Operators using downturn to optimize performance

Speaking during the “Operators’ Panel Discussion” at the 2009 IADC Drilling Onshore Conference & Exhibition on 21 May in Houston, four E&P companies shared reactions to the market downturn, as well as activity plans and outlook.

Mark Patteson, technology unit leader, manager worldwide drilling & completions for BP, said his company currently has 15 rigs in drilling operations in the North American land market, down from 25 in 2008.

He noted that BP will continue to focus on safe operations through the downturn and will work towards becoming more efficient rather than just hope for a recovery in commodity prices.

Mr Patteson said he personally believes that the industry should take this opportunity to improve the business by continuing to renew the workforce and work together with contractors.

Ken Kirby, senior vice president, Eastern division, XTO Energy, commented that his company had 95 rigs running during the boom but was now down to the mid-50s. In his division, which includes East Texas and Louisiana, they now have 27 rigs running, after maxing out at 41 last September.

XTO saw a 28% growth in average daily production for 2008 and is targeting a 16% growth for 2009. They also have $2.75 billion budgeted for development and exploration this year.

Focusing on the Haynesville, Mr Kirby emphasized that while wells in this basin have been very productive, they also have a 95% decline rate. And because this play is different than better-understood shales like the Barnett, nobody really knows how the Haynesville will play out in the long term.

Bart Boudreaux, vice president drilling, Samson Resources, said that his company’s rig activity has gone from 29 in July 2008 to eight in July 2009, and he expects that number to remain unchanged through this year.

Samson is a private company and is profitability-focused, Mr Boudreaux said, so they need to see sustainable improvements in commodity prices and the cost structure before they will ramp up activities again. Especially on the cost side, he commented that well costs have risen significantly since 2005 even though efficiency has been inconsistent.

He also noted that Samson favors conventional rigs over the newer-technology rigs, saying that the company believes conventional rigs are safe and efficient; have quicker and less problematic moves; have lower downtime; and are easier and quicker to repair.

And the silver lining in this tough market, Mr Boudreaux said, is that the industry is now switching from firefighting mode to performance mode. He’s seeing improved planning and focus, a less diluted workforce and better-quality equipment.

Jeff Tommerup, general manager-drilling, Questar Exploration & Production, provided a brief overview of his company and noted that they’re active in resource plays such as the Bakken and Woodford Shales.

They have up to 1,500 future development locations on the Pinedale Anticline, he said, but plans for additional rigs have been put on hold due to weak natural gas prices. In fact, they have nine rigs running there currently but that number will come down, he said.

Elsewhere, Questar has completed its first operated well in the Bakken Shale, sees growth in the Granite Wash/Atoka play in the Texas Panhandle, and has found early success in the Woodford Shale. In Louisiana, they have focused on the Haynesville and have seven rigs there.

One trend Mr Tommerup pointed out was that over the past year, the Mid-Continent has emerged as a major growth area for his company. They’ve shifted CAPEX from the Rockies over to the Mid-Continent.

On current market conditions, Mr Tommerup commented that rig prices have decreased by up to 60% even as the quality of rig crews have improved. Costs for other services have come down as well as become more readily available. And operators are focusing on optimizing: “Instead of an engineer looking after two or three rigs, now he’s focusing on one or two. That really has increased our efficiency,” he said.