|Dick Ghiselin • Houston|
Predicting what will happen in the oil and gas industry over the next six months or a year is proving to be just as difficult as predicting which college team will win a playoff berth, or who will win the next World Cup.
Leading in today's news and the biggest issue facing producers is the softness in the spot price of oil. How low will it go? How long will it last? What will it take to reverse the trend? Can companies continue to operate high-specification or high-risk projects while facing these unknowns?
The vaunted Keystone XL pipeline continues its role as the number one political football. If it passes and avoids a veto, what effect will it have on the supply chain? If it fails, will the Canadians lose patience and launch their "Plan B?"
Speaking of political footballs, what happened to the idea of letting the individual coastline states decide to permit exploration and drilling offshore from their coasts? That was a bone the administration threw to the industry a couple of years ago following a general moratorium that still affects Atlantic, Pacific, and some Gulf of Mexico coastlines. As for Alaska, noise about drilling in the Arctic National Wildlife Refuge (ANWR) has waned only to be substituted by a great hue and cry about Arctic offshore drilling.
Is OPEC the paper tiger it has recently been portrayed to be? Or can it exert control over production as it once did, flooding the market to drive prices down, or holding back to stop the bleeding? Is Russia still vulnerable to low oil prices as it once was?
As far as offshore is concerned, are price fluctuations influencing major decisions? If it takes 10 or more years from discovery of a field to first oil, do operators not set a benchmark price far below the short-term averages for planning purposes and ignore the fluctuations?
The steady parade of brand new high-specification floating drilling units continues apace. Most are rated to 12,000 ft (3,659 m) of water, and total measured drilling depths of more than 40,000 ft (12,195 m). This could herald very deep wells, or very long extended-reach wells, or some combination of the two. However, it is unlikely that any of these well construction projects would be launched under iffy market conditions. Interestingly, drilling contractors are coming up with ways to extend their market penetration without forking over mega-bucks for new rigs. TheNoble Jim Day, a 9000 Class Bingo semisubmersible has emerged from the Dalian shipyard in China where it was upgraded to 12,000-ft water depth capability. It will drill in the deepwater Gulf of Mexico for Shell, no doubt saving its owners, and possibly Shell, considerable money.
In the service and supply industry, the elephant in the room is the recently announced take-over of Baker Hughes by Halliburton. I am reminded of the saying, "When elephants dance, mice run." It is early days yet, and the proposed acquisition has lots of hurdles to leap. Nevertheless, in view of the obvious economic benefits, the acquisition could be the harbinger of other cost-cutting initiatives by large and small service and supply providers as well.
It is obvious that the decline of crude oil prices has filtered down to the gas pumps. A sharp decline in cost of energy for fossil fuel consumers might affect the renewable energy market. Since consumers are more sensitive to costs than anything, perhaps some might forgo their purchase of an electric car or the conversion of a truck fleet to natural gas.
At the moment, there are more questions than answers facing the oil and gas industry. Macro challenges demand macro solutions. The extent to which today's falling prices will affect the way the industry adapts to the future is anyone's guess. We have weathered price decline storms many times in the past. In almost every case, the answer has been to cut costs by boosting efficiency, and to that extent, technology has emerged as the hero.
Exploration technology has enabled us to image beneath the ubiquitous salt layers in many of the world's offshore basins. Drilling technology has enabled effectively and precisely extending a wellbore to its targeted reservoir more than 7 mi (11 km) from the surface location. Modern drill bits are now able to drill entire wellbore sections in a single trip, thereby eliminating costly bit trips. Formation evaluation technology has enabled all logging-while-drilling or wireline tools to be run in combination, reducing total trips into the well to one or two to acquire all the data needed to complete and produce wells most effectively. Fast data processing and analysis has sped up decision-making in real-time operations centers staffed 24/7 by experts. Completion technology has equipped wells with smart downhole devices that provide realistic formation data and possess the capability to act on the information to manage the reservoir production optimally.
Nowhere has this technology been more warmly received than offshore. Where costs and risks are amplified many times over, operators seize the opportunity to use technology to extend their reach to discover, drill, and produce giant fields using only a few strategically placed wells. Subsea production has been augmented by subsea processing that can separate and re-inject unwanted formation water. Perhaps most notably, has been the introduction of microbial enhanced oil recovery (MEOR) that is tackling the most perplexing challenge of all – exponential boosting of recovery factors. Using a real-life producing field as an MEOR lab, Statoil has managed to boost the recovery factor of its offshore Norne field to 55%.
Taken in context with solutions emerging from the minds of oil industry scientists and engineers, worrying about today's price fluctuations could well be "Much ado about nothing."