ability to improve the outcome of normal water-flooding procedures at field levels. For this technique to be fully used in extraction of oil by the company, the company has to apply it in an oil field that is yet to produce its first oil. It is important for this technique to be used from day one of extraction as a secondary water flood mechanism since it’s a first of its kind. The best site to use this technique is the Mad Dog phase 2 Development whose company working interests stands at 60.5% over its co-owners Union Oil Company of California which is a subsidiary of Chevron Corp (Linsell, 2013). The first oil production from this project is expected to be in the year 2020. This provides the company with adequate time to move the low-salinity water technology from a testing phase and into a commercial phase. Traditional oil extraction technique involves injecting of water into the oil-bearing rocks to increase on the amount of oil that will be extracted. This process is commonly known as water flooding. Water flooding then pushes and sweeps the oil towards the well. Even then, there is much oil that is left behind which means that this process does not guarantee a full extraction of oil from a reservoir. In other words, injecting water flow through the porous reservoir rocks normally displaces oil from the injection well to a production well. The pore spaces in the rocks usually contain clay to which the oil is attached or bound. According to BP (2013), water flooding only extracts 35% of the oil in place which means that a lot of natural resources and energy supplies are left untapped. Low salinity water injection releases more of the bound oil from the injection well to the production well. Three quarters of the oil produced by BP is extracted using the traditional water flooding technique. The implementation of low salinity water injection project in BP’s portfolio will obviously raise its net recovery rates. The key factors to note will be starting the program on schedule, making sure that targeted injection volumes are achieved and reducing downtime on the membrane facility. Oil production is a venture that is highly time-sensitive. Therefore, any delay on the start-up timetable or a slowdown on the injection schedule will commercially affect the project. Project Plan Technology in the oil and gas industry is mainly driven by the price of the commodity. Assuming that the price of oil will remain steady, the viability of low salinity water injection technology will be attained if a certain threshold in oil price is maintained. However, if oil prices continue to rise, there will be a sharp increase in the use of technologies such as the low-salinity water injection technology. BP and the co-owners of the Mad Dog Phase 2 project in the Gulf of Mexico will have to seek approval from the United States government for use of low salinity water injection in the production of oil. This oil field has an estimated reserve that ranges between 200 and 450 million barrels of oil. BP’s main focus is to get back its core Gulf of Mexico business back on track after the disaster that hit its Deep Water Horizon rig in 2010. It has classified the Mad Dog Phase 2 project as a ‘mega project’ which means that the company will require more than $10 billion in terms of investment alone (Mackey & Young, 2013). It is in this facility, which is expected to produce its first oil in 2020, that the low salinity water flood system will be used. The benefit of using this technique and not the normal sea water flooding is that there is filtration at the ion level which reduces normal injectivity loss that is caused by perforation plugging. Another benefit is that the injection well will flow to a higher water cut since there is a lower hydrostatic concentration. Furthermore, this technology guarantees that there will be a tax credit buffer against low prices in the United States and other Caribbean countries along the Gulf of Mexico (Webb, 2008). Upon approval, implementation and success in extracting oil at full potential of reservoirs, the low salinity water injection technology will be a best practice that most national oil corporations will want to adopt. Ideally, national oil companies usually develop resources for sustainability purposes which mean that they have more hydrocarbon resources when compared to independent oil companies such as BP. Success in low salinity water injection project for BP will spark demand for the technology by national oil companies who don’t find enhancing-oil-recovery schemes very attractive. In short, BP will have created an EOR technology portfolio that might change the industry for good. Critical path analysis Below is a Gantt chat showing the three stages in the critical path analysis of the project Project Presentation Government Approval Deployment to site 2013 2014 2015 - 2020 Since there is adequate time between now and 2020 when the first oil production is expected from the Mad Dog Phase 2 project, it’s good to have a critical path analysis for the low salinity water injection project. The client, BP, will have to undertake a robust lab analysis of the technology once it has been accepted by the company. This will also form part of its references for approval of use in the Mad Dog Phase 2 project by the government on the United States. Rock from the oil field will have to be extracted to test on reservoir conditions. Such tests will provide vital information on the clay content of in the rock layers and potential damage of the rock by injection of low saline water. A comparison of low salinity water injection into the rock layers has to be compared with the current water flooding system that is in use. From this, inferences on benefits and shortcoming will be made. Task 2 Managing implementation Low salinity oil recovery is basically the injection of water in a well with a TDS ranging between 300 ppm and 4000 ppm (Webb, 2008). It does not involve the injection of sea water as is the tradition in water flooding. Experiments have shown that the recovery of oil was is dependent on brine salinity. When the salt concentration of water is reduced, more oil can be recovered from their alignment on the porous layers of rocks. The good thing about this procedure is that it is one that can be easily controlled in the field. Success on the use of low salinity water injection in an oil field will depend on the tests performed on the technology to determine its feasibility. However, there are other factors that might impact on the success of the project. Delay in implementation of the Mad Dog Phase 2 project in the Gulf of Mexico may impact negatively on the success of the project. According to Mackey & Young (2013), BP is reviewing its Mad Dog Phase 2 Project due to rising costs in the industry. This would mean that there might be delay in the scheme that is expected to use the low salinity water injection technology. Such a change in the project definitely affects the desired outcome. Market conditions and dynamics and industry inflation may hamper the implementation of the project in a greater manner as compared to a turnover in the staff responsible for the design of the project. Successful lab tests of the project guarantee that even if the brains behind its inception abandon the project before the idea is implemented, the concept behind the project will remain intact. Since the project has been well tested, any incentive to deliver the project early to the client will be welcomed. Conclusion BP like many other independent oil companies has been grappling with the issue of supply in a world whose consumption of oil is increasing at an all time high. This is beside noting that the costs that are involved in exploring and extraction of oil in new oil fields are very high. There is need for integration of new technology, latest and advanced engineering skills and commercial endowment to venture into new projects. Low salinity water injection for oil extraction by BP is a project that will ensure that the company does not necessarily embark on new oil field exploration ventures but exhaust the current capacity of its already established oil wells. This means that the rising demand for oil posses a great challenge in supply; but with such technology at the disposal of BP, these challenges can be used as opportunities. Reference List BP, 2013. Getting into tight spots – Using new Technology. BP. 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