Here lately it seems like there’s been more bad news than good for the oil and gas industry. However, the clouds haven’t been all black. If you look closely enough, you might spot a tinge of silver lining in one or two of them.
A few weeks ago I had the opportunity to speak with Fred Lawrence, the vice president of economics and international affairs for the Independent Petroleum Association of America, about what he thought were some of the bright spots in the less than shiny year that was 2015 and what 2016 might have in store. Here’s what he had to say.
“From a 36,000-ft view, I think the largest positive so far—and it has probably gone a little bit unnoticed—is how the price war with OPEC did the disruptive thing of making the shale industry that much more competitive and efficient,” he said. “It really accelerated the speed of progress. I believe it’s going to be one of the large benefits of this conflict going forward, but in the near term that creates a lot of challenges for a company—especially those that are more financially leveraged.
“However, we’ve seen some major improvements by companies in terms of improving their IPs and their EURs while at the same time reducing their cost structure,” he said. “For example, it could be through higher proppant volumes or longer, more efficient laterals, or more focus on their core plays, but companies are really accelerating the technological speed of improvement throughout this lower price environment.”
As is often repeated, this is not the first downturn that the industry has faced. However, in this downturn, operators snagged a few pages from the history book to apply lessons learned in the past to weather their current situation.
“We saw this with natural gas companies when natural gas prices were low. Those companies have had a bit more experience at maturing their technologies and efficiencies under low prices,” Lawrence said. “We’ve seen the oil and liquids companies go through this process of maximizing their efficiencies and cost structure as well as take advantage of the cost deflation on the service side. I believe it’s a bright spot that will not go away.”
Challenges will not be in short supply in the year ahead, and finding ways to balance them all will be key. Internationally, the reentry by Iran into the oil markets will impact pricing in the first quarter and possibly the second, he noted. On the domestic front, Lawrence sees that the regulatory policy will remain paramount, with particular focus on hydraulic fracturing on public lands with the Bureau of Land Management, crude exports and endangered species.
“I think those are probably our biggest issues going forward,” he said. “[The year] 2016 will be a challenging year as everyone is convinced that this is a ‘lower for longer’ market. I am hoping that there is some relief going into the second half of the year. Balance is really going to be important.”
Recommended Reading
E&P Highlights: March 25, 2024
2024-03-25 - Here’s a roundup of the latest E&P headlines, including a FEED planned for Venus and new contract awards.
US Drillers Add Oil, Gas Rigs for Third Time in Four Weeks
2024-02-09 - Despite this week's rig increase, Baker Hughes said the total count was still down 138 rigs, or 18%, below this time last year.
NAPE: Turning Orphan Wells From a Hot Mess Into a Hot Opportunity
2024-02-09 - Certain orphaned wells across the U.S. could be plugged to earn carbon credits.
Sangomar FPSO Arrives Offshore Senegal
2024-02-13 - Woodside’s Sangomar Field on track to start production in mid-2024.
NAPE: Chevron’s Chris Powers Talks Traditional Oil, Gas Role in CCUS
2024-02-12 - Policy, innovation and partnership are among the areas needed to help grow the emerging CCUS sector, a Chevron executive said.