Oil: Squeezing Out Every Drop

In Brunei, Shell has figured out how to extract rich but scattered depositsa technique it plans to roll out worldwide

After a 20-minute flight from the Sultanate of Brunei, the helicopter lands on a massive oil drilling platform in the rolling blue waters of the South China Sea. The noise from whining generators and spinning pipe is almost unbearable. On the slick deck, roughnecks in red coveralls wrestle to free up pipe stuck miles down the well hole in the field run by Royal Dutch Shell's (RDS ) local affiliate. "I have been drilling for 22 years, and this is the most challenging I've ever seen," says Peter Spencer, chief driller on the rig.

The project has presented plenty of challenges for Shell over the years. The oil giant discovered the field, called Champion West, back in 1975. With half a billion barrels of oil and gas, for years it was the largest undeveloped find for Brunei Shell Petroleum (BSP), the oil giant's 50-50 joint venture with the Brunei government. Champion West's rich deposits went untapped for nearly three decades because they're scattered in hundreds of small pockets more than two miles beneath the seabed, making them too expensive to drill. "This is one of the most complex geological structures in the world," says Brigitte Dale-Pine, Shell's project leader for Champion West.


After several failed attempts to open the field, Shell engineers in 2005 finally came up with an approach that the company says is the first of its kind. BSP is drilling "snake wells" that bore horizontally for miles below the seabed, twisting and turning with precision to hit computer-modeled targets just a few feet wide. BSP is now able to connect as many as a half-dozen pockets of oil with each of these snake wells. Then BSP installs so-called smart equipment—arrays of valves and sensors—in the wells, letting the company adjust the flow of oil from each reservoir remotely from computers onshore. If too much gas or water creeps into a section, engineers can close it down but keep the rest of the well pumping oil.

Today, Champion West is a model field for Shell and has become a prototype for its operations worldwide. Shell plans to introduce similar technology at about 20 sites around the world, including Oman, the North Sea, and Nigeria.

With the smart technology, the company expects to get double the oil that it would have recovered from Champion West had it used conventional methods. Each snake well does the work of three standard wells, which helps cut development costs by 15% or more. BSP is investing $1.5 billion to drill 20 wells that the company hopes will eventually produce the equivalent of more than 300 million barrels of oil. By running the wells remotely, BSP can reduce operating costs by some 20% and also limit the risks associated with keeping people on the platform offshore. "The technology that Shell is developing is critical for maximizing the value of their assets," says Judson L. Jacobs, a technology specialist at Cambridge Energy Research Associates.

The Brunei operation places Shell at the forefront of the industry's push to coax more crude out of existing fields. As the likes of Venezuela's Hugo Chávez and Russia's Vladimir Putin put the squeeze on multinational oil giants, Shell and its rivals are more interested than ever in getting every drop they can from their wells worldwide. And with prices at stratospheric levels, they've got the cash needed to experiment with technologies that will let them eke out more from current operations rather than looking for new sources of oil in ever more remote locations. It's "cheaper, more secure, and more manageable" to produce additional oil through innovation, says Richard G. Gordon, president of Gordon Energy Solutions, an Overland Park (Kan.)-based consultant.

Shell's warm relationship with Brunei has helped make the country a testing ground for these new technologies. The Anglo-Dutch company has been doing business in the enclave of 380,000 on Borneo's north coast since 1913. Every year, BSP Managing Director Grahaeme Henderson, a Shell veteran, and Malcolm Brinded, Shell's executive director for exploration and production, visit Sultan Hassanal Bolkiah to review the venture and ensure that relations stay smooth. BSP produces nearly all of Brunei's $6 billion in export earnings and is a major source of energy in the region. So the Sultan—a technology buff and a pilot who sometimes flies his own jumbo jet—is willing to help foot the bill for innovations needed to keep his fields pumping even as they age and output starts to tail off. That attitude "has made it good for us," says Peter E. Slaiby, who runs BSP's operations in the eastern portion of Brunei. "In a lot of countries people are risk-averse."

Shell's cooperation with the government makes it a major presence in Brunei. About 300 of BSP's 3,000 employees are expat engineers and geologists from Shell. They operate existing fields and plot assaults on new ones. Most of the expats live in a quiet compound on the edge of a rainforest, where enormous black hornbills perch in the trees, evil-tempered monitor lizards prowl the gardens hoping to make a meal of a household pet, and "nodding donkeys"—old-fashioned oil rigs—pump crude from a field near the tidy bungalows and apartments. There's even a soaring monument celebrating the billionth barrel of oil produced from that original field, called Seria, in 1991.


Developing the technologies used at Champion West hasn't always gone smoothly. Although engineers use sophisticated computer models to design the wells, they're miles long and twist and turn, straining the limits of the equipment. Sometimes the computer models don't accurately reflect what's really going on under the seabed. Recently a steel lining being threaded down a new well got hung up just 600 feet from the end. "The analogy I imagine is pushing a cooked spaghetti," says project leader Dale-Pine. Shell and its drilling subcontractor, Norway's Seadrill Ltd., had to seal the hole and bore a new one for almost three miles—a glitch likely to cost millions of dollars.

Overall, though, the new techniques are paying off. Champion West produces some 70,000 barrels of oil a day, about a third of BSP's output. And five of the eight wells already drilled at Champion West are BSP's leading producers. Thanks to the strong performance of the wells and high oil prices, Dale-Pine says the early capital costs of the project were paid off within a few months after production began in December, 2005. In such a complicated field, "you get ups and downs," she says. But as Shell prepares to deploy the technology worldwide, the company is betting that the lessons learned in Brunei will help it keep output going up while holding costs down.

By Stanley Reed

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