We were all geniuses at $100 oil. At $50, the industry will learn who the real geniuses are. Downturns bring out the best. In oil and gas, the foundation for fortune is laid during the cyclical trough. Realization of fortune comes later, when the cycle tops out. That’s because each downcycle presents a new iteration that colors development coming out of the trough. That begs the question: What will the industry look like on the far side of this trough?

The current consensus calls for a U-shaped event, implying a return to activity levels before the downturn. But what if natural gas serves as metaphor and the tight oil recovery is L-shaped? The natural gas rig count dropped from 1,600 units at its peak in 2008 to 330 currently, according to Baker Hughes Inc., yet gas production is accelerating. Will tight formation oil follow the gas model, with fewer rigs and an improving production as operators high-grade wells?

Is destiny in oil and gas during a low price event dictated by the best rocks, or can operators with poorer rocks innovate to prosperity?

The latter possibility may lie in emerging themes, including a refinement in drilling that emphasizes drilling effectiveness as part of a holistic approach to hydrocarbon development. Drilling efficiency characterized the initial move to pad drilling when operators experienced reductions in cycle time. Today, reductions in cycle time are measured in hours rather than days.

However, evolving from drilling efficiency toward drilling effectiveness implies less infatuation with how fast a rig reaches total measured depth and more emphasis on consistently placing the entire lateral in the very best zones—drilling better, more effective wells. The strategy opens the door to increased hydrocarbon recovery and extends the economic margins of existing plays, giving forward-thinking operators an opportunity to navigate a low-price environment. Early examples include threading the formational boundary between the Eagle Ford and Austin Chalk in Texas, or successfully exploiting a new gas layer in the Fayetteville.

The progression from efficiency to effectiveness is also underway in completions. Initially, operators sought to improve completion efficiency through process by employing zipper fracks, or alternating repetitive completion services between two or more laterals to reduce expensive nonproductive time associated with the massive frack spreads at the well site.

Unexpectedly, operators discovered that zipper fracks in parallel wells could increase stimulated rock volume and produce greater hydrocarbon recovery. The process has less impact on the best rocks, which are better insulated economically in a lower-price environment, but measurable impact on lesser-quality rocks. Greater recovery out of lower-grade rock through completion effectiveness opens another avenue for operators navigating low prices.

The better operators have begun pushing fracture stimulation techniques forward by pinpoint stage placement in sweet zones along a lateral. This evolution overcomes issues surrounding underperformance in well stimulation where as many as half the stages in a given lateral have been sub-optimal. At $100 oil, it didn’t matter. At $50, a nonperforming stage costs the same as a highly performing stage, but negatively impacts well economics.

The second iteration of completion effectiveness involves re-thinking the technique for enhanced completions, which entail extending lateral length, packing more stages more closely together, and using enormous quantities of expensive bulk sand. The technique, developed in the Eagle Ford Shale, has been exported to other basins and become the default completion method.

Enhanced completions work in high-quality rocks, but produce less bang for the buck in lower-quality rocks, rendering otherwise accessible hydrocarbons uneconomic. Backing off the high-cost, one-size-fits-all Cadillac completion approach common in the best rocks in favor of lower-input techniques custom-tailored to noncore reservoir rocks reduces costs.

While the capital markets are closed for the time being, substantial reserves of private equity are being marshalled to underwrite operators who develop innovative ways to extend economics in a low-price environment. It may be that vertical conventional oil wells will follow their gas market counterparts to the purgatory of commodity price marginality. In the end there is only so much operators can do to lower costs. Contractors idle rigs and lay off crews once revenues fall to cash cost.

For tight oil, today’s geniuses understand it’s about the cost per barrel and the tools and techniques that improve yield. The payoff is on the far side of the trough.

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