Lower for longer
“Lower for longer”—these are words that try my soul (apologies to Thomas Paine). When oil prices started falling in mid-June 2014 from roughly $107/bbl for West Texas Intermediate, most in our business probably assumed that it was a minor market correction. The thought was that the price might fall a few dollars—even below $100/bbl—but market stability was just around the corner. After all, beginning in July 2008, prices had collapsed from just over $145 to a bottom in the $30 range by year-end, then they rebounded to the more-comforting $70 range by August 2009.
Not a routine slide. However, as 2014 progressed, prices continued sliding, as days became weeks and weeks became months. Even so, many in the U.S. were almost too busy to notice, as we continued drilling acreage-capture and new development wells in the ongoing unconventional development frenzy. But eventually, the continued slide demanded our attention, as it became more and more clear that decisive reaction was required.
Over the past several decades, the industry had faced oil price challenges a half-dozen different times. In response, we always took the customary actions. Re-organizations and right-sizing, along with guidance to “do more with less,” in fact had established a track record of success. But this time was different. This price collapse was occurring in a different context—in the midst of a hectic drilling boom like few of us had ever experienced.
Ironically, many of the most-active companies already had much smaller headcounts than during their peak years in the early 1980s—even despite recent additions made in order to ramp up unconventional drilling. They also had already focused on creating value by employing business practices aimed at eliminating system inefficiencies and mitigating profit leakage. Some had even ventured into ownership of their own drilling rigs, high-pressure pumping equipment, and such raw material sources as sand mines for proppant.
However, more was needed. To paraphrase Albert Einstein, it was evident that the solutions to today’s problems would not come from yesterday’s techniques. The industry was already steadily climbing the learning curve with the unconventionals. Drilling penetration rates were rising. Classic process analysis was leading to bigger stimulation designs and operational improvements. Parallelization of activities via “zipper” fracturing was reducing completion time required, and improving production rates.
Fundamental changes required. But the longer that oil prices stayed low, the more obvious it became—the industry could not simply cut its way to fiscal health. The savings were not enough. The improvements needed were on the order of days, not hours, per well. More fundamental change was required, and that change would need to manifest itself in both technology and technique. The proverb, “Necessity is the mother of invention,” held true.
As a result, further change did follow. More headcount reductions, and enhanced focus on the most profitable development areas, were enacted through late 2015 and all of 2016. These were accompanied by learning curve progress through implantation of non-traditional techniques or new technology. Together, these measures have improved economic outcomes. For example, the use of managed-pressure drilling techniques (traditionally only used when required on wells with low-pore-pressure fracture gradient windows) allows elimination of casing strings from well designs.
Drilling multiple onshore wells from a single location with self-propelled rigs allows efficient batch operations for each hole section, which was previously possible only offshore or in specialized onshore areas. Cementing casing strings off-line in batch operations, where possible, allows the rig to move to drilling the next well, eliminating huge chunks of hidden non-productive time. The use of dissolvable plugs, frac balls, etc., eliminates the need for post-fracture coiled tubing drill-outs on multi-stage frac jobs. All these examples go beyond merely optimizing or minimizing activities and costs, and actually eliminate activities and costs. These efforts aren’t the old “do more with less” approach. They actually “do less with less” by accomplishing essential work while using the least resources.
Our industry has shown, time and again, that action and creative thought can lead to success. However, even with our recent accomplishments, we cannot stop where we are. The key to success in a commodity business is controlling costs while maintaining required quality in all aspects of operations. For some, this may seem like running on a treadmill—logging miles but never experiencing the excitement that comes with a change of scenery. I see it as running to meet the future, before it leaves you in the past. 
