Challenges for E&P Industry in Coming Decade
The world’s population grows by a quarter of amillion people every 24 hours. By 2030, it
is expectedthat 8 billion people will occupy this planet, up from6.5 billion today, with
95% of the growth occurring inthe developing world. Secure, affordable, accessible,
andample supplies of energy are absolutely essential to botheconomic growth and a
reasonable standard of living,so it is only natural to expect that developing countrieswith
their growing economies and populations will driveincreased energy demand.The
dynamics of energy markets are determined more and more by the emerging
economies. Over the next 25 years, 90% of the projected growth in global energy
demand comes from non-OECD economies; China alone accounts for more than 30%,
consolidating its position as the world’s largest energy consumer.’
According to the IEA’sNew Policies ScenarioWorld primary demand for energy will
increase by one-third between 2010 and 2035.
Using ExxonMobil’s latest energy outlook, the worldtoday consumes about 230 million
BOE/D with oiland gas supplying about 60% of the total demand; coalanother 20%, and
the remaining 20% coming fromsuch sources as nuclear, hydro, wind, and solar.
By2020, worldwide energy demand is expected to increaseby about 55 million BOE/D,
or 24%, from 230 to285 million BOE/D, with about 80% of this growthin developing
countries. Oil and gas will continue tosupply about 60% of world energy demand by
2020, which means an incremental 30+ million BOE/D ofoil and gas production is
required. And that does notinclude the new production that will be needed to offsetthe
natural base decline. This is indeed a daunting task considering the longlead times for
large projects in our business.
To achieve such growth will require the fullcommitment of resources (people, capital,
and Technology) and collaboration between all global energyplayers, including
international oil companies (IOCs)and national oil companies (NOCs) and governments.
The Challenges before the E&P industry are varied and many, the major challenges are
A. Partnership/ Joint-venture PSC issues
More than 80% of the world’s oiland gas resources are in the hands of National Oil
companies and hostgovernments and are not currently available to International Oil
Oil exploration is fraught with huge risks due to the number of uncertainties involved.
Investors take risk investing huge amounts of money under conditions of these
uncertainties and as such, they need to be adequately compensated so that they
are encouraged to invest in exploration. At the same time, Government’s interests
as the owner of the country’s resources need to be protected. Therefore, the E&P
policy and contracts need to provide an equitable return on investment to operators
while protecting Government’s interests. Hence IOCsand NOCs are simply going to
have to findnew, innovative, creative ways to work inpartnerships that both increase
value andmeet the respective needs of both parties.Such partnerships would likely
involve thingssuch as
• Integration across the value chain (upstream,midstream, and downstream).
• Joint investments outside the host country.
• Different commercial terms and risk sharing.
• Greater shared control.
• More technology transfer and developmentof the local workforce
In Indian context the fiscal regime in existing PSCs for conventional oil and gas is
based on the Contractor doing petroleum operations at his risk and cost, and, sharing of
profit petroleum with the Government after recovering his cost.
The existing formula on sharing profit petroleum is dependent on cost recovery by the
Contractor.This parameter determines the Government’s and Contractor’s shares of
profit petroleum. However, this system encourages the Contractor to inflate costs, to the
detriment of Government’s share in profit petroleum. Decision-making by
representatives of the Government and the Contractor is done through the
Management Committee (MC). Contractors tend to perceive Government’s
administrative efforts, taken with the larger public interest in mind, as
micromanagement of field operations through the MC. MCs often find themselves in a
stalemate over consideration of such issues, especially financial issues related to
Abnormally low bid, in case of a single bid for a block, may be the result of cartelization
or information asymmetry, would require close scrutiny to safeguard government take.
Other PSC related issues are on challenges faced by operators to seek mandatory
clearances which eat up time from the total exploration period provided in the PSC.
Therefore a mechanism would be warranted so that the offered block is cleared with all
required permissions and clearances for exploration and operators do not loose
exploration time which definitely results in escalation of exploration budget besides
landing into various penalty issues with regulatoron exceeding phase time lines.
B. Availability and increased costs for services across the board
The exploration expansion into uncharted geological domains has resulted in increase
in costs and shortage in services in Seismic, drilling, facilitiesengineering, procurement,
and construction. Higher commodity prices havedriven industry activity to a point that
exceeds the serviceindustry’s capacity to respond.Capacity is being increased in some
areas,particularly drilling rigs, where new builds will beavailable for onshore areas over
the next 2 years andfor deepwater areas starting about 3 years out. Butbuilding rigs and
new equipment solves only part of theproblem: trained, experienced people will be
requiredto operate them, and this could be a limiting factor—allof which means that as
we take on larger, more complex,longer-lead-time projects around the world, we
arecertain that our actual cost structure will be high, whilewe have no assurance of
what oil and gas prices, ourrevenue stream, will be when these projects come onstream
4–6 years from now.
C. Need for newbreakthrough technologies
The technologies that that can help find developand/or produce more oil and gas. More
than anythingelse, technology has been the driving force behindour industry’s continued
ability to deliver increasedoil and gas production safely, efficiently, and in
anenvironmentally sound manner.
Technological challenges basically are driven by desire to image precisely, drill
efficiently to deeper depths in harsher environments and to process & transport in
environmentally safer ways. These warrants
• Dependable reconnaissance survey techniques.
• High resolution surveys- Imaging below basalt & improved images in fold belt
• Enhanced computing capabilities for improved processing & interpretation.
• Improved horizontal & vertical wireless logging techniques.
• Need for better drilling technologies- new well architecture- extended reach
• New casing and sub sea technology.
• Intelligent well completion and Robotic intervention & sub- sea completion.
The above would result into
• Reduction in environmental impact
• Improved reservoir assessment with less number of wells.
• Online monitoring of seepages for improved environment safety.
D. Trained and capable technical work force.
Recruiting experienced, skilled professionals for the oil & gas industries is a challenge,
increasingly affected by the changing global economy and the shortage of educated
candidates with management potential.
Much has beensaid about this issue, and we all know how we got herebut the real
question is: What do we do about it? Solvingthe people issue will require us to do things
considerablydifferently from how they were done in the past.Perhaps foremost, we need
to retain our babyboomer professionals past the normal 55–60 retirementage, perhaps
through different work or telecommutingprocesses and innovative compensation
schemes.Secondly, we simply must attract more bright youngpeople into the science
and engineering disciplines andthen into our industry.
E. Conventional Vs. Unconventional
In industry it has often been asked Are we approaching the ‘end-of-oil era’ with the
‘green’ technology development and how the global economic downturn is affecting our
oil & gas business.
Similarly the issue of developing shale gas on the scales of US in Indian context is
another major challenge.
The CEO of the France-based oil company has pointed out that “Oil will remain an
economic solution for a lot of needs; the development of green technologies is costly”
and according to a World Economic Forum (WEA) 2012 report, ‘Energy for Economic
Growth’: “The energy supply will continue to rely mostly on traditional sectors over the
coming years, but the current push for innovation and growth in the renewable sector
will affect the degree of this reliance.”
Shale gas refers to natural gas that is trapped within shale formations. Shales are finegrained
sedimentary rocks that can be rich sources of petroleum and natural gas. Over
the past decade, the combination of horizontal drilling and hydraulic fracturing (‘fracking’
or ‘fracing’) has allowed access to large volumes of shale gas that were previously
uneconomical to produce.
“The unconventional gas technology being developed in the U.S. – provided it can
overcome concerns about its extraction process or so called ‘fracking’ – could, if
perfected, see a major period of gas supply expansion,” agrees Cameron. “If so, gas
will be the big growth fuel in coming decades for both electricity generation and
Besides shale gas future challenges in establishing other energy resources
• Harnessing yet to find potential of HP-HT sector &
• Exploitation of methane from Gas Hydrates.
Apart from technical/technological issues, other areas of concern are problems related
to land acquisition, which are governed by various states and also by MoE&F. A large
amount of time is spent in pursuing Environmental Impact Analysis (EIA), Forest
clearances and inter-ministerial issues. In offshore areas, Clearance from Ministry of
Defence is a major area of concern.
G. Challenges in Maintaining/Increasing Oil & Gas Production
The issue of maintenance of oil & gas production, which is mainly from mature fields
with declining production, is a major challenge being faced by the upstream sector.
Globally accepted methods such as infill drilling, IOR/EOR techniques are being used
for this purpose.
For increasing the oil/gas production, new prospects and pools form an important part.
In onshore areas, the field development and consequent production is faster as
compared to offshore. This is mainly due to lesser issues related to logistics and
infrastructure availability. However, in certain areas which are isolated or have market
issues, production lead time gets enhanced. The lead time for production in offshore for
oil and gas discoveries is much more as compared to on-land due to the time required
for detail infrastructure engineering, evacuation strategy etc. Besides this, in an offshore
area, a discovery is often followed by additional exploratory inputs in terms of appraisal
drilling before it is developed for production. Normally, there is lead time of 3 to 5 years
before these can be put on production. Moreover, isolated discoveries in offshore
cannot be put on production on standalone basis, which is being tackled by attempts to
put them on production using cluster concept, with nearby fields.
Global economic uncertainty will continue to challenge corporate policy formation in the
oil & gas industry – from creating responsibility (CSR) policies and a commitment to
best practice environmental standards, to developing global partnerships (including
executive search and HR) in key markets.
While global demand for oil & gas continues to grow, the industry demographics are
changing. Industry CEOs faced with constantly shifting priorities will need a strong,
experienced, globally aware executive team. The challenges would be tackled by E&P
industrypersonnels with Courage to Explore, Knowledge to excel and Technology to