CHAPTER II

ASSETS

Engr. Matthew Landicho

Contents
Asset Management

Factor affecting Asset Value

Life Cycle of Oil Assets

Evaluation of Upstream Assets

Cost of Assets in Oil and Gas

Industry
Asset Management
Asset Management

Effective asset management is important for the

success of oil and gas companies as it improves
efficiency, safety, and profitability. No matter
the level of expertise, it is essential to review the
fundamental principles of asset management.
Oil and Gas Asset Management
Oil and gas asset management refers to the
planned and organized method of extending the
lifespan of physical assets that are utilized in the
activities of oil and gas exploration, production,
transportation, and refinement. This strategic
method covers a variety of techniques,
procedures, and activities designed to enhance
the value, performance, and life of assets while
minimizing costs and risks.
Essential Principles of Asset
Management in the Oil and Gas
Industry
In essence, the management of oil and gas assets
includes the making of informed decisions
regarding the acquisition, operation, maintenance,
and disposal of these resources. A variety of
equipment, including drilling equipment, pipelines,
storage locations, and refineries, is employed in the
oil and gas industry. The goal is to ensure that these
resources are utilized, maintained, and monitored
throughout their lifecycle in order to be consistent
with the objectives of companies.
Key Components of a Successful
Oil and Gas Asset Management
System
Inventory of Assets
This comprehensive database must include all assets,
including information on their location, condition, and
performance.
Risk Management
Timely evaluation of risks associated with assets, such
as safety concerns, environmental impacts, or
regulatory compliance, is of utmost importance.
Key Components of a Successful
Oil and Gas Asset Management
System
Maintenance Management
Strategies for planned and predictive maintenance to
extend the life of assets and reduce interruption

Performance Monitoring
Continuous monitoring of asset performance metrics
to identify opportunities for improvement
Key Components of a Successful
Oil and Gas Asset Management
System
Predictive Data Analysis
Application of advanced data analysis to facilitate data-
driven decision-making and acquire a deeper
understanding of asset behavior
Collaboration
Cross-functional collaboration among engineering,
maintenance, operations, and other departments to
enhance asset management solutions
Different Types of Assets in
the Oil and Gas Industry
The oil and gas industry contains a diverse array
of assets, each of which is important for the
value chain. Typically, these assets are
categorized into three groups: upstream,
midstream, and downstream. In order to
effectively manage assets, it is essential to have
understanding of their roles and characteristics.
Upstream Assets
Drilling Rigs
Rigs are used to drill wells in order to extract oil and gas
reserves from the subsurface.

Wellhead Equipment
The control of the flow of oil and gas from the wells is
the responsibility of these equipment.

Production Platforms
These structures accommodate equipment for the extraction
and processing of oil and gas from sites located offshore.

Gathering Systems
Distributed system of pipelines that transport unprocessed
materials from wells to processing facilities
Midstream Assets
Pipelines
Intended for the transportation of oil and gas from
production locations to refineries and distribution hubs.

Storage Tanks
Facilities for the storage of oil and gas products prior
to their distribution

Compressor Stations
Used to maintain pressure in natural gas pipelines

Processing Plants
Facilities that extract and refine crude oil and gas into
commercially viable goods
Downstream Assets
Refineries
Processing facilities that convert oil into several petroleum
products, such as gasoline, diesel, and aviation fuel.

Petrochemical Plants
Facilities specializing in the production of chemical products
derived from oil and gas, including polymers and fertilizers.

Distribution Networks
Infrastructure consisting of pipes, trucks, and storage units
that transport processed goods to final consumers

Retail Outlets
Gas stations and other retail outlets that directly distribute
petroleum products to end users
Evolution of Oil and Gas Asset
Management
Technological innovations such as Computerized
Maintenance Management Systems (CMMS) and the Industrial
Internet of Things (IIoT) have revolutionized asset
management in the oil and gas industry. Using technology
such as digital twins, augmented reality, drones, and robotics,
these systems provide real-time status monitoring,
predictive maintenance, and asset optimization. In order to
maintain competitiveness, companies must use these
technologies to optimize productivity, minimize periods of
inactivity, and save costs associated with maintenance.
Developing an Oil and Gas Asset Management Plan

Establish objectives and scope, explicitly defining the goals

and assets included in the plan.

Undertake a comprehensive asset inventory, evaluating risks

and ranking assets according to their importance and
possible consequences of failure.

Create a combination of preventative, predictive, and reactive

maintenance approaches for each asset class, taking into
account variables such as importance, methods of failure, and
cost-benefit analysis.
Implement technological solutions, like Industrial Internet
of Things (IIoT) devices and Computerized Maintenance
Management Systems (CMMS), to automate data collecting,
analysis, and decision-making processes.
Benefits of Oil and Gas Asset
Management
The implementation of an asset management strategy
advantages companies by the optimization of asset performance,
mitigation of risks, and reduction of operating expenses.
Additionally, it guarantees safety and compliance with regulatory
standards, therefore safeguarding employees and the
environment. Effective asset management strategies enable oil
and gas companies to make decisions based on data, hence
optimizing resource allocation towards investments.
Consequently, this results in enhanced profitability and
competitiveness within the market. The implementation of an
asset management strategy is a smart financial decision and a
diligent approach to ensure long-term sustainability and
prosperity.
Key Challenges in Oil and Gas Asset Management

Safety and pipeline integrity

It is of utmost importance for maintaining the safety and
integrity of pipelines and key infrastructure. Instances of
leaks or malfunctions can result in severe accidents,
damage to the environment, and financial loss.
Regulatory compliance
The industry is governed by rigorous protocols for safety,
environmental preservation, and operational requirements.
Navigating compliance may be complex and difficult,
necessitating organizations to remain current with evolving
regulations.
Key Challenges in Oil and Gas Asset Management

Technological adaptation
With the rapid advancement of technology, organizations
are faced with the task of adjusting their asset management
strategies to include emerging technologies and systems,
such as Industrial Internet of Things (IIoT) devices, analytics
driven by artificial intelligence (AI), and digital twins.
Community and environmental impact
Industrial activities related to oil and gas can exert
significant impacts on nearby people and the natural
environment. Companies must actively and proactively
interact with stakeholders to tackle concerns and integrate
measures to reduce their environmental impact and improve
community relations.
Key Challenges in Oil and Gas Asset Management

Aging Infrastructure
A number of oil and gas assets have been operating for
many years, resulting in difficulties associated with
deteriorating infrastructure. More regular maintenance,
repairs, or replacements may be necessary for these assets
to guarantee reliability and performance, resulting in
increased costs and complexity in management.
Best practices for oil and gas asset management

Elevate maintenance
Implementing a comprehensive maintenance program that
includes preventive, predictive, and reactive methods
optimizes asset longevity, reduces inactivity, manages
maintenance expenses, and conserves resources.

Leverage technology
One crucial technique involves utilizing technology such as
Industrial Internet of Things (IIoT) devices and asset tracking
software. These technologies enable the monitoring of data
in real-time, improvement of decision-making processes,
and optimization of workflows, ultimately resulting in
enhanced productivity and reliability.
Best practices for oil and gas asset management

Pursue continuous improvement

To achieve long-term success, it is crucial to establish a
culture that emphasizes continual improvement. Foster
cross-functional cooperation, exchange of knowledge, and
generation of creativity among teams. Conduct periodic
evaluations of asset management procedures, key
performance indicators (KPIs), and optimal strategies to
pinpoint areas for improvement and adjust to evolving
industry requirements.
Factor Affecting
Assets Value
Supply and demand
Undoubtedly, oil continues to be the most popular asset
globally. Indeed, it is and will always be an accurate indicator
and trigger for economic well-being, given our reliance on it.

Supply directly influences the price of oil, and like any other
commodity, demand influences the price. The worldwide
demand for crude oil is on the order of around $91 million
barrels per day. Typically, the supply is maintained below
demanded levels by around 1 million barrels every day. The
crude oil and gas commodity prices directly influence the
extent of oilfield development and the ongoing construction
of new wells.
Oil quality
Price of oil is naturally influenced by its quality. Quality oil is
characterized by its compliance with environmental
standards and its ease of refining. The term "sweet crude" is
often used to refer to high-quality oil.

Sulfur concentration directly influences the level of

sweetness in an oil stream. Crude oil with less than 0.5%
sulfur is categorized as "sweet," but any sulfur level above
0.5% is considered "sour." Sour crude is renowned for its
elevated sulfur concentration, resulting in significant
release of hydrogen sulfide (H2S) that can cause severe
health issues or even be lethal.
Price fluctuations
The pricing of oil is subject to several effects, including
supply problems and weather conditions, which can either
lower or raise its existing price. The crucial factor is the
overall balanced price of oil. The stabilization of prices will
occur once oil achieves its normal supply and demand
levels. The process of price leveling will be influenced by the
specific concerns that led to the imbalance and the duration
required to resolve the situation.
Life Cycle of Oil Asset
Exploration (1 - 5 years)
Utilization of geological surveys to identify possibly
recoverable oil and gas reserves.

The government either seeks investment for its own

exploration or provides companies with access to explore
through direct negotiation or bidding procedures.
International companies may be granted concessions to
conduct exploration in a specific geographic region, and
contracts will be established to regulate the rights to any
discovered oil or gas resource. The duration of licenses and
permits differs depending on the country and by the
specific license or block. International companies may
engage in independent exploration or establish joint
ventures with two or more companies to jointly explore,
with one company designated as the operator.
Appraisal (4- 10 years)
Sites that have been identified as possibly containing viable
oil/gas reserves are further examined. Infrastructure may
be constructed to provide access to sites. Site drilling is
strategically scheduled and exploratory wells are drilled with
the aim of identifying and accurately mapping oil and gas
reserves.

In the absence of economically viable oil or gas, activities

will be stopped.
Development (4- 10 years)
The government contracts and permits may undergo
revision or renewal, thus preparing the location for
production. Initial infrastructure and site development will
be established during the exploratory and initial drilling
phase. However, during the field development phase, there
will be a major increase in activity, leading to the production
of the first oil/gas towards the conclusion of this phase.
Production (20- 50 years)
Oil and natural gas deposits are being extracted and
transported for the purpose of processing and distribution.
Given the inherent risk in any field regarding the amount of
oil/gas, it becomes challenging to forecast the production
volume, which will vary during this phase. The extraction
rate usually reaches its highest point and then gradually
decreases towards the end of the field's economic lifespan.
Closure (2- 10 years)
Once the extraction of remaining reserves becomes
uneconomical, the site is decommissioned and the
operating businesses usually assume the responsibility of
restoring the site to its original condition within acceptable
limits. Given the need for environmental monitoring, this
phase can span several decades.
Evaluation of
Upstream Assets
Evaluation of Upstream assets depend on:

Reservoir type (conventional or unconventional

reservoir)

Estimation of the amount of hydrocarbons

contained within the trap.

The costs of oil and gas extraction in the region,

topography, drilling location, and access to
facilities.

Geopolitics in the geographical area where the

asset is located and where the export of
hydrocarbons takes place.
Evaluation of Upstream assets depend on:

The field development plan and the development

concept.

An analysis of the effects of risks and

uncertainties on the volume, production plan,
challenges in hydrocarbon production, and the
viability of secondary hydrocarbon production.
Cost of Assets in Oil
and Gas Industry
Drilling Cost
Leases
The lease is subject to property research and
appropriate documentation, similar to the process used
for real state. In many cases, the incentive offered for a
mineral lease surpasses the true worth of the property.
The combination of legal expenses for property work
and lease bonus wells results in leasing costs exceeding
$1,000,000. The negotiation and finalization of leases
involving several mineral and land owners can take
several months, if not years.
Drilling Cost
Site Preparation
The overall duration of this operation is typically 2 to 3
weeks, but if major road work is required, it can take far
longer. Road construction and drilling site development
are significant cost components that can surpass
$400,000 per site.

Drilling
The cost is dependent upon the depth and intricacy of
the well operation. In the drilling phase alone, the
expenses for modern horizontal well drilling can readily
surpass $4,000,000. In the absence of drilling problems,
the drilling phase of these wells typically lasts around 3
weeks.
Drilling Cost
Rig Mobilization
Costs for rig mobilization and assembly vary based on
the distance the rig needs to be transported, but
typically range from $100,000 to $350,000. The process
normally takes 3-5 days.
Completion Cost
Casing
For a single well bore, a typical well will consist of
conductor, surface, intermediate, production casing,
and tubing, together spanning ten thousands of feet.
The cost of a horizontal well casing, pipe, and tubing can
easily exceed $750,000.

Well Stimulation
The most common type of stimulation is a process
known as Hydraulic Fracturing. The costs associated
with current fracturing methods can rapidly exceed
$3,000,000, depending upon the lateral length.
Completion Cost
Surface Equipment
The surface equipment footprint on a typical well covers
around one acre. The cost of surface equipment for a
single well might reach in excess of $750,000.

Pipelines
The cost is directly proportional to the required length
of the pipeline. Some instances of pipeline connection
can have a cost of $75,000, while in others it may
exceed $1,000,000.
Thank you!