* Companies harness big data, hi-tech to boost shale profits
* BP's $10 bln BHP shale buyout reflects confidence insector
By Ernest Scheyder and Ron Bousso
LUFKIN, Texas/LONDON, July 30 (Reuters) - In the pineforests of eastern Texas, oilfield workers equipped withvirtual-reality goggles are helping BP's shale businessturn a profit for the first time.
Thousands of automated wells feed data on their performanceinto the firm's supercomputers each evening. If they show a needfor maintenance, an Uber-style system summons a subcontractedrepair firm to keep the shale wells flowing at optimal outputand minimal cost.
Such technology has helped slash BP's shale oil and naturalgas production costs by 34 percent over five years. The shalebusiness turned a profit for the first time in 2017, BP said,although the company declined to disclose the figure.
BP's progress in shale underpinned its $10.5 billionacquisition last week of BHP Billiton's U.S. shaleoperations. The deal highlighted BP's newfound confidence in asector that has challenged oil majors, which initially struggledto adjust to the quick pace and fast-evolving methods used totap shale with horizontal drilling and hydraulicfracturing.
BP and other majors that had traditionally focused on large,multi-year conventional drilling projects - such as Royal DutchShell and Chevron - were left behind when theshale boom took off a decade ago.
The British energy giant is now catching up with smallerrivals, using technology and its institutional knowledge fromglobal operations to push shale into a second phase that ithopes will reward its massive scale over the agility of smallercompetitors.
"We spent the last four years retooling our business andgetting ready for this opportunity," David Lawler, who headsBP's shale business, said in a call with analysts after the BHPdeal announcement. "We're at the lowest production costs we'veseen in many years. We'll take that model, put that to work onthese (BHP) assets and dramatically improve production andperformance."
BP faces other large rivals in the race to grow U.S. shaleproduction and profits, including Exxon Mobil Corp,Chevron, Shell and Norway's Equinor. All are expandingdrilling and acquisitions, particularly in the Permian Basin ofWest Texas and New Mexico, the largest U.S. oil field and thecenter of the shale revolution.
They aim to capitalize on the vast resources unearthed bynew drilling technologies, which also allow companies to startand stop production quickly in response to market shifts. That'sa key advantage over the long-term commitments of billions ofdollars required by offshore oil or liquefied natural gas (LNG)projects.
The BHP deal will transform BP into one of the world'sbiggest shale oil and gas producers. BP's total shale outputwill increase from 315,000 barrels of oil equivalent per day(boed) to more than 500,000 boed. Its reserves will jump 57percent to 12.7 billion barrels of oil equivalent.
BP's output of shale oil - which is worth more than naturalgas - is poised to rise from about 10,000 barrels of oil per day(bpd) to about 200,000 bpd by the middle of the next decade.
The deal, BP's first major acquisition in 20 years, alsomarked a watershed moment for the company in the United Statesas it looks to leave behind the $65 billion fallout from thedeadly 2010 explosion of its Deepwater Horizon rig in the U.S.Gulf of Mexico.
The BHP deal will also re-establish BP as a major player inthe Permian Basin. BP had sold all of its assets there to ApacheCorp in August 2010, right after the Gulf disaster.
UBER, POKEMON AND OIL
Today, BP operates more than 1,000 shale wells that producemostly natural gas in the Haynesville basin, which straddleseastern Texas, Arkansas and Louisiana.
It has used the data from its automated wells to create astreamlined system that farms out maintenance to a fleet oflower-cost contractors. The firm now orders up repairs much inthe same way a homeowner uses a mobile app to hire a maintenanceperson or a passenger summons an Uber for a ride.
BP puts repair work out for bid to pre-approved contractors,who then compete for jobs. Each contractor is rated aftercompleting the work, and those with high rankings have a betterchance of getting hired again.
"This means we're not hiring and firing staff all the timedepending on market conditions," said Brian Pugh, chiefoperating office of BP's shale division, which the companycreated as a stand-alone unit in 2015.
BP equips field staff and contractors with augmented realitygoggles to make repairs more efficient, modeling its methods inpart on "Pokemon Go," a popular video game where virtual imagesappear to be in real-world surroundings on the player's screen.
The field workers are connected through their headsets toBP's Houston offices, where experts can see and show staff howto perform repairs while they work.
BP has started to collect many of these fixes in a videolibrary so staff can call up videos, much like YouTube, to fixproblems themselves without expert consultation.
The company's algorithms crunch data compiled from its wellseach evening. Operators wake up each morning to a report tellingthem which wells may need repair, a task that once took hourseach day as workers drove from well to well in search ofproblems.
The systems, BP said, cut downtime for wells needing repairsby 50 percent, boosting production last year by 70 million cubicfeet of natural gas across its shale portfolio.
The technology provides a panoramic view into the ongoingneeds of the oilfield, said Kimberly Krieger, who overseas BP'sshale operations in eastern Texas.
"It's like looking into a crystal ball," Krieger said.
SLASHING COSTS, TURNING PROFITS
The firm's success in reducing costs reflects its ability tospend money automating its oil fields and overhaul workprocesses to drive down service and equipment costs. BP alsoseparated its shale business from the main company to allow thebusiness, now headquartered in Denver, to form its own culture.
"We're able to leverage the best parts of our globalbusiness to boost our shale operations," Pugh said. "Our smallershale rivals in the U.S. don't necessarily have that."
Other majors are shooting for the same results.
Exxon expects its shale operations to produce $5 billion inprofit by 2022, compared to a $2 billion loss in 2016.
Chevron expects 10 percent of its profit to come from thePermian by 2020 after it lost money there during the oildownturn of 2014 to 2016.
Shell forecasts that shale operations will make money forthe first time next year and cash flow will hit $1 billion by2020.
"We use our global size to our advantage when we negotiatewith suppliers." Greg Guidry, who recently retired as Shell'sshale boss, told Reuters in March. "Costs keep coming down."
(Reporting by Ernest Scheyder and Ron BoussoEditing by Brian Thevenot)
