OTC 2021 Panel: E&P Portfolio Sweet Spot—Shale and Deepwater Synergies Take Root

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When it comes to meeting growing global energy demand with low-carbon barrels alongside favorable economics for operators and transferrable technologies, shale and deepwater assets are proving to be a winning combination.

That’s based on thoughts shared by industry experts speaking Aug. 16 about the synergies between shale and deep water during a panel at the Offshore Technology Conference in Houston.

“Economic fundamentals need to drive investment, and both deep water and shale can be commercially attractive, if not compelling, investment opportunities for the world around us,” said Richard Lynch, senior vice president of technology and services with Hess Corp. “While economics are clearly important, developing low-carbon barrels is essential not just from an ESG perspective but also from a cost perspective.”

Pointing to Hess’ assets in the U.S. Bakken Shale and in the Stabroek Block offshore Guyana, where the company and partners have made more than 20 discoveries, Lynch called both growth engines of liquid supply that warrant investment.

The Phase 1 Liza development offshore Guyana has a breakeven of $35/bbl, while Phase 2 and the third phase, called Payara, have respective breakevens of $25/bbl and $32/bbl. Breakevens in the Bakken are about $50/bbl.

Data from the International Energy Agency show oil and gas are still expected to significantly contribute to the world’s energy needs, regardless of whether the future takes the sustainable development, net-zero or stated policies path. Energy demand led by population and GDP growth is forecast to rise 20% through 2040. However, upstream oil and gas investment has been falling as companies stick to promises to stay disciplined amid the push toward lower carbon energy.

“Analysis shows that both deep water and shale can be attractive environmentally, which in an increasingly carbon-constrained world, is essential for our future,” Lynch said.

Chris Powers, general manager of strategy and business performance with Chevron Corp., shared similar thoughts about shale and deep water.

“While there are differences at first glance, there are also many similarities,” Powers said. “This includes the generally advantaged nature of these assets from a carbon intensity perspective, historically stable regulatory and fiscal regimes in many of the places we operate, and a focus on technology and innovation in the development strategies over time.

“All this considered,” he continued, “it’s clear that the unconventional shale and tight oil and the deep water have proven to deliver growth and returns, and they’re positioned to be a key part of the energy equation for years to come.”

In the Denver-Julesburg Basin in Colorado, for example, Powers said Chevron is focused on capital-efficient investments that deliver lower carbon.

“Our latest generation of field developments deliver a 15-20% lower life-cycle cost and a 60% physical footprint reduction, while still delivering high reliability and achieving lower carbon results,” he said. “About 6 kilograms of CO₂ equivalent per barrel of production in that basin.”

Similarly, Chevron’s deepwater Gulf of Mexico assets deliver about 7 kilograms of CO₂ equivalent per barrel of production.

To help meet objectives, each asset class has a director, each working with other directors across business units to drive efficiency, he said.

“We take advantage of each other’s learnings and scale those across multiple business units,” Powers said, using remote monitoring as an example.

Finding Synergies

Technology is one area where synergies between deep water and shale are evident.

Take Schlumberger’s first version of the PowerDrive rotary steerable system, for example, used in deep water. The tool is big enough to drill a reservoir-sized hole regardless of depth, said Blaine Dow, global technology manager of managed pressure drilling (MPD) and underbalanced drilling with Schlumberger.

“Over time, economies of scale then drove the technology to be cost effective in the shale application,” Dow said. “Today, you will also find that rotary steerable technology is commonly employed in a lot of shale drilling obligations.”

Technologies commonly used in shale have also found their way offshore.

Most rigs operating on U.S. land feature MPD technology, which Dow said dates back to the 1930s. The technology aims to eliminate nonproductive time related to pressure-related events, which in turn can lower costs. Such technology in the past wasn’t common in deep water decades ago. Dow recalled a time about 20 years ago in which MPD technology, available today for deep water, would have been useful when drilling a multimillion-dollar well offshore Eastern Canada that encountered pressure challenges.

Shale and deep water have also picked up different techniques and processes from each other in recent years as each competed for investment dollars. Standardization is among them.

“What we saw in deep water coming from tight oil pace was things like executing with greater pace, so reducing lead times through just-in-time practices and things like Shell’s Design One, Build Many approach in the Gulf of Mexico,” said Julie Wilson, director of global exploration research with Wood Mackenzie.

Approaches common in the shale space have also found their way offshore. These include laying down yards to better fabricate modules for facilities before installation at fields, and drilling control centers so engineers can control multiple drilling campaigns at the same time, Wilson said.

Developers of both asset types are looking for returns on investment, but getting there is different as Dow explained.

“Shale drilling is all about repetition. You drill, you learn, you drill again” to learn what works and to drive down cost, Dow said. How well risks are analyzed matters along with the chosen response. Over time, those working shale assets learn and get faster; however, it is not all about speed but rather cadence, he added.

“Sometimes you may want to drill faster. Sometimes you may want to trip faster. Sometimes you may want to move your rig faster, but you have to make sure that you’re not compromising one other activity in your well construction process as a result of trying to get too fast,” Dow said. “It’s very much about understanding the boundaries of performance and working as close to those boundaries as you possibly can.”

For deep water, preparing for the curveballs is crucial.

“You ponder, you process, you evaluate and then you make a decision about what you’re going to do,” Dow said.

He later added, “It’s about taking all of your contingencies and making sure that you are prepared for everything that might happen. … If something looks out of check, you back off, you take some time, you assess and you make sure that the next move you're going to make is decisive and is going to guarantee the best possibility of success. So, hitting the bull's-eye is the important thing.”

A miss could cost millions of dollars.

“In the end, what this translates to is shale saves money over time because you continuously improve and continuously drive efficiency into your program,” Dow said. “On the other hand, in deep water, the biggest savings you can possibly have is avoiding the train wreck. So, it’s all about assessing your risk and applying the cost of contingency.”