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Big Oil, meet Big Data

jr ewing

Allen Gilmer says there's no feeling in the world like having an uncomfortable amount of money invested in a hole in the ground, waiting to see if any oil will squeak out.

Gilmer, a roughneck-turned-number-cruncher, speaks from experience. Fifteen years ago, he made a different sort of investment when he and fellow former wildcatters set out to build a company that would digitize and analyze the many geological and engineering data points that spew out of the oil patch.

He said he waded into a field dominated by Big Oil's big grip on information analytics, and found that thousands of U.S. independent oil producers - which he calls the mom-and-pop shops of the oil business - needed their own data clearinghouse.

Gilmer now is CEO of Austin-based Drillinginfo, which makes applications and databases for more than 3,000 oil companies that Gilmer says can wring money out of the most difficult rocks, with the right data set. The company is planning to consolidate and expand its office in Houston, home to many of its biggest clients.

Gilmer spoke with the Chronicle about what has changed in digital oil prospecting and the inevitable industry takeover by a more tech-savvy generation. Excerpts, condensed and edited for clarity:

Q: Tell me about the past decade: What can oil companies do with data that they couldn't do back then?

A: Our first killer app was used for things as simple as keeping up with what people are doing around their property: If someone drills a well next to a property and finds something, they've now "de-risked" the whole thing. Today, one of the things we're doing is putting in seismic data and, in real time, extracting where the unique spaces are that have the most porosity or where you have more hydrocarbons.

Q: What is the data telling us about shale plays?

A: What we found was the unconventional plays are very dynamic; there are so many variables that go into it. As the rock starts to decline, the bang for the buck goes down quite a bit. That's where you see a difference between the best, average and worst operators in any play. It's hard to do really badly in the best rocks, but the best operators produce 20 percent to 30 percent more than the average operator and two or three times more than the worst. Rocks can make one guy a fortune, and they can bankrupt another guy.

Q: What was Drillinginfo doing when the first shale plays emerged?

A: In the beginning, we were really trying to understand the shale plays that existed, to see if there were any general rules you could extract. When you hear some guys talk about how shale plays are illusory, the reason is they're taking every well that's ever been drilled by good and bad operators and averaging them together. But if 20 percent of those operators are extracting the highest amounts, it doesn't matter if the 80 percent below them aren't. Those assets are eventually going to end up in the hands of the better operators.

Q: Why aren't the big oil companies doing as well in the shale plays as the smaller operators?

A: These unconventional plays aren't the oil business. It's a mining business. You have to drill a whole big area, drill 10,000 wells, and you're going to have to bring it into an assembly line and start putting in efficiencies. That's a mining operation. The majors solve nearly intractable problems, like, how do you drill in 20,000 feet of water? How do you drill off the coast of Greenland? The major oil companies are the best in the world at taking on those kinds of space program problems. There's no competition out there for them. It's a completely different skill set.

Q: What's next?

A: We're moving away from the silos of land and geology, geophysics and engineering. There's a great crew change going on. The industry didn't hire anybody for 25 years, so now you have a whole lot of smart kids coming out of college, 30 and younger, and you have the 55-plus, and no one in between. The guy walking out of the Colorado School of Mines with a geophysics degree is far more knowledgeable about rock properties and all the things an engineer can act on than people coming out of college in my generation. We're going to be handing over to this next generation more undrilled proven locations than have ever existed before on earth. And they're going to have to do it with half the number of people. Technology has to be the binder to help these very smart people do the work.

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