A New, Agile Oil and Gas Industry
April 2, 2015
I just finished reading Mark Hill's article "Oil prices are down, so what" in PennEnergy.
Mr. Hill, president of Allegro Development Corporation, points out a number of changes that have occurred in the oil and gas industry in the past several years. Hill writes, "In 2015, oil field, drilling and information technology have combined to create a perfect storm of capability and agility that will allow American oil markets to respond with a speed typically only seen in the digital realm."
While that may be a stretch, Hill points out that the time "to get oil out of the ground" has declined over the past five years from nine months to one month. Hill references a recent Wall Street Journal article in which EOG Resources Inc. reported that it now takes 4.3 days to drill an average well in the Eagle Ford Shale compared to 14.2 days in 2012. In addition, these wells are reaching peak capacity sooner which is a significant boost in net present value. What this means is that the nature of shale oil drilling has given the industry the ability to rapidly respond to changing market forces. While I do not support Daniel Yergin's notion that the U.S. is the new swing producer (that title remaining in Saudi Arabia's trophy room), it does point to a more agile industry. I agree with Mr. Hill, that rig count doesn't measure industry activity in the same way it did before shale drilling and directional drilling. This should not be surprising as applications in digital technology permeate the oil and gas industry. This is certainly not your grandfather's oil and gas industry and it's probably not your father's.
These technological changes confirm my basic belief that the industry responds well to the challenges of low oil prices. Since 1986, the industry has grasped the reality of oil and gas as commodity products and the necessity to put constant strategic emphasis on reducing costs to achieve competitive edge and increase shareholder value.