Here’s a fact: new technology is at the heart of any industry’s advancement. And nowhere is this more obvious than in the notoriously wasteful oil industry.
The cost of an exploratory oil well can exceed $100m, but the hit rate is barely one in ten. Even when oil is located, an awful lot more money is left underground, with the average recovery rate around 50%.
To put this into perspective, consider the International Energy Agency’s finding that the recovery of an extra 5% from existing fields would deliver more than the entire oil reserves of Saudi Arabia.
So how has new technology benefited oil companies? Progress has certainly been made in the extraction of oil. Wells are drilled quicker than ever before, the drill bit can now travel in a horizontal direction, and rigs are being positioned in ever deeper water.
The flow of oil has been enhanced by a process known as ‘fracking’ – the fracturing of sub-surface rock – and sub-sea production modules take oil directly from the ocean bed to a waiting tanker. In another interesting development, oil is being extracted from sticky tar sands. And there is now talk of releasing this oil through the use of hydrocarbon-metabolising micro-organisms.
But while oil men are getting better at getting oil out of the ground, a big problem remains, and that is finding the stuff in the first place.
Edwin Drake and the first oil drill
In its early years the oil industry relied upon visualisation techniques, the most basic of which was simply finding oil seeps on the surface. In the mid-nineteenth century when lamps were lit with whale oil, the black oil that could be found lying in small puddles on the ground offered a convenient alternative.
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For a while though, nobody could work out how to get this oil out of the ground. That was until Edwin Drake came up with the idea of first driving a pipe into the ground (the modern day ‘casing’) and then drilling within it.
Drake managed to drill down to 70 feet and collected oil at the rate of 15 barrels a day. But this was not enough to make him rich and sadly he failed to patent the idea that kick-started the US oil industry.
Oil seeps, both on-shore and off-shore, are still vital clues to the presence of oil. But some 30 years after Drake’s breakthrough, pioneers led by Canadian geologists William Logan began to understand the connection between oil and geology.
Geological maps were drawn. In the 1920s this process was improved by the use of aerial photography. But an assessment of the land surface only got the oil industry so far. What oil men really wanted to discover was what lay under the surface. This led to a number of innovations.
Seismic reflection, originally used to locate submarines in World War One, was modified for oil discovery. In the 1920s, experts started to measure gravity and magnetic resonance. Oil and rock samples were taken away for analysis in laboratories. In 1927, the Schlumberger brothers (a physicist and an engineer) developed a way to use electrical resistivity to identify rock layers containing oil and water from within the borehole.
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After 1955, seismic measurement became even more sophisticated. Wireline logging, geochemistry and laboratory equipment and satellites came to be used to map the surface and the gravitational field. The process known as 3D seismic was followed by 4D, which tracks changes in 3D images over time.
These are all major sources of advancement in the ability of companies to find oil. But I am yet to mention biggest catalyst of all for hydrocarbon discovery: computing.
How the computer replaced the oil discovery ‘artist’
Today’s computers can take data from a range of different discovery techniques, put it together and quickly draw conclusions. The oil discoverer, once described as “the consummate artist who combines expertise, which imposes the necessary restraint, with a certain abandon that achieves the creative result” has been replaced by a panel of computers.
But innovations are still being made. In the penny share arena, Offshore Hydrocarbon Mapping (LSE:OHM) has developed a sounding technique called ‘controlled source electromagnetic imaging’.
In addition, Vialogy (LSE:VIY) has been using software originally developed at Nasa to better interpret seismic data. Meanwhile Corac (LSE: CRA) has been trying to persuade the gas industry to adopt its ‘downhole gas compressor’ that can enhance recovery from wells.
• This article was first published in Tom Bulford’s twice-weekly small-cap investment email
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