Halliburton and Schlumberger – Looking Ahead

There’s still a lot of bad news in the land of Oilfield Services (OFS) giants recently. Schlumberger announced plans to lay off another 11,000 folks bringing their total to 20,000. Halliburton beat expectations on their quarterly revenue figures (due to activity in the Middle East, Asia, and Latin America), but continue to struggle with the unprecedented decline in drilling activity in North America. Halliburton’s merger dance partner Baker Hughes has upped its forecast to 10,500 job cuts, and also decided to drop its quarterly well count product.

OFS is in a squeeze right now – not only have they had to reduce their rates by ~30% to keep their customers liquid, they have also had an even more significant slowdown in activity that the simple story of the rig count doesn’t tell.

Decline in rig count

Baker Hughes’ rig count has been a top line data point in most news stories around the current oil price decline. It does make for great headlines “40% decline in rig count,” and so forth. But if we dig deeper we see that most of the rigs that have been idled or released from activity are older rigs that are more focused on conventional vertical E&P.

Today’s newer rigs are much higher efficiency, quicker to the bottom of the hole, placed in multiwell pad situations (lessening downtime between wells), and focused on the highest grade rock available. The newer rigs are going to get a lot more holes in the ground a lot quicker than the ones being pulled out of service. Also the newer rigs are set up for horizontal wells, which, when they come on line, are going to produce hydrocarbons (at least initially) at a rate that far eclipses the older conventional wells.

For example, in the Permian Basin we show the following active rig decline over a 93 day period this year (For clarity I pulled a half dozen anomalous rigs out of the results that had been filed as “directional” or “unknown” trajectory).

OFS-Rigs-fig-1 Halliburton and Schlumberger – Looking Ahead
Figure 1: Permian Basin 93 day Rig Count delta, Horizontal vs. Vertical

Over this period in the Permian Basin we dropped 128 horizontal rigs (42% of horizontal) and 72 vertical (59% of vertical) rigs. So the overall 46% decline is skewed by the lower output, less efficient vertical rigs. As another way of looking at this, in 2008 a steep decline in rig activity projected a fairly linear rate of decline in production. Now you have to take many more factors into account to have an accurate indicator of new production capacity. Which is part of the reason we have created the DI Index.

[sc:diindex-infographic2]

Drilled but not completed

A big part of the business for all three of the OFS giants are well completion services, and the most expensive of those completions services revolve around the more complex hydraulic fracture jobs. After you have drilled a well, you have to case, perforate, and stimulate the target zone. These are complex operations, and even with the recently negotiated ~30% cost reduction in OFS, are still likely to bill millions of dollars per well.

Lately we’re in a situation where not only have drilling activities slowed, but there is lots of chatter about wells that have been drilled but are as yet unfracked. Recently, Harold “Cowboyistan” Hamm claimed as many as 85% of wells aren’t being completed, and on their earnings call yesterday Halliburton estimated that around 4000 wells are currently in a drilled but uncompleted state.

A few weeks back, our CEO Allen Gilmer spent a few hours crafting a US Production Report using our DI tools (and predicted peak US production days before the EIA) and as part of that calculation allowed for drilled but not completed as 25% of drilled wells.

What’s next for OFS?

With today’s WTI continuing to sustain around $56, we might see operators reaching to turn on the spigots of these as yet unfracked wells. This will be good news for Halliburton, Schlumberger and their peers, since their crews will be called upon to frack those wells.

Within our DI Rigs Analytics package you can look at active rigs by a a variety of measures. The following chart shows horizontal rig activity in the Permian Basin targeting any of the Bone Spring formations colored by whichever of the 21 drillers are actively drilling there for the past three months. (I chose Bone Springs because of Matt Menchaca’s excellent geology and production write-up on the formation).

OFS-Horizontal-by-Driller-Bone-Springs Halliburton and Schlumberger – Looking Ahead
Figure 3: Horizontal Wells targeting Bone Springs formations colored by Driller

A first glance reveals that’s a lot of activity, and the slow-down is affecting most of the drillers – some of them down to a trickle. But the operators that have hired those drillers are waiting for a price point, maybe $60, maybe $65, at which they feel good about turning on the unfracked 25-85%. That represents an awful lot of ~750-1000 MaxIP faucets waiting to be turned on, and you can bet Halliburton and Shlumberger’s fortunes will turn around in a hurry when that price inflection point is hit.

And, if the price recovery holds out (which has to do it seems with not immediately re-flooding the market), with today’s technology we might be in position to create a period of sustained growth instead of just another boom.

Your Turn

What do you think? Leave a comment below.

Using DI Analytics for Electrical Load Planning in Hot Areas

From the E&P side of the world, it seems like a drilling rig is all you really need to start producing oil and gas in a new area. We take for granted the infrastructure that must be in place to sustain high oil and gas activity in an area.

A major factor in infrastructure planning is power. While many drilling rigs are powered by on-site generators, long term production and mid-stream processing are facilitated by the electrical grid. Power companies must make costly investments to keep up with need. My friend Tim, a project manager for a large electric utility company in Texas, says the latest boom in the Permian Basin was sudden and brought more demand than anticipated. “The oil related growth in West Texas was greater, and much faster, than we were accustomed to. It’s considerably more expensive and difficult for us to react to growth as it occurs versus planning for it in advance. In these cases, we typically depend on growth estimates from oil and gas companies, which aren’t always reliable or timely.”

Texas is a top US player in both oil and gas, and electricity. Texas leads the nation in both total petroleum consumption and crude oil reserves and production. As the second largest state (behind Alaska), Texas is the top producer and consumer of electricity. Befitting its independent attitude, Texas is the only contiguous state with an entire standalone electricity grid; other states rely on interstate electric grids (Energy Information Agency).

Without a reliable way of knowing where the demand will be greatest, utility companies can only do their best to react to need as it presents itself.

DI Analytics

Drillinginfo’s DI Analytics package is designed to provide quick, easy to understand insights about what’s happening in oil and gas. Users can avoid last-minute decisions and gain powerful, localized insight for preparing in advance. Tim’s company has planning groups that work with their engineering departments to determine long range plans, and they release them yearly. According to Tim, “A tool like DI Analytics could help not only us, but also many other types of companies, make more informed decisions regarding the always-changing oil and gas industry.”

DI Analytics can predict power demand in several ways. Perhaps the earliest indicator of coming need is leasing activity. In new areas, leasing precedes all other activity. Before the latest Permian boom, leasing picked up dramatically in early 2011.

Load Fig 1
Figure 1: The DI Analytics Leasing Activity module shows Gross Acres leased in the Permian Basin since 2004. A dramatic uptick (Q1 2011) can be observed. Leasing activity is an early warning for coming infrastructure demand.

Leasing activity is followed by a wave of permitting which provides a more accurate picture of where exactly new infrastructure may be needed. Permit counts reveal the amount of need, and permit locations help planners zero in on where exactly the demand will be strongest. Permitting activity was strong in the Permian basin from 2011 to the present.

Load Fig 2
Figure 2: DI Analytics Permits Counts through Time allows you to see permitting activity for a play broken down by a statistic of your choosing. Here, it is broken down by play area.

Load Fig 3
Load-Fig-4
Figure 3 (Top): DI Analytics Permit Activity Module shows where drilling permits are issued. Changes in locations over time show how exploration is refined as the play develops. Figure 4 (Bottom): Side by side maps of permitting activity in 2005 (left) and 2014 (right) show that during the latest Permian rush, exploration is more focused and centers on two basins: the Delaware Basin to the west and the Midland Basin to the east.

Load Planning Fig 6
Figure 5: Purple hatched lines represent major electrical lines (≥ 345kV). The Midland Basin (to the east) is in close proximity to power lines, but the Delaware Basin (to the west) is situated away from the main distribution lines. (Map: Energy Information Administration)

Load Fig 6
Figure 6: Production has been increasing sharply since 2010. Sustained production suggests real demand for electric power, whereas leasing and permitting are better predictors of future demand.

Load Planning Fig 8
Figure 7: Population growth for Midland County from 2000 to 2012 followed an upward trend, adding to the demand for electricity. Much of this growth can be attributed to the oil and gas industry. The grey areas represent times of economic recession. (Graph: Federal Reserve Bank of St. Louis).

Production is a snapshot of realized demand. If there is high production for a month, there will be high demand for electricity, not only at the well site, but also at nearby processing plants. Sustained high production and permitting in an area will likely point to population growth as well. Production activities are supported by an influx of specialized workers, including drillers, service companies, geoscientists, and administrative support.

No matter how your enterprise supports the oil and gas industry, DI Analytics can reveal critical turning points and help you plan and execute more efficiently.

Your Turn

What do you think? Leave a comment below.

Proppant: The Greatest Oilfield Innovation of the 21st Century

Proppant: The Greatest Oilfield Innovation of the 21st Century

I was perusing Murray Roth’s recent presentation “Unconventional Oil and Gas: Implications for Global Field Development” and it made a pretty bold statement that I figured was worthy of discussion all on its own.

What is the greatest driver of oilfield innovation and value in the 21st Century?

Sand.

Without sand, or more generally proppant, there is no hydraulic fracturing, without hydraulic fracturing there is no opening of tight oil and gas plays, there is no economic advantage to horizontal drilling, there is no rise of pad drilling.

What is proppant?

Proppant is “sand or similar particulate material suspended in water or other fluid and used in hydraulic fracturing (fracking) to keep fissures open.” (from Wiktionary)

Fissures_Proppant

A brief history of sand

Although hydraulic fracturing was first performed in 1947 (in Kansas, using sand from the Arkansas river), wide-spread experimentation didn’t occur until the Barnett Shale play in the 80s, and usage has exploded in the first decade of this century.

Initially, proppant was simply sand, but over time other materials have been incorporated. There are resin-coated sands, ceramic-coated sands, and now we have proppant composed of sintered (powdered) bauxite – tiny manufactured rocks!

Proppant_Types
Source: http://images.sdsmt.edu/learn/speakerpresentations/Kullman.pdf

Properties of proper proppant

By integrating these other materials into the proppant we are able to vary some key properties:

  • Size – the physical size of the proppant needs to be adjustable per the condition of the rock. Typically measured between 8 and 140 mesh (106 µm – 2.36 mm).
  • Geometry – in some cases the shape of the proppant needs to be adjusted.
  • Weight – largely depending on the depth of the frac the density of the proppant will need to be adjusted.

By adjusting these properties we can create the optimum pathways for the extraction of hydrocarbons. Some important measured qualities of proppant are:

  • Conductivity – basically the amount of flow that the proppant will allow.
  • Crush Resistance – deeper wells and varied lithologies require different stress properties.
  • Acid Solubility – tests of solubility in acid can indicate contaminants, and let you know how the proppant is likely to perform underground.

How much will that sand cost me?

Downholetrader.com has a variety of fracking sands up for trade; all pretty much at least a couple of pennies per pound. This week, 20/40 Mesh Finished Black Gold Sand with a 7k crush in North Dakota is going for $.13/lb.!

Proppant_Costs
Source: http://downholetrader.com/#2040

How much will I need?

A lot. The first experiments in the 1940s used around 150 pounds of sand, but now it’s around 5 million pounds per well.

How_Much_Proppant

So, if you are in the Eagle Ford and are looking for a 20/40 mesh and your buddies are all speaking highly of “Antioch Sand” you can expect to spend $.056 * 5,000,000 = $280,000 on sand! And that means the proppant industry is definitely up and to the right – 57 billion lbs in 2012 = $BIG!

Proppant_Sand_Usage
Source: http://www.cadreproppants.com/files/shaletech_cadreproppants_new.pdf

Also, notice the market is 80% sand with the other 20 percent split between resin coating and ceramics.

That’s great, but what should I use for my well?

I am not really qualified to tell you that, but I will say that I have been learning a lot about how proppants are being used in the field by looking at fracfocus.org.

Proppant_Frac_Focus
Source: FracFocus.org

The elephant in the room

Logistics. These are huge quantities of sand that need to be shipped to your well site when you’re ready for them – you don’t have room to store them, and can’t risk contamination. And even if it’s just across Texas, distances can be quite long.

791_Miles_from_Texas
Source http://www.neatorama.com/2014/04/04/Map-Areas-within-a-Texas-Length-Distance-from-Texas/#!Enj7D

Final Thoughts

If you’re thinking about proppant business, you need to know where the rigs are, because as the rigs move, so will the proppant trucks soon thereafter.

If you decide to go on a field trip and visit one of your favorite operators to see how they are using proppant, you can save valuable windshield time with the brand new Rigs Mobile app for the iPhone.

Your Turn

What do you think? What types of proppant are you seeing in your operations? Leave a comment below.

4 things I learned from the Mud Logger “Ask Me Anything” (AMA) on reddit.com

4 things I learned from the Mud Logger “Ask Me Anything” (AMA) on reddit.com

Reddit.com, the self-styled “frontpage of the internet” has an interesting section called “Ask Me Anything” (AMA) where celebrities or professionals make themselves available to questions from the community.

Yesterday, a mud logger in northern Oklahoma did an AMA, and opened up about a number of things, from how he got his job to how he passes the down time on slow drill days.

Most of the answers about money have been deleted, but it’s still interesting and informative.

How mud loggers describe what they do:

A mud logger is the person who actually analyzes the samples. While they are drilling, the cutting come up and are separated out, and i took samples of those, and looked at them under a microscope, and logged the formations and rock types we were drilling in, in order to help the geologist determine where we are, and get an early look at if the well is going to produce or not.
As an MWD/LWD hand, i am basically the navigator while we are drilling. I work closely with the Directional driller. I monitor the tools downhole, and give the information to the DD who uses it to actually steer and drill in the direction we need to go…

They have the internet (I was worried – they are often in the middle of nowhere after all):

Yes. I’m not sure if i could do it without internet honestly. And we have satellite TV out here, so i still get to watch football, and other sports. The internet is terrible, its satellite internet so there is a delay in it. So there is no way to do things like play xbox live or anything like that, but it is sufficient for surfing the web. Some of the guys out here play WoW, and i used to play Runescape a little when i first started to pass the time. You can definitely tell there is a slight delay, but you learn to deal with it.

They like to talk shop (a brief back-and-forth with another redditor):

What basin are you in?
I am actually a mudlogger and on tour right now. When I checked your proof, it took me a little bit to make sure that you weren’t on the same rig as I am.

Haha yea that would have been kinda awkward. I am working in northern oklahoma on a rig. What area are you in?

I’m in the Permian Basin, sliding between SE New Mexico and West Texas (occasionally). I’ve been down here for about two years now, and mudlogging for a total of just about two and a half. I started out in North Central Pennsylvania.
I was actually up in OKC a few weeks ago for a meeting with Devon. Beautiful city.

Yea, Devon and Chesapeake have done a LOT to making OKC such a nice city.
I have only ever worked in Oklahoma, and the panhandle of Texas. Usually drilling through granite wash. What are the formations out there?

Generally speaking: salt, sandstone, shale, and limestone with some dolostone, depending on where you are in the basin. With it being an ancient sea bed, it makes it relatively easy to navigate. However, there are a TON of plays that are going out here, just in the Permian Basin. If I count right there are 7-8 formations that are producing out here.

Family life is hard:

Family is used to it (not married, no children, so im talking about parents and siblings) but it does get hard on holidays. Oil doesnt shut down on holidays, so i have been working on Christmas, thanksgiving, easter, and new years for the last 2 years….
My friends hate it, we used to hang out all the time, but not its only a couple times a month.
My SO is indifferent about it. I mean obviously we would love to be her more, but it is really nice when we do see each other, its always special. She is still in college, so she has plenty of time to study, so her grades have definately increased a lot, which is nice.

A quick search pointed me to earlier Ask Me Anythings from a Geologist and a Petroleum Engineer. Also, you can check out our previous post on 4 Mandatory Skills for the Modern Mud Logger.

Your Turn:

What do you think? Are you a mud logger, and if so does this match with your experience? What would you ask a mud logger? Leave a comment below.

4 Mandatory Skills for the Modern Mud Logger

4 Mandatory Skills for the Modern Mud Logger

Like Bob Dylan sang many years ago, “The times they are a-changin.” The energy industry as a whole is in a rapid and perpetual state of change thanks to a combination of engineering, technology and innovation. This change has left no part of the industry untouched, including the job requirements of a mud logger.

For many years, the mud logging industry has had a reputation for employing what I will affectionately call characters. These individuals were capable of working long shifts alone, but often lacked interpersonal skills. But, the demands of the job have evolved and a unique skillset is required to be successful on today’s job site.

So, if you’ve ever thought of getting into the business, here are 4 skills that are mandatory for the modern mud logger.

#1 Great Communication Skills

Oil and gas companies expect and require all service company employees to be good communicators, and mud loggers are no different. A successful mud logger communicates and reports valuable data to geology and engineering. The mud logger should be proactive in establishing and building rapport with the geologist they report to. This helps clearly define expectations for the job. Mud loggers should also establish good communication with the mud engineer, rig personnel, MWD personnel, geosteerer, directional driller and on-site company men. Today’s increased expected communication is in contrast to the past where mud loggers could feel like the forgotten man on location.

#2 Multitasking Expert

Trying to say on top of catching, cleaning and analyzing samples, updating mud logs, running a calcimeter and looking for pressure trends while answering questions is enough to make your head spin! Being overly analytical or too focused on one aspect of the job can lead to the detriment of other areas. The ability to multitask and quickly shift job priorities is a must.

#3 Thrives Under Pressure

Once upon a time, 100 feet per hour was considered a drill break. Now on most wells, rates of penetration easily exceed 200-300 feet per hour. The industry standard has traditionally required catching 30 foot samples. The faster drilling rates on modern rigs make accurately keeping up with samples extremely difficult, if not impossible in some cases. Sometimes, sample catchers are provided to relieve pressure. But more often than not, the mud logger is on his own. If you also factor in Murphy’s Law, computer glitches will happen and sometimes equipment fails. When this occurs it’s not hard to imagine how stressful the situation becomes.

#4 Jacks Of All Trades

Today’s mud logger needs to possess good technical and computer skills. He also needs to know how to write good geological descriptions, can fix things when they break and is able to communicate effectively. Often times, jobs are in remote locations and you can’t always wait on parts or replacement equipment. This means the mud logger needs a solid understanding of all equipment to ensure as little down time as possible.

Ideal Hire

Having said all of that, the industry still has a few of the characters I referred to earlier. But, most have evolved. The ones who refuse to adapt will soon go the way of the dinosaurs. Because to survive and thrive, today’s savvy service companies in the oil and gas industry have to be ready for whatever changes and challenges lie ahead. It’s time to evolve or get out of the way.

Your Turn

What do you think? How has the industry’s rapid evolution changed your job? Please leave a comment below.

7 Steps to Succeed in the Tough Oilfield Services Business

7 Steps to Succeed in the Tough Oilfield Services Business

Successful Oilfield Services companies deserve our respect and admiration. Their efforts are vital to our having access to the energy that fuels our quality of life.

Oilfield Services is a tough industry. Though the industry encourages entrepreneurship, there is so much opportunity—and will be for so many years to come—that many have jumped in, and the industry has become hyper-competitive.

Rising to the Top

How do companies succeed? At a high level, the winners follow the strategies that Michael Treacy and Fred Wiersema described in 1995:

  1. Operational Excellence – Deliver a great balance of quality, price and ease of purchase/use.
  2. Product/Service Excellence – Deliver the best product or service.
  3. Customer Intimacy – Deliver exactly what the customer wants.

But if you dig into the details, each of these strategies comes with its costs. Operational Excellence requires comprehensive intelligence on the marketplace and being nimble to adapt the balance of quality, price and ease of purchase/use to the market. Product/Service Excellence requires extensive intelligence gathering on the future needs of the industry and what competitors are doing. And Customer Intimacy demands highly focused intelligence gathering to know where the niche opportunities are, and guidance on how to be very nimble at adapting as the industry inevitably evolves.

There’s a common theme: Success in the Oilfield Services industry requires smart decision making based on the best intelligence.

But, what is intelligence? And how do you get the right intelligence to make the right decision?

Some people mistake data for intelligence. Though data is important, it’s only useful within the context on how to use it. It also requires analysis to figure out what the data tells you.

From Data to Intelligence

So, how do you turn data into valuable intelligence? Many businesses use a process originally developed by Drexel Godfrey and Don Harris for helping police forces. Their process is summarized on page 34 of a report they wrote in 1971 for the Department of Justice. The steps are:

  1. Collection and Evaluation – Gather just the right data for the decision to be made. Filter out what’s not useful.
  2. Collation – Organize the data in a way that supports decision making.
  3. Analysis – Study the data to determine what’s the right thing to do. Determine the risk involved in the choices available.
  4. Reporting – Report to others what is learned, then decide.
  5. Dissemination – Direct those that must take action on the decision.
  6. Reevaluation – Determine how successful was the decision.
  7. Management – Revise the data gathering and analysis based on what is learned from the outcome of the decision.

Successful oilfield services companies are often great at steps 4 through 7. But collecting the right data and turning it into intelligence, steps 1 through 3, pose the greatest challenge for several reasons.

First, the sheer quantity of data can be overwhelming. Sometimes there’s just too much, and analyzing it becomes a burden. And more often than not, the key data that’s needed is missing. Then, what’s not missing is sometimes too old. In the hyper-competitive services industry, successful companies gather intelligence that’s up-to-the-hour, not up-to-the-week or -month. Therefore, most data sources are still just not up to date enough to support competitive decision making.

In addition to issues around quantity and quality, companies face the struggle to making the data useful. Getting data into a format that makes it easy to understand is a huge challenge. Plus, analytical tools are often costly and difficult to use. This creates bottlenecks around analyzing the data to create intelligence. Being competitive requires really smart choices on often very complex decisions. That requires using data that is tough to connect.

For example, the question, “Where should I deploy this team?” could easily require knowledge of leasing activity in the Unites States or block sales internationally, rig movement, rig activity, drilling processes, completion processes, production processes, production results, estimates of reserves in a reservoir and who’s got what, forecasts of oil and/or gas prices, current contract activity, how competitors have performed in the past in similar circumstances, transportation logistics in the region, regulatory matters, and on and on.

Your Answers – Delivered

Drilling Info has many very loyal Oilfield Services customers. Like our customers in E&P, A&D, Land, G&G, Engineering, Finance and Legal, we’re committed to providing them the very best products to support their intelligence gathering and decision making. Many of the recent products we’ve developed in prior years have been aimed at delivering more comprehensive support to our Oilfield Services customers. DI Rigs is just one such example of this.

This year, we will develop a series of new products, all aimed at providing our customers in Oilfield Services answers—answers to the most important questions they face in making their businesses successful.

We will continue to gather only the right data, clean it up and make it available in ways that make it easy to use and understand. We will then analyze that information to find the valuable nuggets that can support our Oilfield Services client’s decisions.

We’re starting with data and services to support better delivery of warm leads. We believe that regardless of the business strategy our customers use, providing them good intelligence on sales leads will be valued. We will help provide answers to vexing questions, like what areas are becoming active, who are the major players, what services are needed, who are the competitors and, in time, what are prevailing pricing trends?

Ahead of the Curve

Long before joining Drillinginfo, I spent 12 years working with two Oilfield Services companies. A lot has changed since then, but the bottom line is that service companies face many headwinds in today’s environment. However, like any other industry, it is the innovators and early adopters who will reap the greatest benefits and leave their competition in the rear view window. Companies that aren’t afraid to try new things and “fail forward,” as John Maxwell puts it, will always lead their respective industries. The only question that remains is who will be those companies in our field in the coming years?

Now I’d like to hear from you. Who are the true innovators that you see changing the game in Oilfield Services? And what are some of the best practices you have seen to overcome the challenges discussed above? Please, leave a comment below.