Since the mid-1980s, producers and serviceproviders have struggled to remain profitable asunstable oil prices moved generally lower. In the1990s, oil companies downsized and started rely-ing on outside services for functions that are notconsidered core business activities. They turnedto outsourcing, alliances, partnerships and, lately,to mergers. The oilfield supply sector also restruc-tured, formed joint ventures, consolidated, andbegan providing integrated products and servicesto fulfill operator needs. Once again, market con-ditions and emerging trends are driving the indus-try to adopt fresh approaches, including bettermanagement of oil and gas fields.

To squeeze optimal value from petroleumassets, management of production operationsbegins at near-well regions of a reservoir, pro-ceeds through completion equipment and surfacefacilities, and may even extend to sale or exportpoints (next page). Ideally, production manage-ment begins before field startup to limit risk andfinancial exposure, reduce capital investmentand minimize time to first commercial output,particularly since many new reservoir discoveriesare in frontier areas where expenses are high.For mature reservoirs, this process involvesreducing expenses, enhancing productivity and

extending field life to improve profitability andmaximize recovery. Effective production manage-ment may be the difference between saving anasset and divesting or abandoning a property.

This tactical process takes quality, health,safety and environmental (QHSE) as well as eco-nomic factors into consideration. Local experi-ence and expertise in applying new or existingtechnology help reduce costs while optimizingfield output and hydrocarbon-processing capacity.Use of innovative methodology is a key element.Because technical, managerial and operationalaspects are combined to support optimization andasset development strategies, this renewedemphasis on production differs from traditionaloutsourcing of field operations, often referred toas contract lease, or pumping, services.

The past 15 years have been extremelydynamic in the upstream petroleum business.Companies continually reinvented and reposi-tioned themselves in response to businesspressures and challenges. This article reviewstrends behind a production management renais-sance and explains why new approaches areneeded. In addition to what and why, we discusshow this process is being reengineered,improved and implemented.

2 Oilfield Review

New Tactics for Production Management

W. Bruce LoweMidland, Texas, USA

Gary L. Trotter Sugar Land, Texas

For help in preparation of this article, thanks to Henry Clanton, Houston, Texas, USA; and Alan Means,Midland, Texas.IRO (Integrated Reservoir Optimization), NODAL andPlatform Express are marks of Schlumberger.

Focused efforts are helping oil and gas producers realize more economic potential

from hydrocarbon assets. Through savvy operating practices and new cooperative

relationships with an integrated service provider, field personnel and production

analysts use local experience and the latest technology to achieve the best results

from available infrastructure, resources, products and services.

Oil storage

Productionmanifold

Compressorstation

Gas exportpipeline

Producedgas

Injection-gasmanifold

Rod pump

Meteringand control

Producingwells

Producedfluids Gas and oil

separator

Waterdisposal

well

Oil exportpipeline

Producedwater

Producedoil

Wellheadtubing and

casingpressure

Gaslift

Naturalflow

Electricsubmersible

pumps

Injection gas

> Managing field operations. Production managementefforts encompass activities from near-well regions of producing formations through subsurface well completion equipment to surface facility networks that initially process and move hydrocarbons topipelines for transfer to a point of sale. For oil and gasdevelopments—large or small—a focused process isneeded to develop plans, establish budgets, overseeschedules, control capital investments and operatingexpenses, meet timetables, reduce artificial-lift costs,increase field output, improve hydrocarbon handlingand administer joint-interest revenue.

3Autumn 1999

Industry TrendsThe upstream petroleum sector has not alwaysperformed as well as other industries. Underpressure to increase shareholder return, effi-ciency and costs were targeted for improvement.As a result, integrated oil and gas companies andlarge independents began breaking the histori-cally linked, long-chain E&P business into smallersegments that are flexible, efficient and easier tohandle. These specialized asset-based units arestructured to be more responsive. After restruc-turing and reorganizing to improve performance,unit resources—properties, employees and sup-pliers—are consolidated so that a streamlinedorganization can concentrate on activities inareas where assets can best be exploited.Service companies, which are also focusing onkey competencies and activities that deliver morevalue or offer the most competitive advantage forclients, are undergoing a similar rationalization.

Breakup of the traditional value chain is caus-ing operators to look hard at organizational effec-tiveness, and many companies are finding thatin-house functions can be improved by partneringwith other producers and by forming strategicrelationships with service providers throughlong-term contracts and alliances. Some opera-tors continue to use a periodic low-bid approachthat may fulfill immediate needs, but is oftencounter to finding the best applications for

today’s technology and service solutions. Oil andgas companies that consistently emphasize over-all production and asset management are settingstandards and benchmarks for operations andperformance in the next decade.

Long-term relationships have facilitated con-solidation in the service sector, which has been agenesis for wider ranges of products and servicesthat deliver customized as well as reliable, cost-effective solutions. Operators, however, now

expect service companies to provide integratedprocesses for products, services and solutionswithin their areas of expertise (see “ProcessesWithin a Process,” page 6 ). New product and ser-vice combinations applied through the appropri-ate integrated support process free up operatorresources that were previously committed to indi-vidual projects, allowing them to be used forother core business functions. In this way, oilcompanies can add even more value and further

4 Oilfield Review

Gainshare program

OIL

COST

Actual results

Assetowners

Servicecompany

Businessplan

> A gainshare joint venture. Under value-pricing arrangements, alliancepartners and team members responsible for project design, construction,installation, operation and management share financial rewards for resultsthat add value beyond plan projections from enhanced production rates,improved recovery or cost reductions.

Subsurface Wells ServicesProduction andfacilities

Dación Asset Management

AssetManager:LASMO

ProjectManager:

Schlumberger

Caracas

Dación fields

CARIBBEAN SEA

LakeMaracaibo

Orinoco River

Bachaquero fieldEl Tigre

VENEZUELA

FinanceProductionenhancement

> An integrated alliance. Working closely with clients in a joint project organization, Schlumberger Reservoir Management coordinates field developmentthrough Integrated Project Management (IPM) services. Multidisciplinary teams oversee all aspects of production management and reservoir optimization. A board comprised of senior client and Schlumberger managers stewards alliance goals and objectives, and acts as an interface between the joint projectteam and sponsoring companies.

Autumn 1999 5

increase shareholder return by directing companyenergy and efforts toward managing risks, assetportfolios, competitive acreage positions, acquisi-tions, mergers and exploration programs thatreplace and add reserves.

Further supporting this trend in service inte-gration is a willingness among operators to baseservice compensation, or rewards, on results thatare achieved and the incremental value added bya service company in proportion to the degree ofrisk that is shared—value pricing (previous page,top).1 More than any other, this factor helps alignobjectives and set the stage for agreementsbetween producing and service companies tojointly manage production operations.

A type of risk-reward structure is used in theDación oil fields of eastern Venezuela.2 This large-scale project involves redevelopment of a majorasset. When the current production contract wasawarded in 1998, these fields had 111 active wellsand 136 inactive wells, and output was less than10,000 BOPD [1590 m3/d]. The work scope foralliance partners LASMO and Schlumbergerincludes seismic data acquisition and evaluation,300 new wells, 180 remedial well interventions,facility upgrades and artificial-lift optimization.Several teams responsible for design and man-agement of this tactical development effort inter-act on a daily basis (previous page, bottom). The

goal of this technology alliance is to improve out-put above 90,000 BOPD [14,300 m3/d] and achieveultimate recovery of at least 35%.

Under this agreement, Schlumberger partici-pates in production management and reservoiroptimization by providing products and serviceson a preferred-supplier basis, but does not have anequity interest. Value pricing for this technologyalliance is a gainshare system with incentivesbased on maximizing project net-present-value(NPV) over a 20-year production contract. Othercompanies participate through third-party con-tracts awarded by tender and bids. One year afterthe fields were handed over to LASMO in April1998, production had been increased from 10,000to over 30,000 BOPD [4770 m3/d].

The Case for ChangeOil company asset portfolios encompass numer-ous properties, some of which include maturefields near the end of the development life cyclewhen production is declining. Many new fieldsare in high-cost heavy-oil, gas, deepwater, remoteor environmentally sensitive provinces, requiringoperators to redirect internal resources. Morethan ever, because of continually changing marketconditions and corporate priorities, producersneed the flexibility to access experienced person-nel who can work exclusively on a project.Because of downsizing, consolidations, reorgani-zations, joint ventures and mergers, the older,smaller or nonstrategic fields are often sold,traded, or perhaps worse, ignored. For thesetypes of assets, production management servicesmay be best (above).

Some of these reservoirs will produce at eco-nomic rates for many years; others like theDación fields can yield more if companies haveresources to operate and manage them effec-tively. Optimal use of critical internal and exter-nal resources, and relying on an alliance partnerwith expertise in a particular area can improvefield performance. By using technology and inte-grated processes to fully exploit reservoirsthrough improved cost control and efficiency,companies can establish, sustain and, ultimately,increase asset value.

Use of outside providers for some businessfunctions or operating activities, and alliancesbetween clients and service companies that sup-port them are not new to industry in general orthe oil and gas sector in particular. Automobilemanufacturers were among the first to formalliances with suppliers. These mutual arrange-ments leveled the playing field for supply compa-nies by stabilizing demand and establishing abase income level that ensured a dependablerevenue stream. In return, product and serviceprices were lower, and automobile companiesreduced costs by participating in and helpingdirect supplier research and development.

Oil and gas producers and service companiesbenefit from alliances in the same ways as theautomobile industry. By the end of the 1980s,cost-reduction efforts by operators resulted in

Cash flow

Grow

thCompetitiveadvantage

No competitive advantage

Cash valuegreater thantrade value

Trade valuegreater thancash value

Market valuegreater than

owner perceivedvalue

Owner perceivedvalue greater

than market value

Frontier exploration Core assets and key properties

Fields near abandonment Mature harvest andsecondary recovery

Sellportfolio

Outsourceportfolio

Divestportfolio

Retainportfolio

Tradeportfolio

Operateportfolio

Assetportfolio

> A niche for production management. Rather than sell and trade properties or defer schedules and expand organizations to work on small, noncore and mature field projects, a viable alternative may be managing production through an oilfield services organization. This innovative, cost-effectiveapproach can be used when operators have limited infrastructure in an area or choose not to use in-house resources exclusively, and for large,mature or complex fields.

1. Bartz S, Mach J, Saeedi J, Haskell J, Manrique J,Mukherjee H, Olsen T, Opsal S, Proano E, Semmelbeck M,Spalding G and Spath J: “Let’s Get Most Out of ExistingWells,” Oilfield Review 9, no. 4 (Winter 1997): 2-21.

2. Beamer A, Bryant I, Denver L, Saeedi J, Verma V, Mead P, Morgan C, Rossi D and Sharma S: “From Pore toPipeline, Field-Scale Solutions,” Oilfield Review 10, no. 2(Summer 1998): 2-19.

(continued on page 8)

Increasing asset value through improved reser-voir performance has been pursued for decades,but productivity and recovery results were oftendifficult, sometimes impossible, to attainbecause crucial tools and technologies wereeither unavailable or inadequate. Today,advanced technologies and rigorous process-driven approaches offer ways to reach produc-tion goals and take oilfield efficiency to newlevels. The IRO Integrated ReservoirOptimization methodology is a well-defined,closed-loop process to help operators maximizereservoir performance (below).1

For new fields, this macro-process representsan approach to understanding reservoirs thatencompasses activities from exploration anddiscovery through reservoir development andproduction management to abandonment. Inexisting fields, most, if not all, of these princi-ples can be applied with emphasis on renewing,or rejuvenating, production, and remedialactions to enhance productivity, extendlongevity, increase recovery and improvefinancial results.

For either type of asset, this is a complextask, requiring innovative solutions and the

latest fit-for-purpose technology. The IRO pro-cess hinges on closing a loop that consists offour principal elements: reservoir characteriza-tion through seismic and wireline formationevaluation, reservoir development throughpetroleum and facility engineering implementedusing oilfield drilling and production services,and reservoir management through project, pro-duction and asset management, supported byconsulting services and permanent downholemonitoring with well process control (see“Controlling Reservoirs from Afar,” page 18).

Time-lapse seismic surveys help pinpointbypassed hydrocarbons, and comprehensiveproduction logs confirm flow profiles and fluidsegregation. As more data are collected andanalyzed to refine reservoir and economic simu-lations, a clearer picture of reservoirs emergesto aid decision-making on capital-intensiveprojects such as infill drilling or horizontal wells to access bypassed formation intervals and intersect more producing intervals ornatural fractures.

The motivation behind an integratedapproach to reservoir optimization was to define step-wise procedures for optimal reser-voir development and management as a way of identifying deficits in existing technology and new wellsite services that were needed toimprove field production and reserve recovery.For example, areas that will benefit fromfurther technological improvements includeenhanced time-lapse seismic acquisition, down-hole process control, a new generation of soft-ware for geological and reservoir modeling, andrevolutionary formation evaluation tools, likethe Platform Express well logging platform.2

Processes Within a Process

6 Oilfield Review

Reservoir Characterization

IntegratedReservoir

Optimization

Field Implementation

DevelopmentPlanning

Rese

rvoir

Mon

itorin

gan

dCo

ntrol

1

5 6

78

2

34

> The complete optimization circuit. Four steps form the IRO Integrated Reservoir Optimization iterativeprocess loop—reservoir evaluation and characterization using oilfield services to acquire, process andevaluate seismic and well log data (1 and 5), reservoir exploitation planning through production manage-ment (2 and 6), and reservoir development plan implementation with custom solutions from integratedproducts and services (3 and 7). The final step is reservoir management, which includes monitoring, controland processes to optimize field operations (4 and 8). During initial appraisal and development (1 through4), formation properties and conditions are determined along with basic structure and boundaries. Basedon drilling and evaluation during subsequent development, exploitation and production (5 through 8),models are updated to better reflect reservoir behavior. For example, compartments may be identified asreservoir assessment proceeds.

1. See reference 2, main text.2. Barber T, Jammes L, Smits JW, Klopf W, Ramasamy A,

Reynolds L, Sibbit A and Terry R: “Real-Time OpenholeEvaluation,” Oilfield Review 11, no. 2 (Summer 1999): 36-57.

3. See reference 1, main text.

The IRO approach represents an extendedcommitment, often requiring the life cycle of a field—20 years or more in some cases—toachieve full success. While always involvingshort-term decisions, the IRO process concen-trates on major tasks to improve total reservoirperformance (above). Production managementis a micro-process, a subset of this integratedprocess, which is used on a daily basis to evalu-ate and reassess factors that control reservoirbehavior and field performance. Development

and operating plans are reviewed and updated,revised plans are implemented, and results aremonitored against established benchmarks.

Applied within the framework of productionmanagement, production enhancement, gettingthe most production from existing wells, is animportant subset of the IRO process and a keyto reservoir optimization. Using proven NODALanalysis techniques, a multidisciplinaryProduction Enhancement Group (PEG) proac-tively identifies wells with a performance gapbetween actual and potential productivity—candidate recognition—so remedial action can

be taken (below).3 Production enhancement isone of many functions that drive productionmanagement activities by increasing the overalleffectiveness of integrated well services, whichin turn, are pivotal in improving reserve recov-ery and maximizing value through reservoiroptimization and portfolio-level asset manage-ment over longer time periods.

As a key reservoir or asset management toolwhen field output declines and a key to main-taining plateau oil and gas production for aslong as possible, production management is ofcritical importance.

Autumn 1999 7

Implement capital program

IRO,

per

iod

1 ye

ar

Field development plan

Reservoir model

Macro-monitoring

Field operations

Monitor results

Execute plan

Review operating plan

Identify drivers

Prod

uctio

n m

anag

emen

t, pe

riod

1 da

y

> Integrated reservoir optimization and produc-tion management. The IRO approach incorpo-rates major tasks associated with improvinglong-term reservoir performance, but alsoinvolves making near-term decisions. The pro-duction management process flow, which is usedto reevaluate and address factors that deter-mine day-to-day reservoir behavior and fieldperformance, is a subset of this process.

Productionenhancement

Reservoir IPRReservoir IPR

Flow-co

nduit

perfo

rman

ce

Flow-conduit

performance

Pres

sure

Pote

ntia

l

Curre

nt

Productivity gap

Rate

Reservoir and completion

Add pay

Reperforate

Acidize

Fracture

Drill lateral or horizontalwellbore

Control sand

Control water and gas

Flow conduit and facilities

Clean out fill

Remove scale

Optimize tubular designs

Redesign artificial lift

Coiled tubing completions

Early production facilities

> Proactive production enhancement. Closing single-well performance gaps in wells when output is lessthan potential productivity is the objective of production enhancement. This goal is achieved by apply-ing integrated services and custom solutions that move reservoir inflow performance relationship (IPR)curves up and to the right, and move flow-conduit performance curves down and to the right.

formation of the first oil-industry alliances. Thesepartnerships involved varying levels of participa-tion and took different forms. Alliances havebeen formed between one or more producers,between producing and service companies, andbetween product and service suppliers.

Through the 1980s and 1990s, these effortsreduced costs significantly, which improved theindustry’s economic picture and financial struc-ture (right).3 Now, the question is how can per-formance and efficiency be improved further?

One answer is long-term production manage-ment enhanced in four ways: by focusing on keybusiness segments and strategic geographicareas; by optimal use of personnel andresources; by applying appropriate E&P technolo-gies; and by leveraging the competencies ofother companies—operators and service.Addressing these factors simultaneously ensurescost-effective operations, helps maintain highreserve-replacement ratios and improves returnon investment. A common thread that runsthrough this process is selection and applicationof custom integrated solutions over the remain-ing life of a field. Generating customized solu-tions to get the most return from oil and gasassets is best achieved through cooperation andthe combined strengths of all parties involved.

Managing production was always a serviceactivity, even though traditionally handled by oilcompany in-house groups. A contract operator orproduction management team that hires localspecialists can concentrate on a project, trimexpenses and increase value for asset owners byboosting field output and extending the economiclife of a reservoir. Using the best practices formanaging production, well and facility interven-tions, field operations, reservoir performance orentire asset portfolios, an integrated servicecompany can supply engineering design, welldrilling and completion planning, artificial-liftoptimization, production and injection analysis,joint-interest billing and other financial account-ing, including petroleum export marketing forsome projects. Production management servicescan also provide functions ranging frompetroleum land, and E&P permit or contract workto exploration and geologic evaluations.

A production management alliance or part-nership strengthens QHSE performance, reduceslifting costs, increases field output, improvesprofitability and adds long-term value. Through

ongoing research programs, product devel-opment and service expansion, Schlumbergercapabilities facilitate production management(see “Integrated Projects and Consulting: A Continuing Commitment,” page 12 ). Innovativeand cost-effective approaches achieve successby combining global expertise and state-of-the-art technology with local experience, and areavailable when operators have limited infrastruc-ture in a particular location or choose not to useinternal resources exclusively, and for large,mature or complex fields.

A New Approach Day-to-day management of production is tacti-cal, but in practice, it impacts strategic reservoirand asset management. In this way, it differsfrom contract operations of the past, whichfocused only on daily or monthly productiontargets for cost-plus or day-rate compensa-tion. Also, these contract “lease-pumping”arrangements seldom included geoscience orpetroleum engineering consulting support. TheSchlumberger approach is to provide an alterna-tive process that supports cost-reduction efforts,

8 Oilfield Review

14

12

10

8

6

4

2

0 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97

Finding and development costs

Lease-operating expenses

General andadministrative costs

Cost

, $/b

bl o

f oil

equi

vale

nt

Year

> Oilfield efficiency. Targeting expenses and performance throughout the 1980s and 1990s significantlyimpacted the economic picture and cost structure in the upstream petroleum business. Cost reductionefforts during the past 15 years resulted in a 48% decrease in finding and development costs, a 27%drop in lease-operating costs and a 20% reduction in general and administrative costs.

Explorationdrilling

Seismicsurvey

Discovery

Infill drilling

Production management

Appraisal AbandonmentDevelopment Production decline

Production profile

Production operations

Well and facilityintervention

Petroleum andfacilities engineering

Data feedback

> Production management. Efforts to manage field operations through an alliance or partnershipinvolve working with asset owners to achieve mutual goals. This process consists of three activities—petroleum and facilities engineering, well and facilities engineering, and production operations—linked to deliver project management and associated integrated-service solutions while overcoming the limitations of traditional joint producer and service-company relationships.

3. 1998 Sterling Consulting report.

Autumn 1999 9

delivering initial step-function improvements inlifting costs and further levels of production effi-ciency later in a project.

This fundamentally new way to manage pro-duction enhances asset value through leading-edge technologies, best-in-class products andservices, custom solutions, engineering consult-ing and an integrated process carried out inconjunction with oil and gas company organiza-tions. This comprehensive performance-basedeffort consists of three principal activities—engineering, intervention and operations.Linked in an integrated process, these activitiesdeliver production management and associatedservices while overcoming the disadvantages oftraditional producer and service-provider rela-tionships (previous page, bottom).

Production management functions include per-sonnel and human resources, information technol-ogy, financial issues and accounting, material orequipment procurement and logistics, oilfield ser-vices, QHSE compliance, commercial contracts,joint-interest relations and other relationships orcommunications outside of the alliance. Althoughtargeted initially for onshore basins in North andSouth America, this model is applicable acrossgeographic regions and offshore.

To achieve mutual objectives and optimalresults, operator and Schlumberger organizationsmust work together to integrate services, pro-cesses and management. In a natural progres-sion from multidisciplinary asset groups in an oilcompany, successful alliances with a servicecompany include a cross section of personnelfrom each company in a project team that over-sees daily operations. Executives from both com-panies steward long-term goals and performanceas members of an oversight committee.

A joint production management effort mayinvolve a Joint Leadership Team (JLT) committeeand Joint Project Management Team (JPMT). TheJLT integrates the two companies on a manage-ment level to align strategic issues, measure per-formance and determine future goals, objectivesand directions for the asset. The JPMT integratesalliance partners and third-party vendors on a tac-tical level (see “An Alliance to Manage Production,”page 15 ). Dación project management in Venezuelais organized using this approach.

The engineering phase includes asset-leveland reservoir-level activities. On a technical,basin or regional level, geologic aspects of a pro-ject are typically handled by the operating com-pany, or asset owners, as part of their portfoliomanagement and financial responsibilities. Thisensures a proper E&P perspective and diligentoversight. Reservoir-specific activities pertinent

Portfolio levelRegionalBasin

Asset levelFieldReservoir

Petroleumand facilitiesengineering

Well andfacility

intervention

Productionoperations

Reserves evaluationIdentifyAnalyzeEstimateReport

Economic evaluationExploration justificationDevelopment justificationProject planningBudgetingBusiness planningAsset management

Performance evaluationMonitoring and surveillanceModelingSimulation

Geology

Reservoirengineering

Productionengineering

Facilitiesengineering

Geologic evaluationDepositionalPetrophysicsGeophysicsDevelopmentCorrelations

Formation evaluationDrilling coresWireline well logsFluid samplesHydrocarbon analysis

Well planning and designGeometryTubularsSubsurface equipmentInitial completionPerforationProduction analysisStimulationWell interventionsArtificial-lift evaluation

Facilities planning and designInstallationOptimizationPreventive maintenanceFailure repairsUpgradesSystem debottleneckingField operationsField compressorsCentral processing stationsGas plants

E & P data serviceGatheringManagementTechnical analysis

Project planning and productionengineering. The petroleum andfacilities engineering phase ofproduction management involvescorporate asset-level, regional-leveland basin-level strategies as well asreservoir-level considerations. In aproduction management servicearrangement, asset owners typicallyaddress strategic issues, whilealliance teams handle activitiesrelated to tactical field operationsfor specific reservoirs. This phaseincludes reservoir performance and economic analysis, formation characterization and evaluation, and initial completion technology.

to production management and reservoir develop-ment are a JPMT responsibility. This includes for-mation evaluation, reservoir performance andeconomic analyses, and completion technology(above). Production planning, petroleum and facil-ity engineering, data gathering and informationprocessing are part of this phase, which, in addi-tion to technical excellence and strong manage-ment skills, requires effective evaluation,planning, budgeting and accounting software.

>

The well and facility intervention phaseinvolves new construction or remedial work thatencompasses completion technology and designsupported by formation evaluation, regulatory andclient approval, contingency and risk management,purchasing and material logistics, and drilling orworkover activities (left). These activities can behandled by the operator or service company sepa-rately, or by a JPMT, depending on contractualagreements or defined project scope. An under-standing of field development objectives, planningand cost control, and exceptional QHSE perfor-mance are required in this phase.

10 Oilfield Review

Petroleumand facilitiesengineering

Well andfacility

intervention

Productionoperations

Subsurface

Surface

Well work coordination, materials and execution

Drilling operations Rigs Pressure controlDrilling fluids and hydraulicsDrilling bitsCementingPerforating and completionWell testingStimulationRoutine repairsCased-hole loggingRecompletions Workover fluidsProduction enhancementArtificial-lift repair and optimization

Facility work coordination, materials and execution

Installation and constructionOptimizationPreventive maintenanceFailure repairsEquipment upgradesSystem debottleneckingCompressor installation

> Execution of the development plan. The well and facilities intervention phase of production management consists of well and surface facility upgrades or newconstruction, formation evaluation support for completion technology and designs,obtaining regulatory and client approvals,managing risks and contingencies, materialpurchasing and logistics, and well drilling or remedial interventions.

Feb MarJan Apr May June July Aug Sep Oct Nov Dec

Well IWell H

Well GWell FWell EWell D

Well CWell BWell A

0

1

2

3

4

5

Oil r

ate,

100

0 B/

D

N

Charlie

Delta

Bravo

AlphaEcho

Forties field

UK

Aberdeen

> Artificial-lift optimization. A systems approach to gas-lift analysis, design and performance monitoring within the framework of a structured production management process increased individual well output rates and helped optimize production from the BP Amoco Forties field inthe North Sea.

Petroleumand facilitiesengineering

Well andfacility

intervention

Productionoperations

SubsurfaceWell operations

Daily field activitiesMonitoring and surveillanceData acquisitionProduction reportingCost reportingDiagnosticsTroubleshooting

Well maintenance

Wellhead equipmentArtificial-lift equipmentPreventive maintenanceFailure repairsSuspensionAbandonment

Well optimization

NODAL analysisProduction enhancementSurface equipmentFlowlinesData management and analysis

Facility optimization

Production separation vesselsField batteriesFlowlinesField gathering system

Facility operations

Daily field activitiesMonitoring and surveillanceData acquisitionProduction reportingCost reportingDiagnosticsTroubleshooting

Facility maintenance

Production separation vesselsField batteriesFlowlinesField gathering systemPreventive maintenanceFailure repairsEquipment replacement

Surface

Support Project management

QHSERegulatory compliance and approvalsClient contacts and approvalProduction administrationAccountingBusiness planningExpense and capital budgetingFinancial and operational reportingMaterial purchasing, inventory control and logisticsSupplier and subcontractor supervisionService coordinationHuman resources and payroll

Managing production operations. Surfaceand subsurface surveillance, enhancementand maintenance are encompassed by theproduction operations phase of productionmanagement. This phase includes fieldoperations, equipment lease or purchase,maintenance of wells and facilities, controlof the production process, hydrocarbon volume reports, finance and revenueaccounting, and, in some cases, marketingof produced oil and gas. These activitiesyield the results of plans formulated in thepetroleum and facilities engineering phase.

4. Fleshman R, Harryson and Lekic O: “Artificial Lift forHigh-Volume Production,” Oilfield Review 11, no. 1(Spring 1999): 48-63.

Autumn 1999 11

In the production operations phase, effortsinvolving production surveillance, enhancementand maintenance can be divided into surface andsubsurface processes that include field opera-tions, equipment purchasing or leasing, well andfacility maintenance, well-process control andoptimization, production volume and revenuereporting, finances and accounting, and hydro-carbon delivery or export (right). This phaseyields the results of plans set in motion duringthe first phase—petroleum and facilities engi-neering—and includes a feedback loop to pro-vide analysis and evaluations for continuallyimproving the next stage of reservoir develop-ment. Rigorous monitoring and control ofexpenses, production and QHSE performance arerequired as well as an understanding of fielddevelopment and production plans, and portfo-lio-level or asset-level strategies.

Artificial-lift analysis is recommended as anactivity during the production operations phase.These evaluations identify inefficiencies anddeliver near-term production enhancement.4 Anexample of artificial-lift optimization is the BPAmoco Forties field in the North Sea where bothgas lift and electric submersible pumps are used.This field has four main platforms produced pri-marily by gas lift and one lifted solely with elec-tric submersible pumps. Production is declining,but substantial recoverable reserves remain.

Working closely with Camco Products andServices and later the enhanced oil recovery(EOR) group, the operator began submersiblepump operations in the late 1980s, and gas-liftsystems were installed in the early 1990s.Initially, gas-lift and submersible pump teamsconcentrated on their specific technology andperformance, but over time, a total systemsapproach evolved that encompassed all aspectsof artificial lift, reservoir surveillance and pro-duction engineering. Gas-lift optimizationinvolving analysis, design and performancemonitoring resulted in incremental rate gains on individual wells (previous page, bottom).

(continued on page 14)

>

The Schlumberger commitment to reservoir per-formance optimization and project managementbegan in 1995. In that year, the IntegratedProject Management (IPM) organization wasformed to fulfill operator requirements throughglobal expertise in combination with local expe-rience.1 The Production Enhancement Group(PEG) initiative was started and Holditch &Associates was acquired in 1997. This was followed by launch of the IRO IntegratedReservoir Optimization service.

Performance on major projects worldwide hasprovided extensive integrated service activityand project management experience. During thepast four years, these organizations have workedsuccessfully on projects ranging from integrateddrilling and well servicing for the North SeaAndrew and Cyrus fields, and the Eastern TroughArea Project (Mungo, Marnock, Machar andMirren fields) to the Hibernia, Wytch Farm andMachar field alliances. Projects in Africa andSouth America, like the Dación field redevelop-ment, are also included in this track record.

Within major or stand-alone projects, pro-duction management services have gainedacceptance and are increasingly important inthe upstream petroleum sector. Acquisition of

Coastal Management Corporation (CMC) in1998 further strengthened Schlumberger capa-bilities in this area. Formed in 1989, the CMCorganization, which developed from a produc-tion operating company background, compiled a strong record of implementing projects fromlarge-scale coalbed methane developmentdrilling to production management of majorwaterflood operations (below). Schlumbergergoals paralleled those of CMC, creating a natu-ral fit that led first to formation of an integratedalliance and then, ultimately, to the acquisition.

In addition to an existing waterflood produc-tion management project in West Texas, CMCpreviously operated the Bryan-Woodbine fieldnear Bryan, Texas, USA, which involved handlingworking-interest relations and accounting for435 joint-interest and 15,000 royalty owners,and dealing with complex environmental issues.In the Alabama, USA, Black Warrior basin,CMC scheduled and managed a 14-rig coalbed-methane program for more than a year, drillingmore than 400 wells and coordinating a $175million budget.

Integrated Projects and Consulting: A Continuing Commitment

12 Oilfield Review

Cerro Priesto Geothermal ProjectBaja California, Mexico

M.A.K. ProjectMartin County, Texas

Oak Hill fieldRusk County, Texas

Phillips Reef ProjectPermian BasinWest Texas and New Mexico

South Kilgore WaterfloodEast Texas field

Loco Hills ProspectEddy County, New Mexico

Two Freds (Delaware) FieldLoving, Reeves and Ward Counties, Texas

Waterflood ProjectCrane County, Texas

Bryan-Woodbine unitBrazos County, TexasWaterflood

Turner Town ProjectEast Texas fieldRusk County, Texas

Lisbon fieldClaiborne Parish, Louisiana

Robinson’s BendCoalbed Methane developmentTuscaloosa County, Alabama

Canyon Reef CarriersPermian BasinCO2 Pipeline (220 miles)

Alabama Perry North UnitLeon County, Texas

> Production and project management in practice. The CMC organization, which was developed in 1989 froma background of operating company experience, has a strong project implementation track record fromdevelopment drilling programs to large waterflood operations and major production management projects.

Each project had different parameters. TheBryan-Woodbine field involved solving revenueproblems. In Alabama, the project includedengineering design, accounting, control of capitalexpenditures and regulatory issues associatedwith tax credits for unconventional gas.

Recently, the Schlumberger Oilfield Servicesproduct lines were reorganized into three prod-uct groups—Reservoir Evaluation, ReservoirDevelopment and Reservoir Management—encompassing 13 service segments. Thesegroups develop and support the products andservices offered in four existing geographicareas: Asia; Europe, Commonwealth ofIndependent States and Africa; the Middle East;and North and South America. The ReservoirEvaluation group includes land and marine seis-mic surveys, and openhole and cased-hole wire-line well logging data acquisition, processingand evaluation activities. The ReservoirDevelopment group includes Anadrill, Camco,Dowell and Testing products and services. TheReservoir Management group, which combinesGeoQuest, Data and Consulting Services,Production Operators, Inc. from Camco andIPM, supports IRO Integrated ReservoirOptimization and production management processes (right).

Reservoir management embodies severalelements, including a strong commitment toexcellence in service delivery at the wellsite,integrated solutions and services, alliances,partnerships, value pricing and project man-agement skills. The Reservoir Managementgroup draws on Schlumberger technology andexpertise for field development planning andimplementation, but also relies on other best-in-class service providers and third parties to forma strong team.

Participation takes several forms, from simplecoordination of oilfield services to full involve-ment in design and management of field opera-tions. To facilitate effective communication andcooperation for life-of-reservoir projects, theimportance of involvement during conceptualengineering and detailed design phases isstressed. In addition to a critical mass of opera-tional expertise and a complete range of

drilling, completion, development planning andproduction management services, Schlumbergerhas forged engineering and constructionalliances with premier firms, including CoflexipStena Offshore, Bechtel Offshore and FluorDaniel. These arrangements are nonexclusive,with alliance partners representing preferred,first-choice suppliers in various areas.

Autumn 1999 13

Drilling andMeasurements

Well Completionsand Productivity

Cementing andStimulation

ReservoirDevelopment

Drilling Bits

Well Intervention

Seismic

ReservoirEvaluation

Wireline

Land Open Hole

Marine Cased Hole

GeoQuest

Data andConsulting Services

Integrated ProjectManagement

ReservoirManagement

Compression andProduction Systems

> A framework for reservoir management.

1. Bourque J, Tuedor F, Turner L, Gomersall S, Hughes P Jr,Klein R, Nilsen G and Taylor D: “Business Solutions forE&P Through Integrated Project Management,” Oilfield Review 9, no. 3 (Autumn 1997): 34-49.

Substantial improvement in submersible pumprun times were also realized (above).

Daily field operations may include operatingsurface equipment or valves to initiate and con-trol production or increase gas-lift injection ratesand pressures for artificial lift, but productionenhancement through proactive candidate recog-nition addresses individual well performance tocollectively increase total output from a field.These short-term rejuvenation efforts, which alsomay be part of the production management pro-cess, involve well servicing, modifying orinstalling artificial lift, pumping matrix acid orhydraulic fracturing stimulation treatments, andother remedial well interventions to improve orrenew production.

Developing aligned objectives is essential in any production management initiative.Commercial agreements combine near-term fixedcompensation based on lifting-cost improvementswith long-term rewards based on adding assetvalue (below). This model is applied on individualprojects, but can be used as a template for futurecollaboration across an asset portfolio to optimizereservoir performance and maximize value forboth the operator and the integrated serviceprovider. A mutual relationship that balances risksand rewards can deliver immediate results andensure continuous improvement.

14 Oilfield Review

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> Improved artificial-lift efficiency. A systems approach similar to the one used for gas-lifted wells in the North Sea Forties field significantly decreased electric submersible pump failures and increased the run life of these artificial-lift systems.

Lifting-cost model Value-based model

Initial reduction

Lifti

ng c

ost,

$/bb

l of o

il eq

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pre

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> Value-based production arrangements. Production management services require the support of value pricing through an alliance model that helps asset owners and the integrated service provider develop mutual goals and objectives. Most production management proposals involve near-term compensation based on reducing lifting cost,and a long-term risk-reward arrangement related to additional asset value based onproject net-present-value or a combination of NPV and lifting cost.

5. Haines L: “Is Outsourcing Your Out?” Oil and GasInvestor 12, no. 10 (October 1992): 69.

Autumn 1999 15

An Alliance to Manage Production In February 1991, Coastal ManagementCorporation (CMC) was selected from among sixcompanies to provide project management for agroup of oil and gas fields in the heart of thePermian Basin of West Texas, USA.5 CMC wasgiven responsibility for normal operator functions,including general management, exploration andpetroleum engineering, field production opera-tions, revenue accounting, joint-interest billing,accounts payable and material procurement.

At the time, the asset operator’s staff wasfully committed to other assets and projects. Thecompany estimated that a substantial number ofemployees would be needed to operate the project, but did not want to expand their organi-zation. Granted authority to manage and operatethis project, CMC hired 85 people with localexperience and assumed the production manage-ment role.

The project, which covers about 80,000 acres[324 km2] and includes more than 1350 activewells (2000 total wells) producing from multiplepay zones over 12 horizons in 47 fields, illustratesthe impact of focused production management.Before CMC assumed operations in May 1991,little upside potential was believed to exist in thefield, and previous operators had identified thisas a noncore asset. A multidisciplinary team wasassembled to carry out engineering and geologicevaluations, oversee operations and rejuvenateproduction output.

Study results led to several actions. Electricsubmersible pumps were installed in selectedwells. With reinterpreted seismic maps, 16 wellswere drilled. All but one of these wells were suc-cessful. Peripheral waterflood injection patternswere implemented along and between up-dipedges of overlapping formation sequencesacross the field (right). These boundaries wereidentified by two large-scale, Schlumberger-man-aged three-dimensional (3D) seismic surveys,which also resulted in new field discoveries forthis 70-year-old asset.

Working closely with a petroleum and facili-

Seismicboundaries

N

N

Seismicboundaries

Onlappingboundary

TEXAS

Seismic survey and waterflood results. A multidisciplinaryteam carried out engineering and geologic evaluations, managed field operations and began rejuvenating productionoutput. Peripheral waterflood injection patterns were initiatedalong and between up-dip edges of overlapping formationsequences identified by two large-scale, three-dimensional(3D) seismic surveys. Several new field discoveries weremade as a result of these surveys.

>

Working closely with a petroleum and facili-ties engineering team, groups responsible forwell and facility intervention, and productionoperations completed the initial stages of pro-duction rejuvenation. Total production rose fromabout 7000 to almost 12,000 BOPD [1120 to 1906 m3/d] in 1995 (right). Annual capital expen-ditures of less than $5 million in 1992 wereincreased each year to $35 million in 1998.Investment results were competitive and rates ofreturn compared favorably with other spendingopportunities of the working interest owners.

Control of lease-operating expenses is animportant part of effective production manage-ment for the project. In addition to the large num-ber of active production and injection wells, thereare 37 surface equipment batteries for productionseparation, three electrical distribution grids and anumber of other facility installations in the fields.Lease-operating expenses were reduced from his-torically high levels, but not to the point of ignor-ing prudent operating procedures and QHSEpractices. With an estimated reserve life of morethan 20 years, short-term spending limits are notallowed to override maintenance requirementsthat will ensure lease equipment and operationallongevity.

An integral part of managing lease-operatingexpenses and overall economic success on theproject is the enhanced relationships with ven-dors who participate directly in repairing wells.The objective was to promote cooperationbetween operational groups and companies thatprovide well servicing rigs, pumps and specialtychemicals. Well failure rates, at more than twofailures per well per year, exceeded a benchmarkof one failure per well per year for similar opera-tions. The dilemma was how to reduce rod, tubingand pump failures. A strong culture of teamworkin the CMC organization pointed to a new modelfor integrating best-in-class service providerswho could add value to the existing productionprocess.

The field organization was restructured aroundwell maintenance activities by organizing fieldproduction foremen into a Business Focus Teamwith management and supervisory personnel fromwell servicing rig, chemical treatment and subsur-face pump companies as members. This team con-centrated on improving well maintenanceactivities. In addition, the task of implementingimprovements in the field was assigned to a newWell Reliability Team, again consisting of alliancerepresentatives and specialists from each of thethird-party service providers charged with initiat-ing well maintenance improvements. Failures inrods, tubing and subsurface pumps weredecreased from 175 per month in 1991 to 40 permonth in 1998 (left).

16 Oilfield Review

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Lease operatorDownhole pumpmanufacturer

> Improving efficiency. By implementing well maintenance improvements, rod,tubing and subsurface pump failures were decreased from 175 per month atthe end of 1991 to 40 in 1998. This reduced well failure rates from more thantwo to less than one-half failure per well per year, saving asset owners morethan $1 million per year.

> Optimizing production. Before CMC took over operations in May 1991, littleupside potential was believed to exist in the field. With reinterpreted seismicmaps, 16 wells were drilled. Production rejuvenation included switching toelectric submersible pumps for artificial lift in selected wells and peripheralwaterflood injection.

1

10

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Oil production Initial oil decline Gas production Initial gas decline

Production managementalliance begins

Autumn 1999 17

Well failure rates were reduced significantlybelow the benchmark of one per year to less thanone-half failure per well per year. As a result, lift-ing costs were decreased by 34%, and well fail-ures were reduced 75%. These reductions savedworking-interest owners more than $1 millionover six years. At the same time, efficiencyimprovements through more direct involvementof the service partners allowed some alliancepersonnel to move to production managementtasks that add more value to the project. Wellmaintenance cost reductions were achievedwhile reducing the staff allocated to this activity.

By 1998, these teams had reduced well fail-ures to a point where further improvement wasnot cost-effective. The focus then shifted fromfailure reduction to production enhancement.Well servicing specialists have further improvedrevenue through artificial-lift analysis, optimiza-tion and modification. Developing a broader inte-grated services model than was used in thepast—one that provides continuity and concen-trates on process activities rather than individualdisciplines or narrowly defined tasks—helpedachieve these results.

Why is this approach successful? One key isthe ability of production management teams tofocus energy, creativity, expertise, technologyand local experience on a single project and tohave the flexibility to analyze problems anddevelop innovative solutions. Unique because itis a service organization that evolved from a pro-ducing company operational background, CMCmaintains a life-cycle perspective on the assets itmanages. This approach provides a model forcoordinating and administering production man-agement activities that is flexible and also deliv-ers maximum field performance.

Project administrative structure is transparentto clients and differs little from any other oil com-pany operation. Through mutually agreeablegoals and objectives, both parties share a long-range vision and the corresponding rewards ofthis value-adding production management pro-cess. Developed over ten years of well mainte-nance and field operating experience, CMCinternal systems and methods for managing day-to-day project activities by monitoring and track-ing field data allow operations personnel to makecost-effective decisions (below).

An Ongoing Management ProcessMarket conditions and emerging business trendsoffer compelling tactical, strategic and financialincentives to adopt a new production manage-ment approach. The challenges of declining pro-duction and a mature asset base can be met byaltering the way reservoirs are developed andmanaged from discovery to ultimate depletionand abandonment. By relying on alliances or part-nerships for production management, functionsand processes developed by an integrated serviceorganization like Schlumberger significantlyreduce demands on operator resources—finan-cial and personnel—to acquire, integrate andmanage the technologies, products and servicesinvolved in field operations. Oil company staffsare able to pursue business opportunities thatimprove asset value and financial return by redi-recting internal resources to activities of greaterstrategic importance.

Additional advantages come through costreductions from better application of technologyand expertise, more efficient purchasing, pricingand material sources, and expanded R&D capa-bilities. New approaches to reservoir develop-ment and management are not just a repackagedcollection of products and services that wereoffered piecemeal previously in response to clientrequests; they are customized solutions repre-senting the best technologies and methodologies.

Project management services gained accep-tance in the early 1990s. More recently, thesearrangements became established as viablemethods for meeting near-term tactical objectivesand achieving long-range strategic goals. Thistrend is likely to continue over the next decade asproducing companies pursue further productionoptimization and cost reductions. Controlling cur-rent expenses is important, but over the long-term, many mature properties around the worldneed engineering and operational attention. Thesepetroleum assets contain resources that theworld economy needs and producing countriescan’t afford to lose as a result of operational over-sights or resource limitations. –MET

AS 400FinanceProduction

Production management

FinanceLand

FinanceSource documents

REPORT

REPORT

REPORT

Billing

Revenue distribution

Production andregulatory reporting

Internal operationalreporting

Client reporting

Finance

Treasury

Purchasing

> Production management methodologies. Internal CMC systems and methods developed during a decade of well maintenance, field operating and production management outsourcing experienceallow alliance operations personnel to make cost-effective decisions.