1. Countering Industry Trends with Smart Drilling 2005 POSC Annual Meeting November 2, 2005 James W Bridges

2. 2 Overview Brief review of Industry Trends Countering Trends requires change Define “Smart Drilling” Three technologies that can make a difference Summary and conclusions

3. 3 Industry Trends - Energy Demand is Growing 70 MBOE/Day production gap by 2010 2.2% Annual oil demand increase by 2020 60% increase in total energy consumption by 2020 Source: Shell Technology Ventures

4. 4 Industry Trends - New Discoveries Are Harder to Find Size of new fields continues to decline This results in: –Shorter average field life –Less time to recover investment Source: Shell Technology Ventures

5. 5 There are no easy wells anymore! Photo courtesy of Texas Energy Museum

6. 6 Industry Trends - R&D Investments Have Steadily Declined Source: Herolds, Operator 10Ks and Annual Reports

7. 7 Industry Trends - E&P Innovation is Slow Compared to Other Industries Source: McKinsey & Co.

8. 8 Downsizing Has Drained Industry Experience Source: JSH Analysis, Shell

9. 9 Countering the Trends – Big Picture Change Attitudes, Emphasis and Spending on Technology

10. 10 Change Attitudes Mudman  Drillworks Diagnose –Baroid - $4.0 million –Joint Industry Project - $1.0 million –Knowledge from top drilling fluids experts in industry Technical Success Commercial Failure Reaction to Demonstration – “Hey, That’s what I do for a living – get out of here!”

11. 11 Smart Drilling Smart Drilling = Using Technology to Reduce Non Productive Time (NPT) and Increase Safety NPT Costs the industry $10+ B/year!

12. 12 Countering the Trends – Smart Drilling Three Technologies That Can Make a Difference: Centralized monitoring of drilling operations Convert Data to Knowledge with Specialized Databases Preserve knowledge with rule based expert systems

13. 13 Centralized monitoring of drilling operations WITSML is the key to make it work Monitor all wells being drilled – not just the high dollar, high visibility ones

14. 14 Centralized monitoring of drilling operations Real-time monitoring centers can be used for surveillance of multiple wells that are being drilled anywhere in the world to reduce costly problems and improve drilling operations.

15. 15 Convert Data to Knowledge with Specialized Databases Pore Pressure specialist at a major oil company Analysis of several hundred wells Results stored on server, hard drive, CDs and floppies Corporate investment of several million $ Retrieval and data management based on memory

16. 16 Select wells where total TVD is greater than or equal to 12000 ft and LOT equivalent mud weight is greater than or equal to 15.5 ppg and where the well penetrated salt

17. 17 Select wells where total TVD is greater than or equal to 20,000 ft and has the marker named Tex X and has a maximum pore pressure greater than or equal to 10,000 psi

18. 18 Preserve knowledge with rule based expert systems Drillworks Diagnose lives again! Rule based expert systems have their place Heuristic knowledge integral to several applications –Medical diagnosis –Credit underwriting –Scheduling applications –Smart manuals –Safety procedures

19. 19 Summary and Conclusions Trends in our industry are disturbing Big picture – a radical change in attitudes, emphasis and spending on technology is required Smart Drilling – reduce cost with technology Smart Drilling – centralized monitoring of drilling (WITSML) Smart Drilling – convert data to knowledge using specialized databases Smart Drilling – Utilize rule based expert systems for appropriate applications Status Quo = Trouble Ahead!