By Heather Douglas
When the chairman of one of the world’s largest oilfield services company — known for its capabilities in reservoir characterization, drilling, production, processing, and pipeline solutions — speaks, it’s important to listen. Paul Kibsgaard, Schlumberger’s chair and CEO, presented his strategy to restore the strength and capabilities of the global oilpatch to an international audience last month in New Orleans.
Boost E&P Spending
The only region in the world showing clear signs of increased activity and investment is North American, Kibsgaard states, “where E&P operators appear unconstrained by a sixth year of negative free cash flow.” He believes the full-cycle financial viability outside the prime acreages continues to be challenging and that industry balance sheets and cash flow are now attracting more attention from lenders and private equity players. “While the E&P operators rightfully state that break-even costs have come down significantly, there is an impending cost inflation avalanche coming from the service industry, which continues to operate at unsustainable pricing levels.”
Kibsgaard predicts the ultra-light North American unconventional crude, coming from areas like the Permian Basin, may create an over-supply of light oil and a shortage of heavier crudes required for refinery blending. “This could result in a widening spread between Brent and WTI (West Texas Intermediate) and potentially another financial headwind for North American land operators.”
According to Schlumberger, the 2017 E&P spend in North America is expected to be down 50 per cent, compared to 2014. “At no other time in the past 50 years has industry experienced cuts of this magnitude and this duration,” Kibsgaard adds.
“The depletion rate indicates how fast the proven developed reserves are being produced. A closer look at the underlying production and reserves data from many of the countries outside the Middle East, Russia, and North America land reveals that depletion rates are rapidly increasing…The real story is told by the depletion curve, which has shown a significant increase and is already between 15 and 20 per cent.”
Increase R&E Investments
It’s clear to Kibsgaard the industry is heading towards a supply crunch unless there is a substantial increase in E&P investment. Therefore, he says, it’s a priority to find significant dollars for R&E. “In Schlumberger, we spent close to $1 billion (U.S.) on R&E in 2016, which is more than our three closest competitors put together, and our commitment to protect our technology investments throughout the hardship of every down-cycle is a hallmark of our company.”
Despite this, the company is re-assessing its level and focus on R&E. “The financial pressures of the last two years have created a new wave of ‘procurement is king’ in a large part of our customer base where the procurement departments frequently override the technical and operational sides” within producers.
Unfortunately, the lowest price for the lowest common denominator of technology wins. “In complex operating environments,” Kibsgaard states, “the costs of meeting performance expectations, mitigating contractual risks, and generally upholding our internal operating standards are substantial, and these requirements are something we will never be willing to compromise on.”
Schlumberger’s products and services have traditionally been rewarded by a reasonable pricing premium, adds Kibsgaard. “The pricing premium helps offset both the additional R&E costs … and it covers some of the additional trailblazer costs associated with more frequent field testing, training, and certification asset deployment, and internal/external technical support.”
Build Technical Collaboration + Commercial Alignment
Industry has used four business models to handle its technical collaboration and align it commercially: through integrated services management, integrated drilling, integrated production, and production management.
Kibsgaard says Schlumberger’s highest level of collaboration and commercial alignment comes through its SPM (Schlumberger production management) offering. “We take full-field management responsibility using the complete range of our technology and expertise. Here we invest the entire value of our products and services, and, in certain cases, additional cash for contracts that can reach up to 20 years in duration, and where our compensation is directly linked to the production we generate from the field.”
During the past 15 years, Schlumberger has expanded its SPM until now it manages about 235,000 barrels/day of oil from 11 projects in various parts of the world.
The company has also introduced its Special Venture Fund (SVF) which not only offers a new avenue for E&P project investment, it also fosters closer collaboration with producers, unlocks more upstream investments, allows the company to achieve its desired “preferred supplier status,” and is routinely offered to all its customers.
Integrate Technology Platforms
Kibsgaard’s final strategy is for industry to develop broader and more integrated technology systems “capable of delivering revolutionary improvements to project performance.”
This includes “tackling complete industry workflows,” adds Kibsgaard. The technology will also need to identify and model every task that comprises every process and then integrate this with all the available data together with a completely new software and hardware platform. “This is not a small undertaking, and deep domain knowledge, complete software and hardware ownership, coupled with the latest capabilities within data analytics, modeling, high performance computing, and machine learning are all keys to success.”
Schlumberger first entered the directional drilling business in the early 1960s. Through its subsequent mergers and acquisitions (M&A) plus organic R&E investment, it had built an industry-leading position in directional drilling, measurement-while-drilling (MWD), and logging-while-drilling (LWD) by the early 2000s. In 2010, it bought Smith and Geoservices, and became the leader in drill bits, drilling fluids, drilling tools, and surface data measurements.
“With a complete downhole hardware offering in place,” Kibsgaard reports, “we analyzed and modelled the total drilling process by using data from the millions of feet we drill every year. We created a numerical model describing how the entire drill-string behaves and interacts with the wellbore. This modelling tool quickly became a very powerful way to optimize both well design and the make-up of bottom-hole assembly.”
Schlumberger subsequently broke drilling records around the world. Kibsgaard proudly adds, “The most recent of these ground-breaking performances was in the super-laterals of the Wolfcamp shale in the Permian basin, where we now drill at double the speed of conventional systems.”
Building on the rig engineering group from Saxon (acquired in 2013), Schlumberger added rig design capabilities in 2015 with its acquisition of T&T Engineering, and rig control systems from Omron Oil & Gas in 2016. “The latest addition to our drilling portfolio came through the acquisition of Cameron,” Kibsgaard reports, “which brought industry-leading expertise in blow-out preventers, pipe handling, and top drivers. This helped us accelerate the integration of the surface and downhole parts of drilling.”
Since then, Schlumberger has added big data analytics and machine learning techniques to implement increasing levels of automation. “This brings new paradigm of digital efficiency and productivity. “This new drilling system, which will be called OneDrill,” is scheduled for introduction Q3, 2017 for use in the U.S., Saudi Arabia, and Ecuador.”
Kibsgaard also announced the OneStim joint venture with Weatherford for North America, which will serve as the launch pad for the company’s future hydraulic fracturing and completions technology.
In closing, Kibsgaard told his audience, “Schlumberger remains confident and optimistic about the future as we continue to carefully navigate the current industry landscape, which remains very challenging, but also present significant opportunities to players who are ready to think and act new.”
Norwegian petroleum engineer Paul Kibsgaard, Schlumberger’s chair and CEO, 50, presented his strategy to restore the strength and capabilities of the global oilpatch to an international audience last month in New Orleans.
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