Schlumberger CEO addresses key needs of oil and gas industry

By Staff | April 05, 2017

Paal Kibsgaard, Schlumberger chairman and CEO, spoke at the Scotia Howard Weil 2017 Energy Conference in New Orleans on March 27. His talk addressed four topics he believes are critical to restoring the oil and gas industry’s strength and advancing its capabilities after what he called “one of the most devastating downturns on record.”

Kibsgaard said there is a need for higher E&P spending to meet the growing demand for hydrocarbons. There’s also a need to protect and encourage investment in research and engineering. A third need is for new business models that foster closer technical collaboration and commercial alignment between operators and the supplier industry. Finally, Kibsgaard called for broader and more integrated technology platforms to replace today’s fragmented and evolutionary technologies.

Kibsgaard expressed concern that the underlying production and reserves data from many countries outside the Middle East, Russia and North America demonstrate that depletion rates are rapidly increasing.

“These depletion rate trends will only accelerate going forward if production continues to be upheld without significant additions to proven developed reserves through increased capex spend,” he said.

During his presentation, Kibsgaard offered the following insights.

The supply-demand gap is tightening

“Over the past year, we have maintained our constructive view of the oil market, which is supported by the fall in OECD oil stocks that began in July of 2016. At present OECD stocks are around 3 billion barrels as demand remains strong and supply has levelled off through a combination of lower oilfield activity and production cuts from both OPEC and key non-OPEC countries.”

North America is leading the recovery

“At present the only region in the world showing clear signs of increased activity and investment compared to 2016 is North America land where E&P operators appear unconstrained by a sixth year of negative free cash flow.”

Production sustainability vs decline and depletion

“In a scenario where the additions of proven developed reserves are curtailed through lower investments while production is upheld by producing the wells harder, the decline rate will be low and the production base will falsely appear to be very resilient.

“However, the real picture in such a scenario is told by the depletion rate, which will show an increasing trend since production is kept at high levels with little to no additions of proven developed reserves.”

Depletion rates indicate a long-term production decline

“Production from the continental shelves of Norway, UK, and the US Gulf of Mexico has been held flat or even increased over the past three years, which represents a flattening and even reversal of the established decline rate trends.

“This decline rate performance, in spite of the dramatic reduction in E&P spend, is interpreted by the market as a surprising sign of production resilience.

“However, the real story is told by the depletion curve, which has shown a significant increase in all three examples and is already between 15 and 20 percent in these major basins.”