Advanced Technology: Oil's Way Forward Post-COVID-19

Q: What does QRI believe to be the main threat to the oil and gas industry from the oil price collapse and the impact of COVID-19?

A: Everybody is affected by the crisis and it would be unwise for anyone to say they know the outcome. Unquestionably, there is huge competition now to gain a large part of the global energy market. This is happening in response to the impact that the rise of the US shale market had on global prices. What has happened is a direct expression of that competition and what I perceive, compounded by the effects of COVID-19, is a huge market overreaction. I do not think a price of US$20-S$30 or lower, even in the midterm, is sustainable because the world needs energy. These prices are not sufficient to sustain the world’s energy demands, which are around 95-99MMb/d. A sustained price in this range would erode the global market’s ability to deliver this required volume. My own view is that the markets will self-correct and prices will return to a number above US$30.

What is happening with COVID-19 has a direct impact on the price of oil in terms of global demand and demand erosion, but I also think that with all countries working together and WHO leading the way, even this virus can eventually be managed. I do not want to underestimate the threat: it represents a huge threat to the global economy. But I am very glad that all countries are rallying together to manage the threat, and I am confident that over the next 60 to 180 days there will be sufficient answers to manage it. I am optimistic that with all the good will, all the effort and the benefits of modern technologies, both the COVID-19 problem and the associated challenges in the crude prices will be corrected.

Q: Do crises like COVID-19 push companies like PEMEX to use more advanced technologies that require capital, or do they rely on tried and tested conventional measures?

A: I am convinced that the industry at large, not only in Mexico, has entered a new phase of efficiency. To simply have the intention of becoming efficient is no longer accepted. Companies and people must try to be efficient. This manifests itself in two ways: capital efficiency and operational efficiency. Capital efficiency requires significant sophistication in looking at multitude alternatives to determine which is the most appropriate. This cannot be done with conventional, pedestrian methodologies. The power of AI, advanced analytics and machine learning are central to this. That is why old methods will continually fade from modern management decision-making. This applies specifically to PEMEX. I am encouraged to say that the response we are receiving from PEMEX is that the company is eager to embrace the new generation of techniques and the new methods of doing business.

Augmented AI is going to be the new norm in every area of a company’s operations. This adaption will help review all existing work processes and break them, if they are not already broken. This new age of extreme efficiency can only be realized not by optimizing current work processes, but by inventing new ways of working. If there is an analogy to make, it would be that what is needed in the oil and gas industry is similar to what SpaceX does in space exploration. SpaceX did not follow conventional methods. It came up with brand new designs for launching – and then landing – hundreds of satellites. This was not achieved through an optimization of previous working practices but as a completely new way of thinking. If oil and gas companies, including NOCs, want to be competitive, they must reassess their processes and start fresh without fear of making changes. With the power arriving through machine learning and augmented AI capabilities to all companies, this is a realistic situation.

Q: Could Mexico’s need to improve production quickly and limit its expenditure see the company become a trailblazer for these new technologies?

A: What is most exciting about Mexico is that it is very hungry for new ideas. PEMEX understands that the way it works is not good enough for tomorrow, and once this premise is accepted, there is little reason not to follow through with change. In many other parts of the world this is not the case, as companies are so committed to the processes they have always used with varying results. Telling a company that it must divorce itself from existing practices if it is to become hyper efficient, is therefore a difficult sell. Many IOCs have established systems of doing business and users and defenders of these existing legacy systems do not accept suggestions of change with open arms. In my personal experience, it is easier to introduce innovation within companies like PEMEX. It is not a coincidence that QRI has so much traction with PEMEX and its management regarding this next generation of capabilities, whether they be augmented AI and machine learning, natural language processing, advanced analytics or modern well management. QRI sees a huge acceptance of these new ideas from PEMEX than from other NOCs.

Q: Extreme efficiency and unconventional thinking led to the Permian Miracle. Could this happen for Mexico?

A: There is no doubt that our services can deliver enhanced performance on mature fields, conventional onshore fields or offshore fields in Mexico. But the question to consider is where PEMEX will receive the biggest return. That in itself requires a rigorous assessment of practices using augmented AI. The analysis that these tools enable can demonstrate to us the problems that can be pursued and improved upon and obtain the greatest advantage. These answers offer significant consequences for the capital efficiency of PEMEX. Certainly, QRI would be able to improve the OPEX and CAPEX of Cantarell, as well as the ultimate recovery levels, if requested. But would Cantarell be the optimum location for the application of these resources? We can only arrive at the answer by comparing all the other assets in PEMEX’s portfolio.

Q: What is the ultimate intention behind the “extreme efficiency” of QRI’s technologies?

A: The ultimate intention of the agreement is to provide increased efficiencies and heightened capital savings for clients. But two aspects of our technologies manifest themselves immediately. One is the speed of decision-making. This agreement is allowing us to introduce methods for increasing decision-making speeds beyond those ever seen in the industry before. We are moving a quantum level faster than any of our competitors.

But speed can be dangerous if not properly guided. Receiving false answers more quickly does not improve the performance of a company; it makes the company more dangerous from a CAPEX perspective. The second aspect of this is our ability to deliver much higher levels of accuracy alongside that extreme speed. For this reason, QRI’s tool is named SpeedWise. This is not an arbitrary name, but one that captures the company’s philosophy: rigorously vetted information delivered fast to the client. From a PEMEX perspective, this helps with considerations like capital programs. PEMEX will be safe knowing that the program it submits has been compared against thousands of comparative scenarios and that this one is the best option. Even just a few years ago this was not possible.

Q: How has QRI’s client portfolio changed within the last year and what is driving that change?

A: We have clients across the board. PEMEX is a major client, as are many of the other NOCs, some of which we have worked with for over a decade. QRI now has around 5MMboe/d under our influence. A good part of that comes from PEMEX.

Similarly, we are gaining a greater footprint in the US due to our success in unconventional fields. These fields are ideal for the tools we employ because of the data volumes that must be dealt with and the speed with which unconventional operators must make decisions.

While this is creating a favorable climate for QRI, this will now be balanced against the lower prices of oil. This can make companies more guarded when making decisions related to engineering services.

Q: Where does QRI consider Mexico’s main source of opportunity in terms of accessing undeveloped resources?

A: PEMEX has tremendous resources, both conventional and unconventional, to be accessed. While the unconventional resources are not known to the same degree as conventional, we can suppose they are large. However, a national wealth assessment would need to be carried out to confirm this. Among the supposed fields of opportunity would be Chicontepec, which is a huge resource base. It is clearly amenable to the new generation of technologies.

Some of the Mexican administration’s challenges over unconventionals are valid and environmental responsibility is absolutely essential to unconventional resource exploitation. Fracking is an effective tool and technology but it must be managed properly. With these new capabilities of analysis and engineering rigor, the handicaps associated with unconventionals can be overcome.

Mexico’s conventional resource potential is similarly large. Lately, especially in 4Q19 and 1Q20, there has been a stabilization and then reversal in PEMEX’s production. To increase this further, three more requirements must be met. First, additional capital is essential. Absent capital can never lead to the maintenance of production of eventual growth. The need to increase PEMEX’s capital expenditure is therefore paramount. Second, new technologies and new processes must be introduced, which would complement the introduction of new capital. Third, investment in people is necessary to continue this forward progress.

Q: How can technologies move the industry toward a greener future?

A: One important aspect that the industry is moving toward is green BTUs. As an industry, we cannot ignore global warming and the role that we have in reducing the effect of greenhouse gases. When speaking of capital efficiency, a dimension of the discussion must be concerned with environmental friendliness and the minimization of the impact from our activities on the globe.

Technologies must play a leading part in increasing production and increasing the industry’s green influence. This is vitally important for the industry’s future. Negative-emission technologies, such as afforestation, would promote the case for oil and gas companies.