THE OIL SERVICE INDUSTRY OF THE FUTURE LOOKS THE SAME AS THE PAST

By: David Yager
Published: OilWeek July 2017


            Reams have been written about how the oil and gas industry of the future will be different. For many, it has no future. Fossil fuels are environmental suicide. Solar-powered airplanes, wind-driven automobiles, and plant-based substitutes for all plastic and petrochemical products are imminent.

           If people in the battered oilfield services (OFS) industry thought the last two and a half years were awful, the future is worse. Except in Alberta, where maybe you get one of those government jobs installing efficient light bulbs or low-volume show heads.
           Fortunately, a world without oil is utter fantasy. The only reason so many dream about life without petroleum and its derivatives is because they have no conception of how big or integral it is. The U.S. Energy Information Administration figures global oil consumption will bust through 100 million bbls/d sometime next year. This is one-third more than the 76 million bbls/d at the turn of the century, shortly after Ottawa ratified the Kyoto Protocol to get on with replacing fossil fuels in 1997.
          Yes, there is indeed a great divergence between what we humans say and what we do. Which means OFS is going to be around in some form or another for the foreseeable future. 
           Therefore, discussions continue on how to keep the Canadian oilpatch competitive in a world of low oil and gas prices. We're repeatedly told exploration and production (E&P) companies must focus on technology to keep costs down. What is discouraging is the premise that nothing has advanced or improved recently. In the real OFS world, everything is continually changing with such meteoric velocity, most struggle to remain employed, solvent or adaptable. As deep thinkers opine on the need for change, anybody who actually works in this business knows nothing else.
            Take drilling. When I got my start on the rig floor in the 1970s, it used to take three months (if everything went well) to a year (with the customary fishing jobs and sidetracks)) to drill a 5,000-metre wellbore in the foothills, the only place anybody had to drill that far at the time. In an employment study I did for the Petroleum Services Association of Canada and MNP in 2014, I found our industry was drilling 6,000-metre horizontals in 20 days from spud to rig release. It's surely faster now. In the old days, a well required dozens of rock bits. Now, most of the hole is drilled with one. Most of the rigs that paid the rent for decades are racked and obsolete and will never drill again.
          The same thing goes for completions. Early in the multistage horizontal revolution, a big completion had 16 stages. Last fall, a JWN article reported NCS Multistage provided the equipment for a 92-stage frac in the Montney in northeastern B.C. Anybody who built anything new a decade ago for frac fluids, sand, cuttings-handling and disposal, solids control, mud motors or MWD systems has likely seen technology eclipse the commercial value of what used to be their bread and butter assets. Several times.
          And we're still lectured on the on the need to adapt, embrace technology and get with the program to stay relevant.
          The only thing Canada's upstream oil and gas industry needs to stay competitive is reduced finding and development (F&D) costs, whereby operators can replace and add production profitably at current prices. In the face of relentless tax increases and non-operational operating cost pressures, this is the economic definition of technology. OFS cannot survive without successful clients. E&P cannot succeed without a robust, supportive, adaptive and innovative supply chain.
         But the financial contribution OFS has made in recent years to its clients succeed has been incredible and unsustainable. Billions in new equipment, billions in new technology, billions in price cuts, billions in credit extended to customers who see no need to pay invoices promptly.
Appalling. 
         The lasting solution is a new business model, abandonment of the historically uneven relationship and the creation of new commercial relationships in which everybody succeeds. E&P and OFS companies understand the only path to success is lower F&D costs, which cannot be achieved in an environment that remains predatory and abusive. This goes both ways: terrible work and service at high prices when things are busy and purchasing policies that don't care if vendors go broke on the job when they are not.
         With no material changes in the way business is conducted three years after WTI last saw US$100/bbl, the future for OFS looks exactly the same as the past.


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