Emerson deals for reservoir management firm

It’s all about automation, either on the plant floor or under the seabed. At least that is what Emerson Process Management thinks as it purchased Stavanger, Norway-based Roxar, a subsea reservoir management and production optimization company.

“Demand for oil and energy will continue to increase up to 45% by 2030,” said Steve Sonnenberg, president of Emerson, Monday during the OTC show in Houston. “With China and India, demand will continue to increase.”

In addition, Sonnenberg sees a big increase in offshore and subsea wells. “Time to first oil is key, and understanding the size of the reservoir is important,” Sonnenberg said. That is where Roxar comes in. They are able to understand and manage oil and gas reservoirs by adding subsea reservoir management and production optimization for exploration and production.

“This is about making predictive technology so users can make better decisions to manage reservoirs,” Sonnenberg said. “Process control is so important, so that is why it is important to get this right from the beginning.”

With oil companies, faster time to first oil means additional potential for more revenues.

“With Roxar coming in, we have the predictive intelligence all the way down to the reservoir,” said David Newman, director of E&P at Emerson.

For Roxar, which generated $200 million in revenues last year, the deal seems to be a continuation of the company’s culture.

“Their integration of data and decision-making tools agrees with what we do,” said Gunnar Hviding, president of Roxar. “We can leverage off [Emerson’s] Plant Web technology.”

“They bring us software and instruments we currently don’t have,” Sonnenberg said.

There is a trend, Sonnenberg said, toward bringing downstream process technology further upstream, and this is a perfect example. Other areas Sonnenberg said are starting to move upstream are predictive diagnostics and wireless technologies.

This deal is part of Emerson’s effort to create solutions that cover subsea oil and gas reservoirs to platforms and floating production to transmission and to refining and production of goods.

‑ Gregory Hale

Oil industry and economy unite in Houston

What a difference a year makes, with oil now hovering at just over $50 a barrel, the world in recession, and budgets cut to the bone, surely this year’s Offshore Technology Conference (OTC) in Houston would feel the affects.

And it did. By putting the size of OTC in perspective, the first day of this huge mega show felt the affects of a downward economy as aisles had show goers, but not as many.

“It’s not a real big surprise. A lot of people have been cutting back,” said Michelle Latham with 3M.

David Morgan of LTS Energy, a maker of high-pressure valves for the offshore market, agreed.

“At this point compared to last year it has been less active,” Morgan said. “With oil prices quite a bit lower, a lot of projects have been postponed or cancelled.”

“Prices of goods and services are not retreating as fast as the retreat in the price of the oil and gas we produce,” said Luc Messier, senior vice president at ConocoPhillips. “We therefore have to concentrate on the trimming of our projects to account for this. But, we are not reducing out total capital spending.”

“We have concentrated our workforce,” said Dominique de Soras with French oil and gas engineering company, Technip. “Operational level is the same and we have increased our engineering personnel 34%. We have increased our research and development expenditures.”

“Oil demand will go up over time, and the age of easy access to oil and gas are over,” said Matthias Bichsel, executive vice president at Shell Oil. “These ‘hard truths’ are the basis of Shell strategy. Our investment in technology continues as before, unabated. We are renegotiating contracts to offset present irregularities of the economy.”

While OTC is hardly a disaster (the number of attendees remains large), the amount of users coming to the show has cut down considerably.

“It’s not that we are losing customers, they are just not buying as much from us,” said Mike Blundell, with Scancon Encoders.

It is not all about this year either.

Jim Shettig, with Crowley Marine Services, isn’t worried about this year. His business cycle will most likely feel the effect next year.

With the delay in spending, “the recession is not affecting us right now, but it will next year.”

After years of rising prices and robust profits, the oil and gas sector is trying to adjust to vastly different market conditions. In the ongoing recession, people simply aren't using as much energy.

Even the world’s largest publicly traded oil company, Exxon Mobil, felt the economic pinch as it reported its lowest quarterly profits in nearly six years.

Exxon earned $4.55 billion in the first quarter, down 58% from $10.89 billion in the period last year.

Exxon, whose operations stretch from Nigeria to Siberia, managed to wring out bigger profits than any of its rivals because of its size and its cost controls.

Crude oil futures contracts traded in New York have averaged about $43 in the first quarter of this year, compared with nearly $100 a barrel in the first quarter of 2008.

Exxon said the drop in prices would not change its spending plans for the year. The company said it still expected to spend $29 billion this year to expand production and develop new projects.

ConocoPhillips’ profit for the quarter plunged 80%, to $840 million.

Royal Dutch Shell’s first-quarter profits dropped 62%. The company’s profit dropped to $3.49 billion from $9.08 billion. Stripping out $337 million of one-time gains as well as the price changes on unsold inventories, and Shell's earnings would have been $2.96 billion, compared to estimates of $2.55 billion.

The company sold oil for, on average, 54% less than it did in the same quarter last year. Gas prices dropped 15%. That will hurt profits. But the key word still remained: “Profits.”

Production slipped 3% to 3.32 million barrels of oil equivalent a day, with crude-oil production falling 7% and natural gas production steady.

Each of Shell's major divisions -- exploration and production, gas and power, oil sands, oil products, and chemicals -- saw either profit declines or losses.

Shell was not alone as UK-based BP felt the profit crunch.

As a result, the oil giant reduced its spending target for the year after first-quarter profit fell 64% on lower oil and natural gas prices.

BP’s profit was $2.56 billion, compared with $7.09 billion in the same period a year earlier. Lower oil prices prompted BP to reduce its capital expenditure target to less than $20 billion for the year from as much as $22 billion estimated in October.

Tony Hayward, BP’s chief executive, started a cost-cutting program intended to streamline operations and cope with the decline in demand as a result of the global recession. BP said it reduced costs by more than $1 billion in the quarter.

The average selling price for BP oil fell to $41 a barrel in the first quarter of this year from $91 a barrel in the first quarter of 2008, company officials said.

Chevron Corp., the second-largest U.S. oil company, posted net income that dropped 64% from a year ago. This was Chevron’s lowest quarterly earnings since 2003.

It wasn't all bad news at Chevron. Because it and other integrated oil companies must buy oil to make fuel for everything from planes to automobiles, lower crude prices actually helped lift earnings at its refining business, and its overall oil production increased from a year ago.

The San Ramon, Calif.-based company said net income for the first three months of 2009 amounted to $1.84 billion, compared with $5.17 billion in the quarter a year ago.

Chevron said total revenue fell 45% to $36.1 billion from $65.9 billion in last year's first quarter.

Chevron said income from its exploration and production operations fell 75% in the quarter to $1.27 billion. The U.S. hurt Chevron the most as earnings dropped from $1.6 billion a year ago to $21 million in the first three months of 2009.

Chevron's average sales price per barrel of crude oil and natural gas liquids fell 60% from a year ago to $36. Comparable natural gas prices fell 45%.

‑ Gregory Hale

Managing technology, innovation vital today

Research and development are two words that can mean great innovations, but also great costs.

In this day of global recession, an important way to run a business is to understand how to manage your technology, which could lead to greater innovations at companies. That was the topic of the Tuesday panel discussion entitled "Management of Technology" at OTC in Houston.

The financial crisis is a couple-of-years thing at the most," said Robert Armstrong, deputy director at the MIT Energy Initiative and the Chevron Professor of Chemistry at MIT. "It affects R&D because money is tight."

Armstrong pointed out technology development is a key element for the economy. The “role of technology development is the chief factor underlying economic growth," Armstrong said.

When talking about developing technology, Flavio de Moraes, wellhead manager at Petrobras, said that means innovation and bringing that down to an engineering exercise.

"Innovation only gains momentum when driven to implementation," he said.

He added his company looks to take steps toward innovation: Monitoring and foresight; technology strategy definition; portfolio management; R&D and engineering implementation.

The goal, he said, was to see what technology can do to better a company, industry, or country. He said the proper innovation can boost the amount of oil taken out of the ground.

"New technology will allow companies to recover over 3 trillion barrels of oil," de Moraes said. "To get there we have to keep the environment safe. We need to expand to limits. We need to find new frontiers."

Finding those new frontiers is what keeps Manuel Terranova, senior vice president of subsea product platform and commercial operations at GE-Vetcogray, involved with his team.

"Trends are pushing toward guaranteeing production of what you say you can produce, and that will mean more computational power," Terranova said. "I encourage our team to have the Robin Hood mentality. Leverage as much technology as you can from other businesses at GE."

But when it comes to innovation, there has to be an end result.

"There needs to be measurement and accountability of the people. We need to find out if they are doing what they said they should be doing," Terranova said. But on the other hand, sometimes things change. "Markets change, so you have to listen to your customers," he said.

"Reliable innovation is to make sure you have a commercially acceptable product at the end," he said.

Wafik Beydoun, manager of R&D and business development at Total, agreed innovation is the main driver for sustainable growth. "Technology innovation is a key to our business strategy," he said.

Sometimes, he said, you need to age an idea. "You need to nurture an idea. It needs to mature. You can't move too fast"

In the end, innovation comes down to a team approach. No one person will be able to act alone.

"We face major systemic challenges that need multi-disciplinary solutions," said Beverley Ronalds, group executive and chief of petroleum at Australia's CSIRO. "We encourage young and old scientists alike to work in that environment. We like to bring together common stakeholders and find the common-area sweet spot."

Francisco Ortigosa, director of geophysics at Repsol, agreed with Ronalds. He said some of the top factors to create innovation are the diversity of thinking and communication to people.

– Gregory Hale

Renewables important, but oil, gas strongest

There is no doubt there is a huge push for renewable energy cascading across the globe. Germany is pushing wind energy, and parts of the U.S. want solar energy to prevail, but if you listen to attendees at the Offshore Technical Conference (OTC) in Houston, while renewable energy is important and will continue to grow, oil and gas will be around for quite a while.

“There is no silver bullet,” said Karen Harbert, president and chief executive, U.S. Chamber of Commerce’s Institute for 21st Century Energy. “There is only silver buckshot.”

“Yes, we need wind and solar, but they will not be the only answer.”

Harbert said when it comes to alternatives, public education is important. “When it comes to energy, we can’t demonize energy entities. Oil will be and will remain the backbone of our economy for quite some time.”

“The renewable and alternative energy agenda is not going away,” said Gary Luquette, president Chevron North America Exploration and Production Co. “We need to engage the unfriendlies to find common ground.”

Renewable sources like wind, solar, and biofuels need to be developed, but they are not the only answer,” said Tim Cejka, president Exxon Mobil Exploration Co. “The world is not running out of energy resources.”

“Wind energy is popular, but not the answer. Natural gas and oil will remain effective,” said Larry Nichols, chairman and chief executive at Devon Energy.

Renewables are a part of the solution, said John Oyen, manager of business development for North America Oil and Gas at ABB. “You look at wind, solar, biomass, gasification; they will all play a part, but the free market will determine what is used.”

Everyone talks about renewable and they seem to think the technology will allow for a conversion right now.

There are “a lot of interesting things that will happen, but it will take longer than anyone thinks it will take,” Oyen said. “You have to keep everything moving along.

Even the ethanol market is growing in some parts of the world.”

“Brazil is in very good shape regarding ethanol,” said Nelson Narciso, director at ANP, the National Agency of Petroleum, Natural Gas and Biofuels. “We have been producing it since 1973. What I can tell you is the country is keeping its policy with ethanol, not only because of the price, but because of the environment. We are consuming more ethanol than gasoline.”

This discussion comes on the heels of President Obama unveiling steps to further his Administration’s commitment to advance biofuels research and commercialization. He signed a Presidential Directive establishing a Biofuels Interagency Working Group, announced additional Recovery Act funds for renewable fuel projects, and also announced his Administration’s notice of a Proposed Rulemaking on the Renewable Fuel Standard.

Meanwhile, a new survey released today finds oil and gas executives say mass production of renewable energy isn't likely before at least the middle of the next decade.

The survey by KPMG LLP comes amid President Obama's push for clean energy technology and millions in new investments in renewable energy.

Fifty-two percent of 382 petroleum industry executives surveyed said large-scale production of alternative energy sources won't be viable in the short term, at least not by 2015. Of those who believe such production is possible, 17% said the likely source is wind, 10% biodiesel, and 7% solar.

Participants included executives for major oil companies, independent exploration and production outfits, and other energy companies.

There's been a significant shift in perception over the front-runner in alternative energy. In a survey two years ago, 18% of executives said ethanol was the most likely renewable energy source for potential large-scale production, but it fell to 6% in the latest query.

– Gregory Hale