Upstream Texas - Fall/Winter 2017 - 6
TEXAS' UPSTREAM INDUSTRY
CONTINUES TO EVOLVE
Allen Gilmer, Drillinginfo
CHAIRMAN - TEXAS INDEPENDENT PRODUCERS & ROYALTY OWNERS ASSOCIATION
WITH NEW INNOVATIONS AND technologies constantly in
development, our country's upstream oil and gas industry is evolving
more and more quickly, driving a stake in the heart of the idea that we are
just a stagnant and dying dinosaur. In fact, the pace of advancement with
the upstream sector today far outstrips that seen with all other energy
industries. In our own version of Moore's Law, our performance per well
is doubling every 4-5 years in unconventional plays, leaving international
big investment/big reserve seekers flat-footed.
"Energy dominance" is the term President Trump has used to describe
today's energy strategy for our nation...supplanting the 45-year-old
"energy independence" soporific that had been fed to us by politicians
and policymakers alike who were tightly aligned only in the fact that they
had no clue how to achieve such a thing, much less even understand what
it meant in the first place.
Now, all that has changed, thanks to, frankly...YOU. America's
independent oil and gas producers - and more specifically, Texas
independent producers - continue to lead the way, grinding costs down
while improving results, achieving economic returns in what increasingly
looks to be a long-term, low-price environment.
So, many ask, what's next for our industry?
We have already established the resource base that can be converted
to reserves in the United States, and more precisely in the Permian
Basin, dwarf the reserve volumes of any other country today. This
means that whatever producers can do to permanently lower the cost
to drill/complete/stimulate wells will just add more "infinite" reserves
to our already massive volumes. Every cost component of a modern
unconventional well - from pressure pumping, to proppant, to fluids,
to drilling, to logging, to chemicals, to water treatment/disposal - has
substantial research and breakthroughs announced every week. The
bigger players are starting to look like the Major oil companies, bringing
in-house many of the tasks and responsibilities that have been ceded to
oilfield service companies over time. Having your own low-cost source of
proppant or fluid, or chemicals for instance, is becoming more common
place in order to squeeze every point of value out once these projects
get into the full-steam development phase.
Watch for more interesting "hybrid" plays that morph extremely riskreduced conventional drilling with using unconventional techniques. In
these formations, it all will come down to ROI. Does the dollar I am spending
return more than a dollar? When I was a producer, I myself tried to quantify
the real multiples for horizontal drilling as compared to vertical drilling.
The rule of thumb at that time was "it costs twice the vertical costs, and
makes triple the reserves." This logic though I must concede wasn't always
this best...I later realized it didn't really work that way at all. In reality,
some plays showed a cost three times or higher, and some offered up to
30 times as much production. Rarely could you find the so-called "magic
numbers" working, but when they did, wow!
While attending the recent Summer NAPE Expo in Houston this past
August, I noticed several of these "conventional sheep in unconventional
wolf's clothing," which could very well supply much higher returns
than that from the big resource plays you might see being targeted
today. While traditional oilfield PE has been scared of conventional
exploration investment opportunities for some time, there is a window
for exceptionally high returns in this class who choose to take advantage
of the traditional avoidance of such deals due to notion of old risks,
and not taking into account the new risk reduction that is in place
today. President Obama's 2012 JOBS Act also opened up the industry to
crowdsource funding online from non-accredited investors. This presents
an awesome opportunity to educate the 97 percent of the public that
this opens oil and gas investing to about the joys and benefits of U.S.
oil and gas production.
All in all, it is a great time to be alive. Keep it turning to the right,
We have already established the resource base that can be
converted to reserves in the United States, and more precisely in
the Permian Basin, dwarf the reserve volumes of any other country
today. This means that whatever producers can do to permanently
lower the cost to drill/complete/stimulate wells will just add more
"infinite" reserves to our already massive volumes.
UPSTREAM TEXAS F A L L | W I N T E R 2 0 17-2 0 18