Schlumberger CEO: Can U.S. shale meet future global oil demand?

By Patrick C. Miller | September 10, 2018

The advantages of drilling longer laterals and pumping more sand and water to increase oil production from North American shale could be nearing an end, according to Paal Kibsgaard, Schlumberger chairman and CEO.

Speaking at the two-day Barclays CEO Energy-Power Conference in New York on Sept. 4., Kibsgaard said, “For a resource base where production is entirely dependent on fracture propagation and fracture coverage to drain the reserves, we have yet to understand how reservoir conditions and well productivity change as we continue to inject billions of pounds of proppant and billions of gallons of water into the ground each year.”

As an example, he pointed to the Eagle Ford in Texas where unit well performance—when normalized for lateral length and pounds of proppant pumped—is declining while the percentage of child wells has continued to increase. The benefits of longer laterals and higher sand and water volumes appears to be nearing an end, both from the technical and commercial perspectives, Kibsgaard said.

Although the North American production base makes up 20 percent of global oil supply, he said it absorbed nearly 70 percent of demand growth since 2010, primarily through the development of the Eagle Ford, Bakken and Permian basins. However, Kibsgaard explained that there are questions about whether the Permian alone can provide the 1.5 million barrels per day of annual production growth needed. The challenge in the Permian, he stressed, will be reservoir and well-performance, as the rate of infill drilling continues to accelerate.

“While the current Permian offtake constraints should be resolved by the end of 2019, these challenges will likely have a dampening effect on production growth, wellhead prices, and investment levels in the coming year,” Kibsgaard said. “In fact, so far in the third quarter, the hydraulic fracturing market has already softened significantly more than we expected in spite of the overall rig count holding up relatively well.”

Kibsgaard noted that between 2014 and 2017, global E&P investments fell by 44 percent before the 2018 recovery, which has been mostly driven by North America shale production. He said current investment levels aren’t sustainable and won’t be able to meet either the medium- or long-term demand on reserve replacements.

“This means that investments would need to continue to grow, even after reaching the new sustainable level, to compensate for the under-investment deficit from the previous years,” Kibsgaard explained.

During the industry downturn, he said many international operators focused on maximizing cashflow by producing oilfields harder and by prioritizing short-term actions at the expense of the full-cycle investments required to manage the overall resource base. The international production base will require double-digit investment growth in the near future to maintain current production levels, Kibsgaard said.

“The short-term investment focus adopted since 2014 offers a finite set of opportunities over a limited period of time, and this period is now clearly coming to an end as seen by accelerating decline rates in many countries around the world,” Kibsgaard pointed out.

The effect of the global geopolitical situation must also be included in the international supply outlook. For example, Kibsgaard said recent instability and safety concerns led Schlumberger to evacuate a large number of its employees from the Basra region of southern Iraq. More investment will be needed to replace Venezuelan and Iranian oil leaving the market, he added.

The good news, according to Kibsgaard, is that the E&P investment needed to maintain the global oil supply and demand balance is already in progress.

“While international E&P spend in the first half of 2018 was up only a few percent year-over-year, the growth rate in the second half of the year is already strengthening, fueled by stable oil prices and significantly improved cash flow for our customers,” he noted. “The increase in activity we currently see is still focused on the existing production base, while investments into new FIDs for larger developments and eventually more exploration activity to address the record low reserves replacement is still to come.”