Contributor: Rana Karimi
Imagine being a completions engineer at a remote West Texas well site performing a hydraulic fracturing operation. You’ve just run out of the frac sand needed to complete the job and you urgently need your supplier to deliver a new truckload. It costs $11,000 per hour for your well site to sit idle while awaiting replenishment. Meanwhile, your sand supplier, 150 miles away, has no way of monitoring demand at your wellsite. This frustrating situation is all too common; with the root cause stemming from a lack of industry-wide collaboration.
The inefficiencies in today’s sand order and delivery process lead to many pain points for oil and gas companies, oilfield and equipment services (OFES) providers, and sand suppliers in the upstream ecosystem. Most significantly, the poor visibility these upstream players have into each other’s demand needs and supply availability leads to reactive decision making and production delays.
Logistically, driver shortages, lack of technology maturity, and an owner-operator network model create challenges in securing adequate transportation capacity for operators engaged in direct-to-wellsite deliveries. Operationally, manual and paper-based processes for tracking shipments from the sand mine/terminal to the wellsite lead to significant processing times for validating and paying invoices. Meanwhile, the highly manual processes supporting freight invoice reconciliation result in erroneous and duplicate payments and significant rework. Across the board, a systemic lack of visibility prevents the seamless transmission of the critical supply and demand signals needed to plan accurately and avoid costly last-minute delays.
Benefits of blockchain in the sand value chain
Looking ahead, a collaborative blockchain platform can optimize the sand value chain and provide transparency to all parties involved in the transactions (see Figure 1). Blockchain allows for safer data sharing without the control of a central authority. With blockchain, supply and demand data are instantly shared with authorized players and integrated into operational plans, allowing for the higher utilization of resources and equipment. This platform will foster better collaboration, allowing companies to operate more proactively and safely.
Figure 1: A digital supply chain seamlessly integrates service providers and E&P companies in the ecosystem platform.
How does it work?
The process begins with the exploration and production (E&P) company sharing its drilling and production schedules with its OFES provider through a secure blockchain platform. Next, the OFES provider’s delivery schedule automatically updates, as sand supplier and logistics plans are put in place for materials to arrive on site at pre-agreed times. Using geolocation technology, sand delivery trucks are tracked in real-time and the logistics plan is updated should delays occur, enabling users to have real-time visibility into where sand delivery trucks are at any given point in time.
Upon arrival at the site, the sand is automatically inventoried and invoiced using geofence technology. OFES providers can invoice immediately following the sand delivery with the accurate freight rate and accessorial charges, enabling sand and truck vendors to be paid immediately. The frac crew can then perform the service, with the operation recorded on the blockchain. Well production performance data is recorded and fed into the data lake for analysis and, similarly, sand usage data is fed into planning systems to help improve forecasting in the future.
Towards a more collaborative approach
A more collaborative approach, where ecosystem players openly share data to make proactive decisions, can eliminate many industry-wide pain points. The reduction in invoice processing costs, combined with increased accuracy and timely invoicing, can help lead to cost savings of 3-5%*, due to fewer reconciliations, electronic verification, and reduced manual intervention. With blockchain, the sand value chain will reposition upstream suppliers and customers as data-driven, proactive decision makers; optimizing costs while delivering higher service quality.
* Based on Accenture analysis