The Future of Offshore Drilling Could Be Unmanned

By Markets Fool.com

This articlewas written byOilprice.com,the leading provider of energy news in the world. Check out these other articles.

Continue Reading Below

The oil industry's next big innovation has largely been overshadowed by the collapse of oil prices. But this new technology promises to have a bigger long-term impact on the energy industry than any short-term production decisions made by OPEC. And this new technology might just change the face of employment for thousands of workers around the world too.

For a long time, offshore oil platforms have provided a good living for experienced workers in a variety of roles in the oil field. After taking into account rotation schedules, there are roughly 100-200 employees on an oil rig depending on a variety of factors. The average wage for these employees is approximately $50,000 per year. Putting these figures together, the average personnel cost for an offshore rig is $5 million to $10 million per year. For a well that produces about 2,500 barrels of oil a day, this personnel cost works out to the equivalent of $5-$10 per barrel of oil. Unsurprisingly, producers are eager to lower these costs in any way they can. And an emerging technology offers a sea change to the current status quo.

The new technology in question is the unmanned offshore oil platform. Building on decades of advances in robotics, offshore oil platforms look set to become one of the next industrial applications to replace workers with machinery. Driverless cars may be getting a lot more press, but in recent months there have been several announcements aboutmajor oil firmsadopting unmanned offshore platforms. This technology is already proven and has beenavailable for years, but it appears the current turmoil in energy markets may be driving the majors to adopt unmanned platforms as a cost-cutting measure. When times were good and oil prices were high, companies didn't feel much incentive to take actions that could prove unpopular with employees. But now companies are putting all options on the table.

There are several firms that have looked to develop technology that can reduce headcounts and costs inoil extraction. As the technology becomes more widely used, it is likely to become cheaper and this, in turn, will lead to still further adoption, creating a virtuous cycle in the industry. Over the long run, one by-product of this technology may be considerably lower employment levels in the oil extraction business. Just as robots appear to be gearing up to change the face of manufacturing in the U.S. andother industrialized nations,the energy industry will not be immune.

Continue Reading Below

What does this mean for the country as a whole? Employee costs are substantial for oil extraction, so any successful efforts to reduce headcount will also reduce production costs and enable more production at lower price levels. Five dollars to $10 a barrel in costs makes a big difference to the bottom line. This cost reduction is beneficial for all consumers. Similarly, any cost benefits that do not get passed on to consumers will buoy producer profits and help boost stock prices. Unfortunately, these benefits come at a cost.

Workers who once could earn a good living in the energy business may have to find other occupations. While society as a whole is better off when resources are produced more efficiently, that improvement is not free. The current trend toward unmanned offshore oil platforms does nothing to undermine that fundamental truth, and the industry will have to decide how to handle this truth.

The article The Future of Offshore Drilling Could Be Unmanned originally appeared on Fool.com.

By Michael McDonald of Oilprice.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.