By Stephen Whitfield, Associate Editor
The US onshore market is on an upward trend in the first half of 2022, with high oil prices and increasing drilling activity giving hope to operators as they come out of a lengthy downturn. However, even as the market improves, operators are maintaining a note of caution.
During a panel session held at the 2022 IADC Drilling Onshore Conference on 19 May, representatives from three companies outlined the current challenges and opportunities in the onshore sector. Among them, the industry must account for the inflation and supply chain uncertainty that are still plaguing the global economy. With investor dollars harder to come by, shareholder returns also remain a top priority.
“We have a lot of pressure to continue to perform,” said John Willis, VP of Drilling and Completions at Occidental Petroleum (Oxy), during the panel discussion. “The investment community is not giving us a pass where it doesn’t matter how bad we perform when oil price is $100 per barrel. They’re looking down the road. If you’re going to be a viable company long term, you have to keep performing.”
Operators are also focused on reducing their carbon footprint and improving personnel safety onsite. Safety performance has been a particular area of focus for Oxy, especially the prevention of serious injuries and fatalities on site. Mr Willis said people are the key to maintaining safety onsite – hiring competent staff to work on the rig site and training them effectively. However, the industry has faced challenges in attracting and retaining talent in recent years, with potential recruits flocking to other industries such as technology.
Kyle Eastman, Drilling Operations Manager at Chevron, also noted personnel resources will be critical for the industry moving forward. He said operators are continually focused on how to attract, develop and retain talented people. Beyond that, however, operators are looking at their processes for human performance. With rig activity picking up, Mr Eastman said it was critical for companies to make sure that their processes for working on the rig site were clear and effective.
“As we get into busier times with higher activity, that will really test all of our processes,” he said. “A lot of us sit around and we think we have a good process for this or that, but I would argue you don’t necessarily know whether that’s true until you hit a time like now. Just because you have good processes, if it’s not clear, you could argue that it’s not that good. I think we’ve really got to think about our processes, error tolerance, and consider human performance.”
Chevron, like many other operators, has also been committed to reducing hazardous emissions from its operations. Mr Eastman noted that, for example, none of the company’s 10 rigs working in the Permian Basin is running on diesel fuel – seven are running on natural gas, while three are working on highline power – leading to a reduction in CO2e emissions. He said it will be important for operators and drilling contractors to work together to determine the best equipment available to help further minimize the rig’s carbon footprint.
Mr Eastman also noted the importance of finding effective low-carbon solutions that provide financial value. As publicly traded operators remain focused on delivering high returns to shareholders, they must be conscious of investing in solutions that provide the greatest impact at the lowest cost.
“From an operator standpoint, when we look at unconventional developments, the three key activities that can make the biggest difference are production operations, well activity and facilities in that order. When we look at the cost of reducing carbon, oftentimes, the lowest cost, or the greatest value proposition, is for an operator to invest money in production operations. The same dollar spent in production can oftentimes reduce significantly more carbon than it can in wells activities,” Mr Eastman said.
For smaller operators, managing spending in the wake of rising inflation can be a particularly rough challenge. Drew Limbacher, Chief Operating Officer at Vencer Energy, a company that began operations in August 2021, said that smaller operators might not have the same purchasing power as a major operator, so those companies must be extremely careful with their spending. Supply chain management is critical. Mr Limbacher said Vencer is focused on finding effective contractors and locking them in to longer-term contracts to keep costs under control.
“We have to think hard about who our long-term partners are going to be, especially on long-lead items like OCTG, like rigs, like frac crews. We do that with contracts, where we try to do at least six- to 12-month contracts – hopefully we can get longer-term contracts as we get more on board with people. We take our pain where we have to, with certain costs like labor, but we try to lock in as much cost as we can just so we can at least budget for it, understand it, and we have enough levers left where we can potentially reduce costs.”