JANUARY 2012 The Better Business Publication Serving the Exploration / Drilling / Production Industry

Cloud Driving Business Step Changes

Cloud computing is driving a fundamental shift in how businesses will operate in the future, freeing companies that are tied down by the costs of maintaining servers and equipment, and enabling competitive advantages gained by turning data into information.

By Shawn Cutter
TAMPA, FL.The cloud is more than merely the latest buzzword, such as Web 2.0, social networking, or grid computing. It is a set of changes already under way. It is the term for a fundamental shift in how businesses will operate in the future, much like the shift from mainframe to fat client that occurred more than two decades ago. While that particular change may not have marked the end of mainframe computing, it did bring with it a tidal wave of change to every industry, including oil and gas. In fact, most of the applications we use now started in the early days of the mainframe transition period. With the processing power that fat client brought to the desktop, greater analysis was possible as access to information expanded. Cloud computing is most easily identified and understood in the context of consumer markets and social networking. We can stay in contact with people from around the world and access virtually any type of information from our Web-enabled phones. Imagine being able to apply that concept to a business. Cloud computing is more than just putting a fat client application on a server and permitting others to connect to it. It frees companies that are tied down by the costs of maintaining servers and equipment. At its core, cloud computing is the competitive advantage gained by turning data into information.

Reproduced for Fielding Systems LLC. with permission from The American Oil & Gas Reporter

www.aogr.com

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Horizontal drilling technology and 3D seismic analysis have opened doors to new possibilities in the oil and gas industry and altered the countrys energy landscape. The cloud will, in turn, increase the efficiency of energy companies by lessening the burden of technology, and allowing the industry to focus on finding and producing oil and gas reserves. It will level the playing field by making information and processes available to small independent producers as technology is offered on a pay-for-usage basis. Whether a business is upstream or downstream in the process of bringing oil and gas to market, from exploration, drilling and production to field services, cloud-based computing will change the way the business operates. The cloud is not simply adding new features to cell phones and storing data somewhere out there. It is the standardization of where data are stored, how they are accessed, and how companies interact. Speaking at the Microsoft Global Energy Forum in Houston last year, Steve Ballmer, Microsofts chief executive officer, said, It is the new architecture for how software gets built, and it is the notion of pushing it into the Internet in a way that is accessible across company boundaries, out to individuals. The primary players who provide the platform on which cloud services are built are among the biggest names in technology because they have the enormous resources required to compete on a global scale. These include Microsofts Windows Azure, Amazons EC2, and Googles App Engine. When it comes to cloud platforms, economies of scale rule as these companies apply their highly skilled and vast resources to operate the largest data centers in the world. Infrastructure Benefits There are many enterprise applications on the market today that are only accessible to larger companies because of the substantial infrastructure required to license and maintain the software and operate them. With cloud-based technology services, these enterprise applications can be replaced by Web-based systems at a fraction of the cost, much less capital investment, and a significantly reduced footprint in system administrative personnel. These services also facilitate wider availability to users, and from a technological standpoint, make it less costly to integrate information from one corporate entity with another. The clouds impact on a companys bottom line and technology infrastructure is immediate. An exploration, drilling and production company no longer needs capital investment for server infrastructure, disaster recovery and collaboration software. It now can utilize readily available cloud services and only pay per user rather than shelling out large server license and support fees upfront. Many of the services on the market provide more capability and access than what companies can run in house. Unlike other cost-saving measures in the information technology industry that have resulted in U.S. jobs being shipped overseas, the cloud simply means that current roles in IT will be redefined. Large companies that already have invested heavily in enterprise software will continue using those services, but they will be forced soon to advance to the latest technology or risk losing their place in the market they helped to create. Those entities likely will proceed with a gradual transition to cloud services, ending with a combination of public and private cloud environments. Most services today are found in the public realm, but private clouds are making their way into larger organizations that seek the benefits of cloud technology with the control and security of keeping everything in house. In 10 years, legacy enterprise applications will prove to be as expensive and cumbersome to manage as mainframe applications are today. Imagine that an IT developer has an idea for a new technology for drillers, so he starts his own company and has to decide whether the platform should be built on the cloud. A year ago, he would have had no choice but to spend significant time and money to obtain server licenses and server equipment, rent a secure data center to store the servers, set up network connections to those servers, pay for Web hosting, and so on. By operating on the cloud, this developer will find that his time to market is faster since he does not need to scale up testing analysis environments that involve complex data sets and data models composed of reservoir and seismic data. The data and computing power are essentially queued up any time customers require them and are only a few mouse clicks away. Seamless Integration The leading companies in the industry are those that see how new information can be created by combining services. Cloud service providers are only beginning to find ways to share information and add

Cloud computing increases corporate efficiencies by lessening the burden of technology, allowing oil and gas companies to focus on finding and producing reserves. It levels the playing field by making information and processes available to smaller independent producers since technology is offered on a pay-for-usage basis.

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value by embracing information sharing between internal personnel and outside vendors. These technology companies tend to be specialized, and in order to offer the complete package, they must look for those integration points to offer to customers. Exploration, drilling and production companies that are not demanding seamless integration among all of their enterprise services should do so. Small to midsized independents will have access to all of the same capabilities as the legacy enterprise server applications, but on a pay-for-use model. An accounting application should support the automatic integration of data from a drilling application to track against every line item on an authority for expenditure. It should do so in a way that does not require exporting a file from an application, attaching it to an e-mail, and sending it to the corporate office so that it can be imported later. Automation is now the standard. The pay-for-use model of the cloud has eliminated the need for capacity planning. It is nearly impossible to plan for every data point that will be collected, stored, processed and used by personnel in the future. Companies spend a great deal of money on storage and end with excess capacity or face costly upgrades later. The good news is that the chief information officer no longer has to determine how much storage or processing capacity is needed, down to the last terabyte. Economies of scale continue to drive down the cost of storage and computing power without sacrificing capability, speed, redundancy or scalability. The cloud offers a solution of gradual expansion and responsiveness to changes in the marketplace or regulatory requirements. A company running on the right cloud services can automatically increase capacity as needed. Earliest Adopters The first to adopt the new cloud-based technologies likely will be small to midsized independents because they have the most to gain and the willingness to take the risk in applying new technology to their businesses. As they did in the start of shale development when they utilized offshore techniques for onshore exploration and development, small to midsized producers will push the industry forward by trying new methods. They see the value

The evolution of high-performance computing technology is moving from distributed clusters, to enterprisewide grids, to private and public clouds. From exploration, drilling and production to midstream field services, cloud-based computing is changing the way oil and gas businesses operate. The cloud is not simply adding new features to mobile devices or storing data offsite, but is standardizing where data are stored, how they are accessed and how companies interact with data.

in readily accessible information and will be able to free more capital from backoffice expenditures. The large players will follow suit with private clouds, but will continue to struggle with their desire to lock information down and their goal of obtaining broader visibility into the entire operation. The innovators in cloud technology will be entrepreneurs who see tremendous opportunity in the new cloud platform and leverage it in ways that justify the risk for exploration, drilling and production companies. In the new frontier of shale plays, enormous budgets are needed. The cloud allows midsized operating companies to compete with the corporate giants. Until now, information was locked away in silos and was not easily accessible outside of a department within a company. As the demand for information increases, these walls will be broken down by a skilled workforce that requires access to information at all times. Up-and-coming petroleum engineers and related field experts should focus closely on how to use the data as they become more readily available. Enhancements in communication and document management will allow a company to utilize its workforce from anywhere around the globe. That might include a consultant in Denver working with an engineer in

London to put together the directional plan for a six-well drilling pad in Pennsylvania. Once complete, the plan can be sent to the drilling contractor automatically for review and sign off. In the near future, greater emphasis will be placed on utilizing data from more than one system to create new information never before analyzed. Consider the various sensors and devices that are connected to each drilling rig, recording samples of data every second. The data are analyzed by the foreman or mud logger as needed on site, but much of it is thrown away or aggregated to a lowerlevel resolution for long-term storage. If the data were kept and easily accessible, a software application for simulating a new drilling technology could make use of those data to apply the new techniques to previous well conditions. Exploration Workflows The pace of unconventional oil and gas exploration is likely to increase, or at least continue at the current rate. Successful land management will mean hundreds of lease agents in the field, able to access legal documents related to real property from their laptops, prepared by centrally located office personnel. Once a lease is signed, the agent can securely transmit the document to the companys secure

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Small to midsized independents likely will be the first to adopt cloud-based solutions because they have the most to gain and the willingness to take the risk in applying new technology to their businesses. As they did in pioneering shale development, small to midsized producers will push the industry forward by trying new methods. They see the value in readily accessible information and will be able to free more capital from back-office expenditures. Source: Aberdeen Group.

cloud-based repository, where it is immediately available for upper management to track and review. The lease requirements, tract information, sites and drilling plans all can be stored in the cloud and accessed by field personnel when the drilling site is built and the rig moves in. Technological advances, smarter field devices and higher demand for information have placed remote connectivity and central management on nearly every drill site. Web-based services allow supervisors in Houston to monitor minute-by-minute progress of the drill bit going down into a formation in Elk City, Ok., and make decisions from their home, office or on the road from a smart phone. The oil and gas industry has benefitted from the increased capacity on servers and client computers because companies operating in shale and other tight formations can perform 3-D imaging and analysis. Seismic data acquisition and processing are among the most data-intensive links in the entire chain of production. The cloud makes it possible for seismic data to be fed through satellite or cellular links to data storage space in the cloud as the data are collected. The data can be processed and queued in a workflow as they are collected in the field while surveying proceeds. As a result, real information can be available for final analysis before the seismic trucks even come out of the field. Radiology departments, which deal with large volumes of secure data, already are applying this type of technology. Medical images can be recorded at one location, transmitted, processed and eventually reviewed by a doctor in some other state, while complying with strict medical privacy regulations. Directional and horizontal drilling are already almost entirely driven by software

designed to reduce errors and calculate precise plans, but there are inherent limitations in where the software can be run and who can have access to it, since it typically resides on a single server or computer. The cloud expands the benefits by supporting collaboration during the planning stage of the process, making land information and future development plans for each field available in real time. Furthermore, if during the drilling process the well plan has to be modified, real-time analysis and what if scenarios can be applied by comparing the original well plans and the drilling data collected up to that point. Well plans can be made to include event-driven reporting, whereby specific users are notified automatically when specific conditions are met. For example, a slowdown in the drilling process could trigger bringing an expert contractor on site. With cloud services, it is as easy as sending an e-mail. Optimizing Production For the majority of the industry, production is still very much a manual, paper-and-pencil effort in which pumpers manually collect data from the field. If information is collected on paper and stored in a pumpers truck, it is not readily accessible to office personnel or an engineer who may need it to diagnose a problem with a well. Supported by technology, managers can have access to every piece of information tied to the wells and equipment they manage. The detailed well plans and well bore diagrams, rig reports, completion results, and everything else that has occurred throughout the life of a well is available from a smart phone. Consider the amount of time and money that is lost when calls have to be made to the office to locate well logs and drilling reports while a service rig sits idle on location.

As information is collected electronically from the field, it is immediately available for analysis, which can be done through automated processes that deliver scheduled reports to targeted personnel at every level in the organization. The production data are automatically processed into a larger data warehouse, where further business intelligence analytics are applied. Quarterly or long-term analysis makes use of production data. Cloud-based production automation and optimization services allow production operators to do more with fewer personnel and achieve better results. The newest onshore fields are being automated by producers of all sizes because the advances in hardware and communication technology can support it. However, all of the improvements on the hardware side will not produce a return on the investment without cloud services to tie them together and move companies from a reactive to a proactive approach to producing oil and gas. Automation and monitoring systems do more than simply repeat raw data and send alarms when pressures reach a certain level, or other events are triggered. Modern systems can identify abnormalities in pressures, flow rates, temperatures or combinations of all of them by analyzing data over time to detect potential problems. On the operational side, field technicians can focus on the most pressing tasks and have their routes adjusted based on need, rather than following the same routes each day. Experienced field personnel are spread increasingly thin, sometimes covering several hundred miles in a single day. The problem is only getting worse as field personnel are required to support an increasing number of wells, and technology can help to bridge the gap. Minimal requirements to expect from a production support system include: Capturing production data in real time; Optimizing production in real time; Managing production equipment and maintenance schedules; and Determining the most efficient use of personnel. The successful application of enhanced oil recovery techniques in all forms shares the need for information and continuous management to maximize the profitability of each field. Automation plays an important role in EOR because it removes the need for personnel to manage the

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entire field at all times. With storage and processing capacity no longer a factor for modern automation systems, optimization strategies can be applied as the data are retrieved from the field and adjustments made according to real-time changes. In order to be successful, an even greater emphasis has to be placed on those who have the expertise in applying advanced production optimization algorithms, rather than relying on office staff to review mountains of data to find anomalies. Accounting, Back-Office Issues There is a tremendous amount of waste in offices supporting oil and gas operations. Income, operating expenses, AFEs, and balance sheets frequently are managed using different software applications, requiring duplicate data entry to compare and integrate. Often these offices exist independently of the operational staff, which ultimately means there are barriers to accomplishing routine tasks. Jointventure scenarios complicate things further by requiring specific data to flow into a partners system in the expected format. Better, similar cloud-based processes are available now through which information can flow from one aspect of the business to the next, with auditing support at each step. Imagine how much time would be saved if an application was able to log an equipment failure in the field and automatically start the following workflow in response: Notify the field supervisor of the failure; Check inventory for available part; Order a new part with a vendor in the event that the part was unavailable; Create an expense line item for the part in an accounting application; Notify the field personnel when the part arrives; and Notify the field supervisor of part installation and well status once the issue is resolved, From a back-office perspective, the cloud enables all company documents, well logs, field notes and driller reports to be available at any time from a Webenabled device. Clearly, field personnel will require a greater amount of information to perform their jobs in the future. But large amounts of data are not helpful. Field personnel will require that the information be qualified, and if needed,
100% 90% 80% 70% Unit Share 60% 50% 40% 30% 20% 10% 0% 2008

Mobile OS

Personal Computer OS

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2011

2012

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As illustrated here, the adoption of mobile operating systems is increasing steadily, and mobile operating systems are expected to soon equal personal computer operating systems in terms of market share. The continued development of cloud computing solutions will only serve to accelerate this ongoing trend. Source: Gartner, December 2011.

the application should be able to direct users to the person who can assist them in real time. The seamless flow and accessibility of information eliminates the one-user, one-location restrictions of many legacy applications available today. Although data are potentially being pulled in from many different applications, databases and organizations, they need to be accessible from a companys back-office portal. Service And Support Companies With cloud computing, service companies can focus resources on their core businesses rather than their IT infrastructures, back-office applications, and accounting systems. These companies can operate with greater efficiency and better serve their customers. The benefits of the cloud span all service companies and are not limited to only technology-based organizations. Providers of equipment, knowledge and manpower can easily make use of the cloud to reduce overhead and streamline back-office processes. For example, as part of an overall strategy of energy savings, Baker Hughes Inc. is moving more of its enterprise toward cloud computing, resulting in reduced cost and waste in day-to-day operations. The standards in secure communication of information allow service companies to share information with their customers and their joint-venture and other industry partners. It allows them to build more value on other cloud services, such as a cloud-based production operation appli-

cation that ties in information from a supervisory control and data automation application to give operators the complete picture rather than a small window on what is happening in the field. It is in the interest of a provider of accounting software to provide seamless integration into production systems, because it will reduce the workload on office workers and the amount of data entry errors. We have witnessed an explosion of complementary midstream services and a greater need for gas analysis and processing because of the increased value of the natural gas liquids being developed in unconventional formations. The conditioning required for gas produced from some shale formations places an inherent bottleneck on these facilities, and in the event that a facility encounters a problem, an entire field may be compromised. Some downtime can be attributed to routine maintenance, but other delays may be linked to an issue with a single well that could be avoided if gas detection systems were in place and could share anomalies with processing facilities before they manifested themselves at the plant. As companies continue to move to the cloud, interconnected services will enable companies to share selected information and resources through the entire production life cycle to provide more preventative techniques for problems. Managing Changing Workforce Companies operating in the oil and gas industry today must empower their

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newest skilled workers by building decision-support systems using the wealth of hands-on experience that their retiring employees possess. Green workers being groomed to fill positions in fewer numbers can build on the knowledge of their predecessors, rather than simply trying to replace them. The generation gap in this industry is well known, and yet most companies in all stages of production have not created a solution to the problem. There is no silver bullet to replacing those with 30 years of oil field experience, but the cloud certainly offers part of the solution. The cloud solution would entail making a long-term decision to capture the wealth of knowledge from the current workforce before they retire and build a system around that data. First, it would be necessary to gather all the disparate, heterogeneous data scattered throughout the enterprise, field offices and desktop computers, and load them into large databases to make it useful. In most enterprises, this would require a great effort. Next comes translating realworld, hands-on experience from a companys workforce into usable and searchable information. The goal is to provide a system for the newest crop of skilled workers to access information in useful ways from their phones, PCs and threedimensional touch screen devices. Using cloud technology leads to innovation, because it allows entrepreneurs to spend less time on setting up and maintaining their hardware and software systems, and freeing them to focus instead on activities that add real value to the bottom line. The cloud facilitates opportunities for developing new oil and gas technology service firms, and is not limited to those with expertise in information technology, designing scalable solutions, or access to seismic and drilling data. New firms can build their services on the foundation of other cloud partners that already are providing them. r

SHAWN CUTTER

Shawn Cutter is president of Fielding Systems LLC, a certified Microsoft partner and provider of cloud-based automation programs, monitoring, field data capture and mobile software operating entirely on Windows Azure. The son of an Ohio-based oil and gas producer, Cutter has more than 10 years of industry experience. He holds a B.S. in management information systems from Miami University and numerous IT certifications.