Upstream Texas - Spring/Summer 2017 - 4
TECHNOLOGICAL ADVANCEMENTS HELP
STIMULATE INDUSTRY GROWTH
DURING TIMES OF DOWNTURN
Allen Gilmer, Drillinginfo
CHAIRMAN - TEXAS INDEPENDENT PRODUCERS & ROYALTY OWNERS ASSOCIATION
GLOBAL SUPPLY AND DEMAND for
crude is in the midst of being structurally
shifted, thanks to one uniquely American
resource: unconventional oil. In wake of the
sustained low-price environment, we've
seen breakeven prices drop from what was
once $80 per barrel to the $50s, while at
the same time witnessing an increase of
short cycle production from unconventional
formations by nearly 100 percent. Three
overall factors have conspired to make the U.S. oil patch such a robust
ecosystem. The first, and most important, is the sadly discounted
(at least outside North America) capitalism/private ownership of
minerals combination. The second is the emergence, beginning in
the 1990s, of a professional class of oil and gas investor/lender
offering myriad flavors of project, asset, and corporate financing.
The last but most revolutionary factor feeding this trend is technology.
Let's talk about a combination of the first influence, capitalism, along
with the last factor... technology.
Years back, I gave a talk to a previous energy minister of Argentina. I
showed him and his staff five examples of plays in the U.S. that ramped
from a handful of rigs to more than 200 rigs in the course of a year due
to unconventionals. Given that there were several economists in the
room at the time, the little devil on my shoulder reminded them of the
fact that this happened despite government "help," and that it didn't
require the planning or direction of a single government economist.
It required rule of law, sanctity of a contract embedded therein, low
regulatory hurdles to start businesses and a bunch of people waving
cash around, and you have what amounts to pure magic in countries
with highly managed economies. Their response? "It can't happen
here." Pity, really, that control meant so much more than the actual
benefit of exploiting their world-class reserves.
This experience, and others, have made me really appreciate what
we have in the United States... an astounding myriad of solutions to
virtually every problem that might arise in the oil patch, because in
a free market, "problem" really means "opportunity." How valuable
has it been to the U.S. to have over 9,000 oil and gas producers? Over
10,000 oilfield service companies? This benefit has allowed our nation
to build out an operational infrastructure that is unmatched globally.
The economic minimum size of a field that can be exploited in the U.S.
is an order of magnitude smaller than it is elsewhere. Know what makes
this powerful? The log normal distribution of reserves. It's not linear. If
you can produce something half as small as the next guy, the population
of opportunities isn't twice as large. It's ten times as large. This is the
very unusual world we live in. A world where tens of thousands of
UPSTREAM TEXAS S P R I N G | S U M M E R 2 0 17
people are thinking about how to do something a little bit better opens
up opportunities that get magnified by the log normal rule of natural
populations. This is the key. Without this, we wouldn't have had the
field infrastructure, the gathering infrastructure and markets, the OFS
infrastructure that makes unconventional hydrocarbons possible. Our
American industry is built on the shoulders of free market capitalism.
The rest of the world literally cannot compete. It is a textbook example
of the power of distributed systems, each seeking to be a bit better
than the next guy.
As an industry, we have collectively increased average per well
production approximately 50 percent since 2013. Meanwhile, during that
same time frame, the cost of drilling, completing, and stimulating these
wells has dropped some 30-45 percent. This revolutionary benchmark is
in large part thanks to the evolving technologies that are being utilized
In recent times, the technologies that have caught my attention
have been smaller innovations with big results. For instance, diverter
agents. These are things or chemicals you pump to plug up the end
of the frac, forcing the frac to break in another direction. Cluster
fracing and diverter agents serve the common purpose of focusing
frac effort proximal to the wellbore. This change in focus AWAY from
Stimulated Rock Volume (SRV) to INTENSITY of Stimulated Rock
Volume (ISRV) is very significant. Commonly these wells produce at or
more than wells targeting much bigger volumes. This means that it is
that much more efficient at draining thy hydrocarbon in place, usually
as much as three to five times more capable. This, in turn, means
that the recoverable resources that can be economically targeted
should be that many times larger. If this is true, it's the biggest story
of the 21st century.
Other things we are seeing that create step change productivity
increases have been completion/stimulation method optimization as
determined by microseismic data. Microseismic has found its sweet
spot after years of over-promising and under-delivering when applied
to three or so laterals from a single pad and more or less normalized
acquisition geometries when comparing various methodologies initially.
Given that there isn't a "one-size-fits-all" solution to every sort of rock
type and condition, this needs to be done on an occasional basis during
Production optimization across the board has been a great island
of growth in the downturn, since analytics and better autonomous
measurement tools can add noteworthy cash flow improvements.
We are blessed to live in amazing times, to work with amazing
people, and to produce and monetize an amazing asset: the Texas and
U.S. oil patch.
Keep it turning to the right!