How to Drive Down Drilling Costs to Survive the Oil Glut!

Since the peak oil price of mid 2014, oil prices have dropped some 60%. To survive, oil and gas companies must respond by cutting costs. Since drilling contributes 50 – 70% of the $/bbl of oil, it is an easy target for cost cutting when there is an oil glut. However, the wrong way to do this, is by eliminating drilling activities by releasing all rigs, drilling staff, contractors etc. Somewhat like, throwing away the baby with the bath water!

One reason for this turn of events is that when the oil price is good, the focus of management is drill, drill, and drill, and no time for operations improvement. Therefore, companies are caught unprepared by oil glut, and are left with only one option – scrap drilling activities.

But the resilience of US shale producers is something to admire by their conventionals counterpart.

As the oil prices continued to slide, American shale producers optimized their supply chains, applied new technology to optimize hydraulic fracturing and improved their organisations to cope with the new realities. Granted they may eventually succumb to the low-price pressures as their operations are inherently high-cost, we should note that many of their counterparts have already crumbled!

How may we reduce drilling costs commensurate with the magnitude of oil price realities? In addition to re-organising, and optimizing supply chains, here some suggestions on the technical side:

  • Eliminate non-productive times – save 15 – 25% cost (ideally)
  • Optimise current operations, eliminating invisible lost time – save 10% of cost.
  • Apply new technologies – save 30 – 60%.

The first two above are obvious, and easy wins.

However apply new technology and realize the stated benefits, skills and expertise are required. In most cases, an external facilitator is necessary.

Here, we look at the well designs, compare each with the requirements, in terms of production as well as well integrity needs. Every excess fat is screened away. Then, cutting edge processes are employed to deliver the well.

Many technologies are available. Some of the easy ones are:

  1. Slim well designs
  2. Managed pressure drilling
  3. Drilling with casing

These technologies require top notch expertise to execute to realize their value. If we have already released our best staff, how can we survive? Unfortunately, with the pressure to reduce cost as oil prices slide, reducing staff and dropping the rigs are the easiest and the most obvious targets. The chinese adage says “the best time to plant a tree is 20 years ago. The next best time is now!”

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