Shale versus offshore: SLB version

In 1984, a cellphone weighed two pounds, was nothing but a telephone, and cost $10,277 in today’s $. Today, a smartphone is also a camera, radio, television set, alarm clock, newspaper, photo album, voice recorder, map, and compass, and cost as little as $99…

Human Progress

A lot of press being made about the Schlumberger comments regarding shale reaching its production limits. Coincidentally(?) The Economist has a leader and an article on the same this week. I don’t have the technical knowledge to get into the Parent/Child well productivity debate  but I note this is not the first time the death of shale productivity has been forecast (particularly eagerly by the offshore community for obvious reasons).

What was less reported was this nugget from the same SLB results:

Offshore Angola, Sand Management Services deployed a combination of technologies for Total E&P Angola to save more than $100 million and gain an estimated 1 million BOE of incremental production in the Kaombo deepwater development. Combining the OptiPac* openhole Alternate Path‡ gravel-pack service with OSMP* OptiPac service mechanical packers enabled the customer to achieve target production with six wells instead of the planned eight. This combination of technologies enabled effective zonal isolation of complex stacked reservoirs in one field, while in another field the water shutoff capability of the technology enabled accelerated production. [Emphasis added]

SLB appears to have developed a technology that has reduced the number of wells by 25%? That will signficantly lower the cost of the development but at the cost of rig and vessel days as well as lower subsea well orders if applicable in other developments.

This is the future of offshore. More work onshore and less offshore proportionately where the costs and risks are significantly higher. Productivity increases like this, not based on selling high capital equipment below cost, will be important for the industry.

I am also not convinced shale productivity is decreasing. The declining demand (and margins) faced by SLB and HAL could well be the result of larger E&P companies internalizing costs and driving them down as they seek to “mass produce” shale oil. We shall see… The BHGE rig count was at levels not seen since 2015 last week.

There is actually a much bigger change going on in the supply chain. In the old offshore geographically dispersed fields and rigs made using contractors like Schlumberger the logical option from both a cost and skills point-of-view. But when you are committed to a region like the Permian (or Bakken etc) you have critical mass and it makes sense to internalise those skills and capabilities.

Shale has dropped significantly in cost terms and a plateau of some sort should be expected. But shale is a mass production technology and the slow relentless grind of an annual 1 or 2% productivity input is still a real issue for offshore where each development is to a certain extent custom designed and therefore subject to limited economies of scale. That is true for the rigs and vessels throughout the supply chain as much as it is for the field lay-out and wells. Offshore needs companies like SLB to produce innovations as described above but the future of offshore is having less assets do more for similar outcomes.

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