The current boom in shale activity in the United States is creating changes in business processes that are causing companies to react and analyze their information differently, according to oil and gas industry experts with Deloitte.

Oil and gas industry drilling practices have been based on premises established a century ago, when companies drilled vertical wells and relatively straightforward operations. However, shale oil and gas wells are more complex, with multiple laterals, directions and zones. As a result in the shift in technology and drilling practices such as pad drilling, the doubling of lateral well lengths since 2008 from 5,000 feet to over 10,000 feet, and sheer number of wells, shale exploration and production is creating an exponential amount of data from not only production volumes, but costs, royalties, liabilities and taxes.

This activity is also impacting an exponential number of parties such as landowners and royalty interest holders, which are complicated and multiplied by the geographic spread of shale operations. This shift is challenging existing processes, systems and data infrastructure, according to experts with Deloitte.

Fines and penalties by government agencies for misreporting, higher administrative costs, and inaccuracies in master production data are some of the issues that could result if oil and gas companies fail to update their business systems and processes to handle this rise in data volume and complexity.

“It’s well known that the industry is generating tons of surface and downhole data,” said Mark Koeppen, partner with Deloitte Consulting LLP. “Right now, there’s a lot of siloed information. [Oil and gas companies] want as much data as they can get, but who’s really looking at what the right questions are?”

The larger geographic spread of oil and gas operations today versus five years ago, and the fact that instrumentation or smart devices are literally on everything, including people, and are found in downhole activities as well as crude oil transportation, has increased the volume of data.

“Almost everything today is automated, including what’s in the field, operational pieces, and supply chain pieces. Technology also is available that recognizes information that was budgeted and what actual costs were,” said Koeppen.

While companies have tons of data, the information that companies have is not all that consistent, and so far, nobody has been prescriptive enough to estimate information on a well-by-well basis. Jim Kiser, partner with Deloitte said he feels like the industry “is on the dawn or cusp of some realization on how to use tools”.

Advances in production logging technology, with more reliable data in multi-layer and multi-phase flows, presents challenges in direct integration with geographic information systems. Visualization tools are allowing companies to put data into an easily digestible form that can tell a story. In the past, oil and gas companies used to take a pin and yarn and walk around a wall map. Now, companies can dive into a map and gain deep insight and connections between variables.

Because of these complications, oil and gas companies need to look at these activities and think about what their business processes are now and what they will need to be in the next five to 10 years, said Kiser..

“Oil and gas companies will need to look at their data collection and business and settlement processes, and identify tools to support operations going forward.”

Deloitte Recommends Front-End Loading Approach

To address these issues, Deloitte recommends that oil and gas companies adapt an approach used by many manufacturing organizations call Front-End Loading. This practice recommends spending up to five to 10 percent of total project costs in really solidifying a sound project estimate, execution plan, and clear understanding of benefits.

“Companies should assemble their set of requirements around their business before looking at technology to address the data coming out of shale operations. Otherwise, they could end up overburdening themselves with technology and trying to fit their company around that technology to justify the investment,” said Kiser.

“Technology vendors in the space have phenomenal solutions and a wealth of experience and education that you can learn from” said Kiser.

However, companies should first assess their business and functional requirements, control environment, regulatory reporting, reporting and analytics, and organizational change before committing to a technology solution.

One major change for royalties that Deloitte sees resulting from the complexity and amount of shale-related data is that, as horizontal wells get longer and depths change, companies need to ensure they understand the ownership of property through which wells cross, said Kiser. Operations will have to be aware of it, said Kiser. Landmen in particular will have to be aware of these issues.

“From an operational standpoint, a lot of the burden lies in commercial or land organization to ensure that the permitting for rig schedules occurs before work moves forward, as well as being able to balance partners’ interest and understand royalty impact.”

From Kiser’s point of view, the data coming out of shale activity could change the training and skill set requirements for landmen. While oil and gas companies will continue to need the same types of title work currently being done by landmen, they also are starting to look at the analytics behind certain properties. In the past, landmen have had law backgrounds, but the exponential amount of data coming from shale activity could mean that workers with skills more akin to those with analytics backgrounds or Master of Business Administration (MBA) could be a good fit.

However, it’s not really reasonable to think that all landmen would be MBAs for data analysts.

“It is realistic to expect more tools to be developing using new technologies and visual representation and landmen to become trained in the use of analytic tools,” said Kiser.

Leading edge companies will embrace this and gain some advantage for a period of time; then it will become a mainstream competency for all industry participants.

“The key change here is created by the transition to horizontal drilling. Horizontal drilling exponentially increases the amount of data coming from a given well and does in fact cause changes in business processes and accounting procedures,” said Kiser. “Other roles such as Internal Audit, Tax, and Drilling Superintendents will all have to be more conscious of the implications of horizontal drilling.”

Big Data One Approach to Extracting Meaningful Business Value

Big Data is one approach to capture these ever increasing volumes of information and extract meaningful and valuable business information, said Kiser. Big Data is a result of the change in drilling processes and the ever increasing use of smart devices that provide information such as position, temperature, pressure, flow, schedule and time.

“Big Data is a phenomenon that knows no limits,” said Kiser. “It is impacting every industry, including retail, medical, energy, technology and others. Business issues will spearhead the proof of technologies to harness Big Data capabilities. At some point, legal and compliance will most certainly benefit from this.”

Big Data tools have been in commercial existence for more than 10 years.

“The next five years should yield widespread adoption, followed by another five years of large-scale use.”

Big Data is a means to consume these increases in information and extract meaningful business value. In short, the changes in processes are already happening, roles are adjusting to accommodate the change and new analytic tools are emerging to meet the demand, said Kiser.

Deloitte is starting to see more oil and gas companies turn to professional outside services for data scientists and analysts to help them sift through the large amounts of information. In the past, companies had been pitching this data because they didn’t know what to do with it. 

“What’s happening is that technology is advancing to the point where they can capture all that data and draw relationships between the variables. Now, they are getting unexpected answers and using tools that weren’t around a decade ago. These tools include memory computing, which is allowing companies to tie all these pieces together quickly, and make it available.”

Kiser likes the mix of identifying and cultivating someone with an aptitude for analytics and training them as a data scientist and hiring analysts from outside the company.

“It depends on the scale of the company,” said Kiser.

Some companies may not have a full-time need to have data scientists on board. Outsiders also can bring collective learnings with them that oil and gas companies could not otherwise tap.

Kiser is now seeing a maturity taking place in Big Data servers and technology and an ability for these solutions to be adapted and to meet oil and gas industry needs. There is a generation of workers that is more comfortable dealing with technology and large-scale problems and the conversion of diverse and complex technology. But the more that Big Data solutions are used to solve problems and produce results, “the more that we’ll see adaptation of this solution”.