Oil Field 2.0: Innovators producing more oil with fewer employees

Joseph Dorn knew there had to be a better way. 

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In the early days of the Eagle Ford Shale boom in 2009, Dorn was operations manager for Black Creek Well Services LP, a San Antonio-based service company that built roads, drilling pads, pipelines, production equipment and storage tanks at oil and natural gas wells. In a process known in the industry as stick building, everything was done on site — measurements, design, cutting, welding and testing. 

"It was either 100 degrees-plus in the summer, raining or cold," Dorn said. "Weather was a factor but so were the logistics of moving equipment from point A to point B. Heaven forbid you forget a part and somebody or a vendor had to bring it out to you." 

Dorn and his business partners developed a modular concept where compressors, separators and flares could be made off-site, shipped via flatbed trailers and quickly assembled in the field.

Though Black Creek did not survive the downturn in crude oil prices, Dorn, John Ward and Joe Ward formed Texas Oilfield Fabrication & Pipeline LLC, or TOFP, in October 2016 and put the modular concept into full-time practice. Working in a central fabrication plant off Roosevelt Avenue, engineers use Google Earth, computer-aided design programs and 3D modeling to lay out how the equipment will look in the field. Shortly after being launched, TOFP quickly signed up Eagle Ford and Permian Basin clients. Seeing value in its concept, San Antonio-based energy holdings company Group 42 bought TOFP for an undisclosed price in May. 

"Everyone thought it was expensive," Dorn said. "We proved it was cost-effective." 

In the oil fields, automation and new processes are driving down costs, reducing project completion times and boosting per well production — with fewer people on a drilling pad. Improving efficiency and lowering per-barrel costs were the keys to remaining in business during the two-and-a-half-year drop in commodity price. Those improvements also mean that fewer people and less equipment are needed to produce the same amount, if not more, oil and natural gas.

Average crude oil production per drilling rig jumped from an average of 718 barrels per day in January 2015 to nearly 1,500 barrels per day in July. Average natural gas production per rig climbed from 2.1 million cubic feet per day to 5.5 million cubic feet per day during the same period, data from the Energy Information Administration shows.

The downturn also accelerated the growth of companies such as San Antonio-based WellAware, Austin-based IPSoft and Lubbock-based SitePro, which created devices and software that enable companies to monitor wells and pipelines remotely. 

Companies like Microsoft Corp. and Calgary-based Ambyint have taken that technology further by bringing artificial intelligence to the oil field. Capturing data every five milliseconds, artificial intelligence controllers made by Ambyint use machine learning software to take over monitoring and routine tasks normally done by engineers, lift technicians and production technicians. 

"We are effectively turning oil wells and gas wells into self-driving cars," Ambyint CEO Alex Robart told the Business Journal. 

With offices in Calgary, Houston and Midland, Ambyint's products are being used by Norwegian oil giant Equinor ASA (NYSE: EQNR) in the Bakken Shale of North Dakota, by six companies in the Permian Basin and by Sanchez Energy Corp. (NYSE: SN) in the Eagle Ford. 

“This is not replacing jobs,” Robart said. “We allow people to focus on higher value tasks. The reality of artificial intelligence is replacing tasks, not jobs. Engineers and technicians can now focus on better problems that machines are never good at.”

Some increases in oil and gas production can be attributed to smarter drilling and completion practices. Some exploration and production companies are now using the same rig to drill multiple wells on the same pad to save time and money. On the completions side of the business, service companies are now using more frac sand per well to boost production.

Active in both the Eagle Ford and Permian Basin, Canadian oil company Encana Corp. (NYSE: ECA) is trying another technique — drilling wells that target different geological formations closer together. In a oil industry practice known as stacking, Encana has been using neighboring wells to target the Eagle Ford and Austin Chalk geological layers on its leases in Karnes County. 

With the Austin Chalk resting directly above the Eagle Ford, Encana originally spaced its Austin Chalk wells 1,000 feet from its Eagle Ford wells. That distance has been cut in half with the expectation of increasing crude oil production. 

Encana reported a $151 million loss in the second quarter. During the company's earnings call, CEO Doug Suttles said the stacking projects and other ambitious growth plans will enable the company to generate free cash flow this year. To implement those plans, the company has pledged to keep two rigs operating in the Eagle Ford this year. With an average cost of $4.8 million to drill and complete a new Eagle Ford well, Encana has set aside up to $310 million for its South Texas operations this year. 

“We are carrying significant momentum into the second half of the year, and we continue to grow liquids volumes and cash flow,” Suttles said during the company’s call with investors. “We are very pleased with our results so far this year, but as always, we are working to make them better."

Oil field equipment makers trying to adapt to Trump steel tariffs

Like many in the oil industry, Mike Mullen has added an item to his morning routine — calling steel suppliers to check their inventories.

As fabrication business manager at Texas Oilfield Fabrication & Pipeline LLC's plant in south San Antonio, Mullen oversees production of the company's modular oil field equipment.

The 26 employees at Texas Oilfield Fabrication & Pipeline's Roosevelt Avenue plant make compressors, separators and flares that are mounted on skids and shipped on flatbed trailers to remote oil wells, where they can be assembled quickly in the field.

But with steel as its principal building material, the company and many others in the oil industry are trying to adapt to a 25 percent tariff on imported steel enacted by the Trump administration on June 1.

"We talk about the tariffs every day," Mullen told the Business Journal. "I talk to vendors every day. Some companies are stockpiling. They're buying surplus steel inventories."

Texas Oilfield Fabrication & Pipeline buys standard steel tanks made at Flozone Measurement Ltd.'s plant in the South Texas town of Odem. Valves, pipes and flanges that are added to them come from various vendors, while steel I-beams and other components come from the San Antonio office of Triple-S Steel Supply.

"We ask our customers if they want domestic steel or if they want foreign steel," Mullen said. "Right now, domestic is higher."

Triple-S keeps supplies of foreign and domestic steel. With I-beams sold on a per-foot basis and pipeline projects measured in miles, the national origin of steel can have a significant impact on a project's cost.

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"Some companies say no foreign steel, while others say no foreign steel from certain countries," Mullen said.

In the meantime, the tariffs have created other forms of volatility. Steel inventories at a supplier one day can be gone the next. And then there's prices.

"Vendors are [changing] prices up and down daily," Mullen said. "Before they were steady."

San Antonio-based energy holding company Group 42 bought Texas Oilfield Fabrication & Pipeline in May. Since then, the manufacturer has been branching into new sectors in the oil and natural gas industry and finding new customers outside Texas.

With customers such as BlackBrush Oil & Gas LP and EnerVest Ltd. in the Eagle Ford Shale and Apache Corp. and the EPIC Crude Oil Pipeline in the Permian Basin, Texas Oilfield Fabrication & Pipeline can still maintain improved purchasing power through volume.

And there are other ways to keep costs at bay. The company sells steel scraps from its Roosevelt Avenue plant to be recycled. And it is developing a leasing concept that will enable equipment to returned to the shop, where it can be cleaned, repurposed and shipped to a new location.

In the face of the tariffs, Texas Oilfield Fabrication & Pipeline Business Development Director Joseph Dorn has also made changes to company's customer contracts.

"Before, our prices were good for 30 days, and now we have had to cut that by more than half," Dorn said.

The company is not alone. A recent survey by the Federal Reserve Bank of Dallas shows that while manufacturing continues to expand in Texas, uncertainty and negative impacts from the tariffs remain sources of concern.

"We were able to increase our pricing due to tariffs on steel effective on June 1 but have purchased steel at the old pricing on most gauges through Sept. 30," one Dallas Fed survey participant wrote. "It seems like most volume steel users would have done the same. We are having a great year. Sales are up, and margins are up. We hope we have raised our prices enough to cover the higher-cost steel arriving in the fourth quarter."

Over the past few months, oil industry trade groups such as the Texas Oil & Gas Association, Texas Independent Producers & Royalty Owners Association and Texas Alliance of Energy Producers have issued statements and open letters condemning the tariffs. Texas Gov. Greg Abbott followed suit with an open letter arguing that imported steel and aluminum are vital to the oil and natural gas industry and the state's economy.

"If the new tariffs continue to drive up the cost of oil and gas production, America’s quest for global energy dominance could be significantly hindered," Abbott warned in his letter.

Group 42 Buys Texas Oilfield Fabrication & Pipeline

Group 42 Buys Texas Oilfield Fabrication & Pipeline

TOFP is now a subsidiary of San Antonio-based Group 42’s Well Flow Oilfield Services Holdings

SAN ANTONIO — Group 42 CEO Paul A. Bell announced today the addition of Texas Oilfield Fabrication & Pipeline (TOFP) to the Group 42 family of companies. The purchase by U.S. subsidiary Well Flow Oilfield Services Holdings adds pipeline and fabrication services to Group 42, expanding its footprint substantially in the U.S.

Group 42 is an energy-focused holding company based in San Antonio. Its subsidiaries include Well Flow International whose specialty chemicals and services support enterprise class producers in the Arabian Gulf, North Sea and West Africa, as well as North America.

Group 42’s purchase of TOFP is part of its long-term strategic plan and provides a platform to expand domestic operations to customers in North America. Group 42 intends for TOFP to be key to taking advantage of the more rapid recovery of the domestic energy sector by building a complete range of well site and pipeline construction services. Well Flow will continue to focus efforts on the sale of its specialty chemicals that have been provided to enterprise class and international energy exploration companies for more than 30 years.

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