In late 2013, Total (NYSE: TOT) launched a robotics innovation contest, soliciting entrants to develop robots within three years that could work on oil platforms. Total says that while robots are already in use underwater, there are no "surface" robots that work on platforms above water.
It sponsored the Autonomous Robot for Gas and Oil Sites (Argos) Challenge, a three-year challenge in partnership with France's National Research Agency. The five chosen teams (made up of a mix of private companies, universities, and research institutions) must build robots to compete in a series of simulations intended to mimic real-life oil operations.
The robot prototypes are tasked with moving around a platform, taking pressure readings, checking valves, identifying problems, collecting and analyzing data, and autonomously moving into a certain position in the event of an emergency.
Many of the companies in the competition have experience building robots for space exploration, but Total and other industry titans see an enormous opportunity with increased robotics and automation up and down the oil supply chain.
Automation and Robotics Could Cut Costs
Total's challenge focuses on safety, and it was initially conceived of at a time when oil prices were high. But the collapse in oil prices is pushing more companies into a frenzied cost-cutting mode, and robotics and automation are an obvious way to increase efficiency.
While oil and gas exploration is a capital-intensive…
In late 2013, Total (NYSE: TOT) launched a robotics innovation contest, soliciting entrants to develop robots within three years that could work on oil platforms. Total says that while robots are already in use underwater, there are no "surface" robots that work on platforms above water.
It sponsored the Autonomous Robot for Gas and Oil Sites (Argos) Challenge, a three-year challenge in partnership with France's National Research Agency. The five chosen teams (made up of a mix of private companies, universities, and research institutions) must build robots to compete in a series of simulations intended to mimic real-life oil operations.
The robot prototypes are tasked with moving around a platform, taking pressure readings, checking valves, identifying problems, collecting and analyzing data, and autonomously moving into a certain position in the event of an emergency.
Many of the companies in the competition have experience building robots for space exploration, but Total and other industry titans see an enormous opportunity with increased robotics and automation up and down the oil supply chain.
Automation and Robotics Could Cut Costs
Total's challenge focuses on safety, and it was initially conceived of at a time when oil prices were high. But the collapse in oil prices is pushing more companies into a frenzied cost-cutting mode, and robotics and automation are an obvious way to increase efficiency.
While oil and gas exploration is a capital-intensive industry, labor costs are still significant. With many employees receiving a six-figure salary, automation becomes attractive. Investors should keep an eye on oil companies transitioning much quicker to automation in their drilling operations, with robots taking over jobs that were once done by humans.
Take unmanned offshore platforms for example. Unmanned platforms have been used for some time now, but have not been particularly widespread. They are now becoming more attractive because of costs, especially for shallow water operations. Unlike larger conventional platforms, they are bare bones: They have no living quarters, and some do not even have helipads or life boats.
Unmanned platforms should be seen as sort of a competing alternative to subsea production systems, another mode of production that is becoming popular. After drilling an offshore well, operators can bring a field online in a variety of ways. Subsea production systems, where viable, can produce more oil and reduce the footprint of the operator by tying multiple wells to surface ship, while also processing oil and removing debris at the seafloor.
Unmanned platforms on the other hand, do the processing at the surface, but can do that without the need of personnel. This offers a cheaper option compared to subsea production. For example, Statoil (NYSE: STO) recently opted against more subsea production systems for an expansion at its Oseberg field.
"The alternative was to place the wells on the seabed, but the costs of subsea wells have been tripled during the last decade. We have therefore chosen a jacket-based unmanned wellhead platform that will reduce costs by several hundred million NOK," Anders Opedal, Statoil's senior vice president of projects, said in a February 2015 statement. While unmanned platforms have been used off the coast of Denmark and the Netherlands, they are largely a new concept in Norway.
In March 2015, a consortium led by Maersk Oil (CPH: Maersk-A), a Danish oil producer, started oil production at its Tyra Southeast-B unmanned platform, located about 200 kilometers off the coast of Denmark in the North Sea. It is a shallow water field that originally started production in 2002. The latest phase will allow the consortium to produce 50 million barrels of oil equivalent over 30 years. Maersk is the lead on the project with a 31.25 percent stake. Royal Dutch Shell (NYSE: RDS.A) has a 36.8 percent stake, Nordsofonden has a 20 percent stake, and Chevron (NYSE: CVX) controls the remaining 12 percent.
Onshore Automation
Automation is not just for offshore, but also onshore. And it is even spreading beyond the narrow drilling phase. In Canada's oil sands, automated trucks are also becoming commonplace. Komatsu Ltd. (TYO: 6301; OTCMKTS: KMTUY) won a five-year agreement with oil sands giant Suncor Energy (NYSE: SU) to provide "autonomous-ready" earthmoving trucks. Suncor has committed to purchasing 175 of these automated trucks so far, and by the end of the decade the oil sands producer expects to replace its entire trucking fleet with robotic versions.
Suncor's CFO sees huge cost-savings in the transition. "That will take 800 people off our site," CFO Alister Cowan said at an investor's conference in June. "At an average (salary) of $200,000 per person, you can see the savings we're going to get from an operations perspective." Suncor will see cost-savings, and Komatsu will see big-time business.
Moreover, some of Canada's top oil field services companies are offering autonomous onshore rigs for drilling. Ensign Energy (TSE: ESI) has a rig that can "walk" between wells autonomously. That allows it to drill one well and quickly move on to the next. Ensign claims that this allows for drilling to take place two to three times faster than a conventional rig. The cost-savings are two-fold - less time moving a rig into place, and less of a need for workers to move the rig. Precision Drilling (NYSE: PDS), another Canadian oil field services company, offers something similar.
Finally, oil companies are also turning to drones to conduct monitoring, environmental safety, and surveying. Drones could also lead to yet more automation. Instead of sending out a team to inspect a pipeline in a remote location, or assess the integrity of a cooling tower, drones can do that for you. Drones offer huge cost-savings in environmental safety and monitoring. In a previous report, we took a deeper look at drones, which you can find here.
Conclusion
The more automation and robotics become incorporated into drilling, the more drilling starts to resemble a manufacturing process in which oil production resembles an assembly line - automated equipment allows for standardization, quick operations, and repetition.
With unmanned platforms, automated drilling rigs, and automated trucks, oil production is quickly becoming a robotic operation. This has huge ramifications for employment, and job losses could be huge. That means even if oil prices rebound, the eliminated jobs may not be coming back.
But for investors looking for a return - either in the manufacturing of robotics and automated equipment, the drilling service companies using automated equipment, or in exploration and production companies deploying robotics to cut costs - the seismic shift towards automation in the coming years offers substantial opportunities.
And it is precisely because of low oil prices that the shift towards automation is starting to accelerate. Firms are desperate to shore up their balance sheet by cutting costs, hoping to survive in a world where oil trades between $50 and $60 per barrel.
Robots can help with that.