Over the past few years, the Unconventional Resources Technology Conference (URTeC), a joint effort between the Society of Petroleum Engineers, the American Association of Petroleum Geologists and the Society of Exploration Geophysicists, has examined the relatively new realm of shale plays and the integration they require among the disparate disciplines. At the recent URTeC conference in Austin, Texas, Greg Guidry, executive vice president of unconventionals for Shell, discussed how one supermajor got in on the ground floor and duked it out with some much more nimble independents.
Noting that there were “lots of brains here in the audience,” Guidry described Shell, in the shale reference, as a “lumbering international oil company” but noted that “one of the Seven Sisters” has actually been able to be “as nimble as an independent” while leveraging the strengths of a major oil and gas company. “And this is all while in the context of doing more with less,” he said.
He gave an overall context to shale’s importance to Shell. “Obviously, shale is a piece of our overall portfolio,” he said. But it’s not the only piece. Shell is still very invested in its deepwater interests around the world, Guidry said, including its assets in Brazil. And because of low fuel costs and plentiful methane availability, its chemicals business, particularly with its new cracker capability in Pennsylvania, is a “huge, huge commitment,” he said.
But shales remain a major part of the company’s North American portfolio. “This is a future opportunity that we’re spending about $2.5 billion dollars a year on,” he said. “So it’s a very, very substantial business in Shell, and it is meant to be even more substantial as we go forward. The strategic intent for shale is to be a very material, attractive, sustainable business for Shell for growth into the future.”
Currently the company has about 12 Bbbl on the books, he said, mostly in North America. But Shell also is dabbling in Argentina as well as other countries around the world.
Nimble yet strong
“What do I mean when I say, ‘nimble as an independent but with the strengths of a major?’” Guidry asked. He noted that the company had to do “an incredible amount of work” to alter its standards to a more fit-forpurpose approach to enable it to be as cost-effective, quick and pragmatic as an independent. “This is absolutely required to even compete in this business,” he said. This required some dramatic changes in terms of well standards, facility standards and the way the company matures hydrocarbons, he added.
“We’ve made tremendous progress, and we are quite competitive in terms of execution costs,” he said. “About 90% of the wells we drilled last year were top producers, and this was with a very steep learning curve.”
‘Strengths of a major’
What can an enormous company like Shell bring to the shale table? “One is technology,” Guidry said. “We have to work with existing technology, but we also have be to looking at the longer term.”
He described Shell’s “Shale Field of the Future.” “We see a huge opportunity to actually adapt existing and emerging technologies to the shale business,” he said. “Some of that’s already taking place. But what we have not seen yet is a fully integrated shale field of the future that leverages a lot of the digitalization technologies that are around.
“It’s something we call ‘iShale.’ Based on our own risk assessment, we see the ability to take about 30% to 40% of the unit development and operating cost vs. 2016 over and above what would be done with conventional learning. It’s a very material opportunity for us, and our time frame is about 2020.”
Much of this work is being done with standard suppliers, but Guidry also was pleased to note that a joint venture with the Massachusetts Institute of Technology (MIT) was helping guide the process. “We’ve got a laboratory and incubator at MIT called ‘Shell Tech Works,’” he said. “Shell Tech Works is about 50 worldclass scientists and engineers that have never worked in oil and gas. They’re astrophysicists. They’re media experts. They’ve worked in automotive systems and engineering industries.
“And we just give them a problem, and they come up with an incredibly innovative solution. They’re part of iShale as well, and that provides a bit of a different lens over and above some of the basic research that we’re doing in our own R&D laboratories.”
A matter of scale
One of Shell’s major strengths is its scale. It can be as nimble as an independent and can use its huge technology shadow to gain competitive edge, but it also has the scale to make these things count, Guidry said.
He addressed scale in several dimensions. “One is global procurement scale.” he said. “Applying some of our global scale to our needs here in North America is an opportunity we take advantage of.”
But it also helps to have that procurement advantage in places like the Vaca Muerta Shale in Argentina. While Shell has only drilled 20 wells in the play, he said the company is at the leading edge in terms of cost competitiveness and EUR performance. And having geosteering experience in the Duvernay in Canada has helped the company in its Argentina shale excursions.
“We’re actually geosteering the wells in Argentina from Calgary,” he said.
Overall, Guidry said the journey has been a success. Between 2013 and 2016 the company reduced its capital spend by about 60% while growing production by about 40%. Resources have grown while the footprint has shrunk. Operating costs have dropped.
But Shell is not becoming an independent. “We are an international oil company, and we certainly have a reputation to manage,” Guidry said. “We came up with one set of operating principles that controlled our framework across all regulatory regimes. And we operate by that standard regardless of what the regulations call for.”