Categories
Data Science & Analytics Geology & Geoscience Passion for Change

Passion for Change: Diamondback Energy

with David Cannon, Senior Vice President of Geoscience and Technology at Diamondback Energy

The views expressed here are not the official views of Diamondback Energy, but those solely of the subject of this interview.

If you missed the first part in this series, you can find the start of our conversation here.

What do you see as some of the key technologies that are going to help you succeed in this price environment?

There’s a lot of very cost-intensive technologies out there. During good times in the oil and gas industry, people go out there and spend millions and millions of dollars collecting high-resolution data: microseismic surveys, wide azimuth seismic shoots, pilot holes, logs in the laterals, and so on. This data comes at an extremely high cost and can give you very detailed data from their collection, but during times such as these, they’re usually the first items cut, because they’re considered discretionary spending. To follow the theme from my first post, the social proof is no longer there. So during poor price environments, we must fall back upon our scientific understand and dust of our mental models to contextualize all that high-end data we collected during the good times.

Pilot projects, high-density data pad projects, a lot of those wellbore centric data collection efforts are really just that—wellbore centric. What does that tell us about a complex reservoir 2 miles away? It doesn’t really tell us much. It’s hard to take that high-resolution data in a very finite area and extrapolate that to other parts of the reservoir without knowing context. 

Geologists utilize many mental models. That’s what we do day in, day out. Sequence stratigraphy is a mental model. Structural geology concepts are mental models. Depositional environments are mental models, and we have to take all those data sources that we’ve collected and put them within that mental model. This is a key step in our progression toward data analytics and machine learning.

In data analytics and machine learning, the algorithms need context. You can’t just throw numbers into a black box and expect results to appear that make any physical sense, so you need to contextualize these things, that is where I’ve seen successes recently. Data science and machine learning are getting better with the contextualization. That has been my biggest issue with data science in the past. Very early on, it was very black boxy. You threw your data in the box, never to be seen again, then a result came out. Well, how did that work?

At Diamondback, we’re very curious about that workflow and critically interrogate whoever we partner with that provides these services. We want to see how it works. We want to be able to understand the entire process from data loading to result creation, because if we can’t explain it physically, then there’s no point acquiring it. It’s just a number, it’s just a result at that point, completely unknown with no uncertainty bounds whatsoever. How can I put any trust in that value if I don’t understand it? That’s where a lot of advancements have been had, and I think will continue to be had, in 2020 and beyond within this particular industry—pushing geologic contextualization within data science constructs.

What successes have you seen with data science or machine learning?

At Diamondback in particular, I think we’ve run the gamut. We’ve done some projects around machine learning early on, back in 2016. One of the questions we wanted to answer was: 

Here’s a whole mess of data on horizontal wells—gamma ray profiles, stimulation designs, post job reports, drilling data. Here’s all the geological information, what formation they’re in, all this other stuff. And basically, they smooshed it all together and they spit out a couple of answers for what drives production. Those two things? Better production werefrom wells that were toe up and had little undulation. So does the subsurface play a role at all in this? And when we were interrogating the provider on that, they said, we don’t have enough data”.

What does that mean? We gave them 300+ wells to utilize. But it turns out that’s not nearly enough data. We needed an order of magnitude more. In that particular example, what really enlightened us was the effect of data population. In order for an algorithm to properly learn through data, you need a ton of it.

If you don’t have a lot of data, the learning band that algorithm has is very, very narrow. You do not create an environment for that algorithm to adapt to new inputs, to outlier inputs. If you have a population of 200 wells and you have knowledge that 20 of them have outlier type production, that’s 10% of the population. Those outlier results start becoming part of the distribution. That’s a problem. 

One of the things we see as a success with our partnership with Petro.ai is proper contextualization of a data science project. Tapping into geoscience expertise to build better contextualization, in addition with more data, will result in better outputs. Outputs that we can trust in our business decisions of directing a multi-billion dollar capital budget. 

It seems like Diamondback has had success with data trades. Do you see that as a trend in the industry or is that sort of unique to what you guys are doing?

No one outside of the majors has the type or volume of data necessary to make a machine learning algorithm output results that are meaningful. The majors have thousands and thousands of wells, which is why they have whole departments dedicated to data science and machine learning for their own internal use. There’s a reason why, a lot of times, they don’t contract vendors because they have their own data scientists building the algorithms themselves and using them within the mental models at Exxon or Chevron. 

For people like us, we have to rely upon outside data sources, either through data trades or incorporating other means of information, and that’s one of the things we’ve been able to do very successfully, acting upon those data trades and squeeze a ton of value out of that data.

One of the justifications I’ve used with management teams for high-resolution data is how this expense can be scaled to how many trades I can make with the data. If it costs $1 million dollars to collect and analyze a core, it will theoretically cost $167,000 because I will trade this data for 5 others cores nearby with competitors. That in turn will allow us to gain more knowledge on our reservoirs without increasing capital cost. 

For our industry to continue to move forward as the preeminent source of energy, either stand alone or in conjunction with other sustainable energy sources, we all have to work together. Working with others with different perspectives keeps our innovative skills sharp. If you are insular, you fall into complacency. 

We have built a system that’s competitive through public trading of companies. We want to compete with Apache, Concho, and Pioneer, but the problem is, we’re all extracting the same commodity. It’s not like my oil is any different than Pioneer’s oil and it’s not like the end game for that particular barrel of oil is any different either. It’s still going to get refined into the same suite of products that we all use and enjoy in our modern society. 

We need to start combining our efforts to focus on more industry-friendly consortiums that allow us to share not just data, but share ideas. That’s really what it comes down to at the end of the day. If your rock is good, your production is good, full stop, but more efficient ways of extracting could potentially lift areas that maybe have marginal rock to make it economic. That is the power collaboration. We should all be working together to continue our ability to provide energy to our world to lift up the human experience.

Are there any good books or blogs you would recommend?

I’m a huge fan of social psychology; or the study of human interaction. Also, I am a fan of how human interaction and environmental interaction creates the basis for all cultures and social constructs. What are the things that you can that you can learn from interacting with humans that can provide a better basis of doing business with each other? There are a couple authors that I really enjoy reading books from. One is Yuval Noah Harari. He wrote one called Sapiens: A Brief History of Humankind. It’s a real interesting read about how our species evolved and got to the ‘top of the pyramid’. He’s written a few others. One of them is Homo Deus, which is about how our technological adaptation and our ability to communicate on a much grander scale now because of the proliferation of information. This has set into process an evolutionary change within humans that could be permanent. And as we move forward, he believes, this is the time where we may be able to classify ourselves as a species as something different from Homo sapiens in terms of our ability to coordinate with each other and how modern stimuli have changed us mentally and physically.

The other one I’m reading right now is 21 lessons for the 21st century. It’s a very good book. I’m about halfway through it right now. Lot of interesting topical things in there that contextualize modern issues.  The other author I really like is Malcolm Gladwell. He’s a journalist by profession, but he’s a fan of investigating how people interact and push ideas through society. He’s a firm believer of outliers, usually the very few within our society that push a majority of our advancements and ideas through society.

How would you describe Petro.ai?

Petro.ai provides a differential product that allows our company to have an edge on understanding what we’re doing in the subsurface and how we interact with it.

As we were selling this project internally, I think what differentiates you from other people, is the fact that, simply put, you provide the platform and access to expertise to allow us to thrive within your platform. And that is something that is differential. There’s a lot of people who push machine learning, who push their own platforms for being able to come to terms with how we interact with the subsurface, but it’s usually all project-based. They don’t give you the keys. It’s like an Uber. You have to call them and they show up and they pick you up, whereas you guys are selling us the car. We’re able to drive it ourselves, but then we go back to the dealership every so often: something’s wrong here and you help us fix it, but we still own the car at the end of the day. So that’s kind of how I view Petro.ai.

That’s the kind of partnership we want, as I said before, we want to understand. We want to be able to know where to fix the issue if something breaks down. That is important to us because it allows our organization to learn and adapt in the proper manner to new information. 

David Cannon has served as Senior Vice President of Geoscience and Technology since February 2019. Previously, he served as Vice President of Geoscience from April 2017 to February 2019, Exploration Manager from March 2015 to April 2017, and as a Senior Geologist since March 2014. Before joining Diamondback, Mr. Cannon served as a Senior Geologist for Newfield Exploration, from January 2013 to March 2014, where he assisted in exploration, assessment, and development of SCOOP/STACK properties in the Anadarko Basin. Prior to that, he held the position of District Geologist for Samson Resources, from August 2011 to January 2013, where he held a position in the Corporate Exploration Department assessing Rockies, Mid-Continent, and East Texas unconventional plays. He was recruited by ConocoPhillips in 2008, where he held various positions in exploration and development of Rockies and Bakken assets. Mr. Cannon received his BS Geology from the State University of New York, College at Brockport in 2005 and obtained his MS in Geoscience from Pennsylvania State University in 2008 with a focus on structural geology and rock mechanics.

Petro.ai uses AI and Machine Learning to empower domain experts, data scientists, and executives with instant information in the right context, energizing teams and transforming data into action. Partnerships with global leaders in cloud computing (AWS) and geoscience (Dr. Mark Zoback) allow Petro.ai to deliver differentiated technology and teams to Accelerate Discovery.

Categories
Data Science & Analytics Geology & Geoscience Passion for Change

Passion for Change: Diamondback Energy

with David Cannon, Senior Vice President of Geoscience and Technology at Diamondback Energy

The views expressed here are not the official views of Diamondback Energy, but those solely of the subject of this interview.

Tell us about your background and what you do now.

I’m the Senior Vice President of Geoscience and Technology at Diamondback. Mostly my purview is on the subsurface side—being able to better characterize and extract Diamondback’s resources in a cost-efficient manner.

I started out in the industry back in 2007, a geoscientist by trade and by formal education. I got my Master’s Degree at Penn State University in Structural Geology with a focus mostly on rock mechanics and fracture mechanics, so I’m one of those weird geologists that actually likes math.

In our industry history, geoscientists have always worn the mantle as being those who spend all the money without regard for economics, under the guise of pursuit for truth. As I moved into the oil and gas industry, I think I’ve always had an inherent businessmen’s mind, which resulted in marrying science and technology of the subsurface into sound business decisions.

I know there’s a lot of others that think this way, too. Can we marry the pursuit for data and truth in the subsurface with sound economic practice? We can do these things in a cost-efficient manner that not only allows us to succeed in terms of creating a business case for data collection or data manipulation— which is where I see players like Petro.ai being an integral part of—but that also allows us to get stakeholders in the process. 

Engineers tend to have an economic mindset:  what’s the most cost-effective practice to be able to maximize my return? And if you can sing along those same lines, I think that you can get a lot of buy-in on new technologies, a lot of buy-in on something that might be disruptive for your particular industry. That’s honestly the way all companies should approach it. 

We have to stop thinking that this is an antagonistic setting where the geologists have one way of thinking, engineers another, and the finance guys another. We all have to meld our thought processes together to be able to get the best outcomes.

Why do you have a passion for change in this industry?

Our industry should always have a passion for change.  The way I see it is we must always evolve, and if we do not evolve, our industry will perish. It’s borne out in the data. You see historical references to it all the time. 

One particular industry that has gone through a period of low innovation, and now feels the repercussions, is the coal industry; one of the preeminent sources of energy for the world from the 1800s through I think about the 1980s. Well, they got complacent. That complacency led to a slowdown in innovation around things like more efficient extraction techniques and more efficient, environmentally friendly conversion techniques. Are there ways to thermally alter coal in a way that can reduce the amount of greenhouse gases and reduce the amount of pollution that is released into our environment? I just don’t think they were ever ahead on that respect. 

They always reacted whenever new regulations came out or whenever there was social pressure. Only then would the coal industry react, and they usually reacted in a very minimal way, just enough to get by. They were on top. Coal would reign forever. Why would they have to change? 

Technology evolves as new social pressures and new paradigm shifts occur throughout our human society. Other alternative sources for that energy started to come to the forefront, and I think the biggest displacement technology we see now is just switching over to natural gas. It’s simple, right? 

You can take a coal plant and convert it to a natural gas plant relatively easily, and with the advent of horizontal drilling and hydraulic stimulation in our industry, this resulted in an oversupply of natural gas. That fuel source became extremely cheap, so all the utilities that ran these coal fire plants saw an opportunity to behave in a much more efficient manner. At the same time, gas was able to better answer the calls for change from environmentalists and from general social pressure around pollution. So, they made the switch. 

More and more coal plants are continuing to switch to natural gas even today, and the market share of coal continues to slide. They are no longer the number one producer of electricity in the world. They’ve been displaced and they will continue to be displaced. The only reason why they were displaced isn’t really because natural gas is just better. It’s because they stopped innovating. They stopped seeing where they fit within the future and seeing how they can adapt to that new reality. And that is a problem that a lot of industries have, and that’s something I’m passionate about with our industry, as I can see us traveling down that same road really easily. 

If we continue to be complacent about where we fall within the energy industry and overall giving energy to the human population, we can easily be displaced if we’re not thinking about new technologies. 

There’s some research that’s being done now with the Earth and Mineral Sciences Department at Penn State in conjunction with private industry in Appalachia, looking at ways to take natural gas methane streams and thermally alter them with microwave plasma. The process breaks down methane and converts it into molecular hydrogen, for hydrogen fuel cell technologies, and graphene for structural additives to steel and concrete. So, they’re thinking about how our industry, the hydrocarbon industry, can be a part of the solution of renewable energy.

It’s not an or statement. It’s an and statement. And that’s one of the things that I’m passionate about is that our industry can be a part of that solution. We just have hurdles, and it’s mostly philosophical hurdles, of people saying, “we’ve always done it this way. We’ve always provided energy this way. This is how we’re going to do it.”

That is the mentality that kills you. That’s exactly what happened to the coal industry in the 60s and the 70s, and they refused to change because of that mindset. They basically said, “where else will you get your energy?” Well, they found out where else the world could get their energy. So, we can’t stand by and let that happen. It will be the death knell of our industry if we don’t find ways to couple into the new research around providing energy in a more sustainable way to the world.

It’s a full cycle problem. It’s not just extraction. Extraction is one part of the problem. It’s also taking that product, then converting it to the energy that’s consumable for whoever your consumer base is. That’s one of the things that I think we have an issue with is that we’re always really decoupled in that.

The independent E&P companies, they’re just worried about extraction and production, right? Once they sell the product, you’ve ended the value proposition. End of story. Move on to the next barrel. But some of the engineering, some of the science, some of the application of technologies that we’re using in the extraction realm could also help on the consumption realm, because at the end of the day, the physics, chemistry, biology that we use on a daily basis wraps up into the work done to convert that resource to energy. 

Are we going to completely focus on the science of resource conversion? No, because we have our business models that state that we have to extract this resource. But are there ways that we can bring ideas to the forefront that we could change the game on how those resources are then used? Yes, and we as extraction companies should be part of that research and ultimately that solution.

In 2015 and 2016, the downturn gave rise to this digital transformation in oil and gas. How do you see this 2020 downturn affecting things?

I always fall back upon is the diffusion of innovation. It’s a concept that was actually written back in the early 60s talking about how technology or even an idea, moves through and is adopted by a population. It’s an elegant construct really.

When a particular idea or technology starts, you have the innovators, the ones who are creating that process, the ones who are getting the bloody nose because they’re the first ones through the wall. Then you have early adopters, folks who say, “That’s a really cool idea. I want to adopt it and potentially make it better. Let’s push this technology forward.”

One perfect example is Elon Musk. Plug-in electric vehicles have been around since the 1960s. They actually made functional models of plug-in electric vehicles back then, so what he’s been able to deliver with the Tesla vehicle is nothing new. He was an early adopter of that technology. We have better complementary technology around battery tech and energy efficiency to increase range and operate more technologically advanced vehicles. So, he’s an early adopter. I wouldn’t consider him an innovator. 

Then once you go past the early adopter phase, you have what’s called the technological chasm. It’s at that point where the technology has to reach some sort of social proof, and social proof can be defined by anything, depending on the social system that you’re trying to push an innovation or an idea through. That social proof can change and vary, dependent upon the answer and solution that technology is trying to address. 

To continue with the example of electric vehicles, it’s usually cost and value. A middle-class family of four in Iowa wants not only a vehicle that has a long-extended range, which Tesla has, but they also want a vehicle that has a low cost. When that family buys a Toyota Camry for $30,000, they get the benefits of long range and value. This is why the Tesla Model S hasn’t jumped the chasm, because that vast consumer base, middle-class America, cannot couple range AND value. That’s why electric vehicles have not jumped the chasm, because right now they have not attained the social proof of value.

In our industry, oil and gas, the social proof for technological innovation is also monetary. It’s essentially the price of oil. If the price of oil drops below a certain threshold level a lot of technological advancements can’t jump the chasm to get more adaptation through our industry. 

What we do, what we spend money on, is inherently tied to the price of the product we sell. How much money we make, how much revenue we make on a quarter over quarter basis, year over year basis, is going to be our war chest to be able to go out and spend dollars on innovation and potentially be more efficient. 

During times like 2015, 2016, and also today, are times where the social proof concept falls apart for our industry, and a lot of innovations fall backwards in that curve. They no longer have social proof, and people start to drop that technology because it’s no longer viable within that social proof context.

The interesting part about that entire thesis from E.M. Rogers around technological adaptations is when you have something that falls out of social acceptance, something else replaces it. There’s always something waiting in the wings to get social proof in times like this. The constant struggle with competing technologies as social proof shifts and changes with time causes a very stilted technological history within our industry. When times are good, we focus innovation on subsurface assessment. When times are poor, we focus innovation on operational efficiency.  

Things like data science and machine learning met social proof in 2015 and 2016, as they were disruptors on the efficiency side. Then as things started getting better, there was a stasis, a plateauing of data science. There wasn’t this huge rush of, “Let’s keep pushing the paradigm and pushing the technology for our industry.” Instead, we fell into, “Well, this works, let’s just keep using it.” I predict we will see another creaming event for those technologies in 2020 and beyond, because I think the learnings that were acquired in 2015 and 2016 are going to be brought back up to the forefront and the value propositions are going to be shown again. Then there’s going to be more people paying attention to the technology. In turn, that attention is then going to continue to evolve it, and that evolution then keeps that technology moving forward and doesn’t allow it to get complacent and lag like the coal industry did.

The conversation continues here.

David Cannon has served as Senior Vice President of Geoscience and Technology since February 2019. Previously, he served as Vice President of Geoscience from April 2017 to February 2019, Exploration Manager from March 2015 to April 2017, and as a Senior Geologist since March 2014. Before joining Diamondback, Mr. Cannon served as a Senior Geologist for Newfield Exploration, from January 2013 to March 2014, where he assisted in exploration, assessment, and development of SCOOP/STACK properties in the Anadarko Basin. Prior to that, he held the position of District Geologist for Samson Resources, from August 2011 to January 2013, where he held a position in the Corporate Exploration Department assessing Rockies, Mid-Continent, and East Texas unconventional plays. He was recruited by ConocoPhillips in 2008, where he held various positions in exploration and development of Rockies and Bakken assets. Mr. Cannon received his BS Geology from the State University of New York, College at Brockport in 2005 and obtained his MS in Geoscience from Pennsylvania State University in 2008 with a focus on structural geology and rock mechanics.
Categories
Drilling & Completions Passion for Change Reservoir Engineering

Passion for Change: Bonanza Creek Energy

with Kyle Gorynski, Director Reservoir Characterization and Exploration at Bonanza Creek Energy 

Tell us about your background and what you do now.

I’m from Kansas and got my Bachelor’s and Master’s degrees in Geoscience at University of Kansas, then moved straight out to Denver. Spent the first seven years of my career with Ovintiv, which was previously Encana, and had various roles, starting with mainly geology functions, and eventually working as a manager. I’ve always been interested in the technical side of the industry and novel approaches to petrophysics, geomechanics, and reservoir mapping, and how new data and new analyses can drive decision-making. It’s important that our decisions are driven through science and statistics and less through drillbit and opinion alone. I joined Bonanza Creek about a year and a half ago.

I’m the Director of Reservoir Characterization and Exploration. This role has two primary functions. One is an asset development function and the other is Business Development/Exploration. Asset development is the value optimization of our asset to maximize on key economic metrics by: 

  • understanding the subsurface to determine baseline performance
  • understanding key engineering drivers that impact performance 
  • applying those insights to modify things in real-time like spacing, stacking, completion design, well flowback etc.

At Bonanza Creek, one of the things our CEO Eric Greager likes to say is, “We’re unique because we have the agility of a small company, with the technical sophistication of a larger enterprise.” 

This allows us to respond to things that are changing quite rapidly, from the costs of goods and services to our own evolving understanding of the reservoir. By rapidly adapting, we’re able to maximize value and economic return.

That’s the main piece. The other part of the role is the exploration and business development function. We apply the same principles I just described to other assets inside and outside our basin and work with the greater operations and finance groups to determine an asset’s current value and what its potential future value could be.

How do you incorporate technology into your approach?

Technology is applied everywhere we possibly can. We have powerful technically savvy people who can develop tools and use tools to guide all our decision making. 

That’s where Petro.ai comes in. We need help building additional tools to make real-time decisions. That’s going to help us stay lean and agile but also make sure we have the right information to be making the most informed decisions. It comes down to the right data and the right people.

We need the ability to make decisions at multiple levels within an organization, so decisions can be made quickly without a top-down approach but with a high level of trust. We need to make sure the technical work is vetted and have a culture of best practices built-in for engineering and geoscience evaluation so we can have a lot of trust in our workflows. When that expertise is already built into tools—a lot of the equations, the input, the math—that helps us have trust in the inputs as well as the outputs and allows us to make those quick decisions.

How do you define real-time?

Our ultimate goal on the completions side is to be making real-time changes while we’re pumping – so minute by minute. That’s what motivated the project we have going with Petro.ai, to start turning knobs during the job, making sure the reservoir is sufficiently stimulated and not over capitalized. 

Let’s say we have sixteen wells per section permitted, but all of a sudden commodity prices drop and it’s at forty bucks, so we’ll only drill eight of those wells. Once those eight wells are in the ground, you’re stuck with that decision. Then maybe commodity prices go up, and we get a good price on sand or water, then we rerun the economics and what the type curves look like. Then we’ll make a new decision, for example, on the amount of sand or water or what the size of our stages are. 

We are making really quick decisions in terms of completions on a well-by-well basis. As price fluctuates and we’re teetering on the edge of break-even, we have to be real flexible in terms of trying to maximize the economics. 

Our next step with Petro.ai is using our 3D seismic data, well architecture, geosteering, and drilling data to understand what kind of rock we’re actually treating to make sure we’re putting a specific design for that specific formation, and we’re also reading the rock at the same time. We’re taking that information, which is mainly pressure response during the job, and trying to learn from that live.

Why do you have a passion for change in this industry?

I’m passionate about understanding the subsurface and the whole E&P industry and our evolving understanding of unconventionals. I’ve always been passionate about the big picture, trying to zoom out and understand how everything interconnects.

Change is a reality. It’s unavoidable. The pace of change and the path you take differs between organizations. The industry as a whole has been incredibly slow to adopt change. We’re now on the verge of a large extinction event. The E&P companies that remain will be in a better position to thrive once this is all over.

Unfortunately, something even as simple as generating a return on your investments has eluded many companies. For these companies, it is often the stubborn top-down culture that has resisted change and is their greatest detriment. It’s an exciting and scary time today. However, these events allow the best to survive and force others to adapt and change – for the better. 

Investments on a single well can be aprox. 6 to 10 million dollars for a 2-mile lateral in the U.S.. Investments on learning are 10s to 100s of thousands of dollars for an entire year. There’s a lot of capital destruction that could have been avoided by doing homework, collecting data, doing analysis, and connecting the dots from math to modeling to statistics all the way to a barrel of oil.

Science often ends up in a folder. It takes good leadership, management, and technical work to ensure that you’re making decisions with all your data and information. The point is to make better decisions and to make better wells. 

The conversation continues here.

Kyle Gorynski is currently Director of Reservoir Characterization and Exploration at Bonanza Creek Energy.  Kyle previously worked at Ovintiv where he spent 7 years in various technical and leadership roles, most recently as the Manager of Reservoir Characterization for their Eagle Ford and Austin Chalk assets.  Although he is heavily involved on the technical side of subsurface engineering and geoscience, his primarily focus is on their practical applications in resource and business development . Kyle received his B.S. and M.S. in Geology from the University of Kansas in 2008 and 2011, respectively.