Now that oil prices seem to be in stable recovery and the number of rigs in North America has been steadily rising month over month, shale oil seems to be on solid footing again in terms of its recovery. Since the early 2000s the industry has been working very diligently to reduce drilling costs and improve efficiency to make shale oil projects more economic. This effort was focused beginning in 2014 as a response to the stark reduction in hydrocarbon pricing. However, one area, while clearly being a driver for the economics of shale, has not been optimized to the level that perhaps reservoir development and drilling have been. That still-to-be-studied area is optimizing efficiency around completions.

There are several reasons for this lack of any major study around efficiency in shale completions. What likely focused the industry’s energy was the high intensity of operations in the shale prior to 2014 and the economic nature of many of the operators (independent producers focused on time to first production). With hydrocarbon pricing just beginning to stabilize in recovery, many operators still lack the independent resources and scope of operations to fully study completion practices and options and implement best practices into their operations.

One solution for the shale industry is to initiate combined efforts to address the optimization of completion operations. A shale joint industry project (JIP) focused on creating benchmarks for shale completion operations can create better industry economics for completion operations as well as providing many operators with real data, sufficient resources and scope to implement optimized benchmarks in their operations. In addition, for service companies the need to build and maintain the right equipment and create high utilization for that equipment is driven by providing operators cost-efficient and effective completion services.

Historical perspective

Since the shale play began its strong market share push, oil and gas operators have looked to promote efficiency in their shale drilling and completion projects. Given the nature of the shale reservoir, the industry adopted a “manufacturing drilling and completion processes” mindset, with a majority of the focus put on establishing metrics and process improvements for drilling. Completion services (site preparation, pressure pumping, wireline, plugs, sleeves, coiled tubing, well flowback) were typically provided on a discrete basis by multiple service providers with the risk of downtime assumed by the oil and gas producers.

Changes over the years

With the drop in hydrocarbon prices, oil and gas operators have had to focus on driving service company pricing down, which has created the need for more efficient drilling and completion processes. Since 2014 completions services pricing has fallen anywhere from 20% to 40%. Oil and gas operators have transferred the risk of downtime during the completion process to service providers by requiring service companies to change their business model to reflect:

  • “Per stage” turnkey pricing for each service;
  • One service company providing multiple bundled services;
  • A procedure-driven workforce;
  • An efficient factory-based operations model with high safety standards; and
  • Service companies sharing operational responsibility and some economic risks.

2017 outlook

While oil price has certainly begun its recovery and service companies are realizing higher demand for their existing completion services, the economic environment has demanded that both oil and gas operators and service companies change their business models to be more efficient when it comes to delivering completion services in the shale. Lower pricing, more responsibility for variable costs (like downtime) and greater liability have all “squeezed” the service companies’ economic model beyond the breaking point.

In 2017 hydrocarbon pricing is at the point of making large portions of the shale an attractive investment again, especially since the overall cost of completions has dropped significantly over the last two years due to reductions in service company pricing. With a clear focus on shale drilling, pad drilling times are now less than pad completion times, with completions making up about 58% of drilling and completions authorizations for expenditure. Completion techniques (i.e., lateral length, isolation techniques, stimulation techniques) continue to increase in both complexity and size. While much of the equipment the industry stacked in 2014/2015 remains at hand, some percentage of that equipment is not usable today given the size and complexity of the completions operations being requested by operators. The latest minimum operating parameters (e.g., pressure, flow rates, operating times) now exceed the specifications on a large percentage of the equipment stacked and waiting for higher hydrocarbon pricing.

Shale completions JIP

Given the current state of completion operations in the industry, the efficiency of drilling and completions processes will differentiate the successful shale oil and gas operators in terms of profitability. In terms of service companies, the successful service companies will demonstrate an ability to provide the most efficient completion operations with the highest uptime for their equipment and well-trained personnel. Safety will, as always, continue to be paramount, and those service companies that can provide the safest and most efficient completion operations will flourish in 2017.

Currently completions operations vary dramatically by operator and geographic basin. To create more industry efficiency and better economics for all investors (operators and service companies), the industry must work cooperatively to maximize completion efficiency.

The Endeavor JIP will focus on driving efficiencies to the completions process by using data and expertise from a minimum of 90 operators and/or service companies. Specifically, the JIP will look at what can be done to shorten the completions cycle time while not compromising QHSE. In general, and for the purposes of this study, Endeavor has broken shale completions operations into six distinct study areas: site preparation; zone isolation; pressure pumping/stimulation; plug drillout; well flowback; and economic analysis and benchmarking.

The Endeavor JIP process will include:

  • Formation of charter to identify the purpose and metrics for the study;
  • Nomination (by the participants) of shale basins to be included in the JIP;
  • Combining of participants’ experts and data into a shale completion operations database;
  • Observation of the JIP participants’ operations by completion study area and basin;
  • Conglomeration and analysis of data through collected data as well as a search of public data associated with completion operations;
  • Creation of completion benchmarks by study area and basin for participating companies; and
  • Publishing of a final report, which will include detailed economic modeling of the completion process by study area and basin, cost savings and recommendation of best practices.

The industry faces challenges that will always be underpinned with the cyclical nature of hydrocarbon pricing. However, one constant is that efficient economics, producible reserves and best practice service offerings will drive the value created in the hydrocarbon marketplace. North America has been once again blessed with a large resource that can supply a significant portion of the world’s need for hydrocarbons far into the future. Is the industry going to operate in a way that creates historical economic value, or are the economics of the shale going to remind us of the negative economics of many exploitations of resources around the world, where more money was spent than value generated?

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