The calendar has flipped to 2014. Seats around boardroom tables will soon be filled. Executives, investors and policy wonks will lean forward, pour coffee and ponder another year of disruptive change. Everyone knows that big questions need to be answered in the energy industry.
But finding answers won’t be the challenging part. It’s asking the right questions that will pay the greatest strategic dividends to industry leaders.
Consider a recent, misguided question: “How much faster,” I asked a group of Canadian oil field service executives, “will a rig be able to drill a deep well in 2014, relative to last?” Then I asked, “How about three years from now? Five years from now?”
My question had merit, I thought, especially after looking at Figure 1.
We’ve looked at a spectrum of well depths, and the most dramatic improvement in drilling time has been in deeper segments. The time to drill an average, 4,000-metre horizontal well in Western Canada has fallen by half over the past decade. In 2001, it took about 45 days; last year, the drill bit likely hit its mark in only 20.
Drilling wells at a faster pace has profound implications. For one thing, declining oil and gas production can be replaced sooner. As well, less time cutting rocks means that the drilling component of the well cost becomes cheaper – lopping 20 days off the process can reduce the price tag of a well by anywhere from $1-million to $1.5-million, depending on circumstance and geology. Faster, cheaper wells – that’s great news for a producer coping with low oil and gas prices. But the implication of speed drilling is more unsettling for a rig contractor who rents equipment out by the day. Will he be called on to drill more wells, or will he drill himself out of business?
Trends and anecdotes suggest that the average time to drill a 4,000-metre horizontal well could fall to well under 20 days by 2015. In fact, roughly 60 per cent of such wells drilled in 2013 were already under that time.
As profound as the trend of faster drilling may seem, my question about how fast in the future was still not the right one.
Think back to circa 1980. An analyst following electric typewriters may have been musing about how much faster the keys could strike the paper, or how many more layers of carbon paper could be stuffed into the roller. These would have been moot conjectures, because the personal computer and word processor were about to change the entire way in which formal documents were produced, copied and delivered.
Such is the case of oil and gas drilling today. The entire process is changing. Already, wells are being drilled from “pads” – small cleared areas where multiple well bores can pierce deep into the geology below from one location. Some companies are talking about 20 or more wells per pad, like a sewing machine stitching a patch into the earth. Pad drilling is not new, but its adoption is still relatively early. As it gains favour, the process is going to become a platform for radical change in how oil and gas is extracted – and it’s going to happen within the next five years.
Back at the boardroom table, sitting across for me, the oil field service experts quickly deflected my question about how long it will take to drill a well in future. They wanted to talk about new-age rigs that will be drilling robotically from a command centre. On the well site of the future, individual bores from a pad won’t be drilled sequentially. An assortment of rigs, each optimized for special function, will drill different segments of each well. Much more was discussed. After gazing into the drillers’ crystal ball of the not-too-distant future, I realized that my simplistic question of, “How much time will it take for a rig to drill a well?” was shallow.
“What will the process of extracting hydrocarbons from the field look like in three, five and 10 years from now?” was the appropriate question to ask. By analogy, we shouldn’t be talking typewriters when dot-matrix printers are looming.
The Canadian oil and gas industry is in the midst of a disruptive change not seen in 50 years or more. All processes – exploration, production, transportation, and even consumption – are going to look radically different in less than five years. Envisioning the future based on past modalities will lead back to 2012, not 2014 and beyond. Going forward, we will seek out the right questions to ask (and try and answer them too).
Peter Tertzakian is chief energy economist at ARC Financial Corp. in Calgary and the author of two best-selling books, A Thousand Barrels a Second and The End of Energy Obesity.