New technologies will fuel surging US oil production

  • Four years since oil's collapse, oil is back to $60 a barrel and more, and production is surging.
  • The turnaround is only the tip of the iceberg. Technological advances will help the industry become safer, more efficient and more environmentally sound.
Oil workers in the Permian Basin outside Midland, Texas
Brittany Sowacke | Bloomberg | Getty Images
Oil workers in the Permian Basin outside Midland, Texas

A funny thing happened to the oil and gas industry as it lay flat on the mat after the collapse of oil prices about four years ago.

It figured out how to get up and start investing for the future again.

While scores of exploration and production companies went bankrupt and more than 200,000 American energy industry workers lost their jobs, some resourceful producers figured out how to slash costs and boost efficiency. Upstream, midstream and downstream, they adopted new technologies that enabled them to cope with much lower-priced oil.

Now, with oil back to $60 a barrel and more, their production is surging, and the world has in some ways been turned upside down. As The New York Times recently reported, the United States is rapidly becoming a significant world oil and gas producer. Led by shale oil companies that adopted innovative technologies, America will likely surpass Saudi Arabia and rival Russia as the world's leading oil producer this year.

Good news just beginning to flow

But for oil and gas companies, it's fair to say, the good news has really just begun to flow. That's because the opportunities for applying technologies that bring down costs and boost productivity are still enormous, and innovation is expanding rapidly. The turnaround we have begun to see in some companies' fortunes is only the tip of the iceberg.

In part that's because until just recently, the industry has been decidedly slow to adopt new digital technologies. That's understandable, given the hefty profit margins companies reaped when oil surpassed $100 a barrel – peaking a decade ago this summer at more than $145.

Prices like that made new approaches and innovation a low priority; the overwhelmingly primary challenge was production – maximizing output now. Then, when prices crashed – to $26 just two years ago – most companies were more focused on cutting their capital spending than innovation. The same pattern seemed to hold true across all manufacturing industries in general.

But as prices began to creep up again, at least some oil and gas companies began to fold more automation and technology into their plans. A year ago, I wrote that for the first time in years, I was beginning to see hope in the industry, as companies were finally beginning to make long-overdue investments to enhance safety, efficiency and productivity. Now these companies are playing a major role in the U.S. production surge.

For that very reason, more and more companies are going to want to jump on the bandwagon with them, accelerating the trend's momentum. Also playing a role in companies' plans: digital technology itself is better than ever before, and more reliable and safer.

Chewing on 'Big Data' 

Consider sensors, for example. Today they can measure not only variables such as temperature, pressure and fluid levels, but also more sophisticated ones, like corrosion, vibration and hazardous leaks. And they can wirelessly communicate all these measurements reliably, saving vast sums on engineering, no-longer-necessary wiring and labor. They can communicate over the Industrial Internet of Things (IoT), which is no longer a dream – it's a reality. But this innovation is just beginning.

Then consider the ability to access the reams of information – the Big Data – that all these tireless sensors are producing. Cloud computing makes it possible to set up central operations wherever we want, even as the sensors operate in "four D" environments – places that are Dull, Distant, Dirty and Dangerous. New software and analytics are enabling companies to chew the Big Data into digestible bites and give them actionable insights. As a result, companies can predict, save and optimize in ways that would have been considered impossible only a few years ago.

An example: End-to-end Exploration and Production (E&P) solutions are now available to help oil and gas operators increase efficiency, reduce costs and improve return on investment. These solutions range from seismic processing and interpretation to production modeling.

Companies can now interpret data and generate high-fidelity representations of existing brownfield assets in ways that enable them to maximize production and avoid nonproductive drilling and wasteful exploration spending.

Advances like this will help companies ensure ongoing safety, improve reliability, maximize availability and reduce operating costs, as well as avoid negative environmental impacts. They're the kinds of innovations that have already changed the world in just the last couple of years. It's clear now that in the years ahead, we can confidently look forward to much more in a safer, more productive, more environmentally friendly environment.

Commentary by David Farr, chairman and CEO of Emerson.

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