Upstream operators have masterfully used the current downcycle to prepare for the years ahead, achieving stunning efficiencies in drilling and completions even though tweaks and improvements were continuous in the years leading up to late 2014 when oil prices plummeted and kicked off what has arguably been industry’s worst slump.
Some of these advancements “absolutely” would not have happened if not for the downturn, Allen Gilmer, CEO of DrillingInfo.com, said.
One of the first ways operators cut costs and drove what has become known as “efficiencies” was simply getting better at the logistics and coordination of supplies and equipment.
Efficiency gains have varied by operator and play, but results obtained by the best operators “look like step change–two times as much as before per same quality of rock,” Gilmer said.
An even more exciting way that companies improved their cost structure was getting better at how oil was extracted and delivered. And one method that made this happen was better geosteering–the ability “to land in the right spot…the sweet spot” of a reservoir, Muqsit Ashraf, Managing Director for Energy at Accenture Strategy, said.
“You can be off a few feet [from the optimum target] and see significantly different levels of production,” Ashraf said.
In addition, advances in reservoir modeling, lateral logging and measurement-while-drilling allows real-time gauges of the rock’s petrophysical properties and higher productive zones, he said, which are “constantly being perfected.”
With continual technology improvements in geosteering and real-time monitoring as the well is drilled, “you can avoid sidetracks [drilling detours], which are costly, happen more frequently than people expect them to–typically every five to ten wells–and can add hundreds of thousand dollars each time,” Ashraf said.
For example, EOG Resources has publicly stated in the last year that it continues to perfect what it calls “precision targeting” to drill the very best areas of a formation. Instead of landing wells anywhere within a 150-foot window, the company steers them exactly in a much narrower window of around 20 feet, its executives have said.
Other technologies, such as microseismic, allow operators to effectively monitor the hydraulic fracturing process in real time to change perforation spacing–adjusting the number of intervals or sections that require fracturing–and also modifying the fracturing fluid recipe that includes sand and chemicals.
These and other technology advances can improve perforation efficiency from about 50%-60% to as much as 80% or more, Ashraf said, and yield significantly more production from a given well.
“Companies say it enhances net present value [by] one to two million dollars per well,” he said.
In addition, EOG also recently announced it has developed a proprietary enhanced oil recovery technology to use on mature wells in the south Texas Eagle Ford Shale, to force out crude that was missed the first time around.
A recent focus of upstream companies has been to drill the longest laterals that are possible while using geosteering to stay within a zone, Guggenheim analyst Subash Chandra said. A lateral is a well’s horizontal portion.
“The only limit to this is the ability to stimulate the ‘toe’ of the well,” Chandra said.
While 10,000 feet has become a customary lateral length in recent years, big independent Pioneer Natural Resources–one of the first companies to try unconventional technologies to produce oil from West Texas’ Permian Basin–is taking some of its horizontal wells there out to 13,000 feet. Longer laterals allow access to more hydrocarbons per well.
As oil prices climb and operators step up activity these advances will begin to bear fruit that forecasters may be missing in their estimates of future production.
Some market watchers have said that since producers have already migrated to a basin’s sweet spot, it will be difficult to achieve production levels seen over the last two years.
However, with untouched areas underneath currently exploited shale plays and EOR projects yet to get underway; the US could be primed for yet another oil boom.
By Starr Spencer, Senior writer
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Supply chains are currently in crisis. They have been for a long time now, ever since the start of the Covid-19 pandemic reshaped the way the world works. Stressed shipping networks and operational blockages – coupled with China’s insistence on a Covid-zero policy – means that cargo tanker rates are at an all-time high and that there just aren’t enough of them. McDonalds and KFCs in Asia are running out of French fries to sell, not because there aren’t enough potatoes in Idaho, but because there aren’t enough ships to deliver them to Japan or to Singapore from Los Angeles. The war in Ukraine has placed a particular emphasis on food supply chains by disrupting global wheat and sunflower oil supply chains and kicking off distressingly high levels of food price inflation across North Africa, the Middle East and Asia. It was against this backdrop that Indonesia announced a complete ban on palm oil exports. That nuclear option shocked the markets, set off a potential new supply chain crisis and has particular implications on future of crude oil pricing and biofuels in Asia.
A brief recap. Like most of Asia, Indonesia has been grappling with food price inflation as consequence of Covid-19. Like most of Asia, Indonesia has been attempting to control this through a combination of shielding its most vulnerable citizens through continued subsidies while attempting to optimise supply chains. Like most of Asia, Indonesia hasn’t been to control the market at all, because uncoordinated attempts across a wide spectrum of countries to achieve a similar level of individual protectionism is self-defeating.
Cooking oil is a major product of sensitive importance in Indonesia, and one that it is self-sufficient in as a result of its status as the world’s largest palm oil producer. So large is Indonesia in that regard that its excess palm oil production has been directed to increasingly higher biodiesel mandates, with a B40 mandate – diesel containing 40% of palm material – originally schedule for full implementation this year. But as palm oil prices started rising to all-time highs at the beginning of January, cooking oil started becoming scarcer in Indonesia. The government blamed hoarding and – wary of the Ramadan period and domestic unrest – implemented a Domestic Market Obligation on palm oil refineries, directing them to devote 20% of projected exports for domestic use. Increasingly stricter terms for the DMO continued over February and March, only for an abrupt U-turn in mid-March that removed the DMO completely. But as the war in Ukraine drove prices even further, Indonesia shocked the market by announcing an total ban on palm oil exports in late April. Chaotically, the ban was first clarified to be palm olein only (straight refining cooking oil), but then flip-flopped into a total ban of crude palm oil as well. Markets went haywire, prices jumped to historical highs and Indonesia’s trading partners reacted with alarm.
Joko Widodo has said that the ban will be indefinite until domestic cooking oil prices ‘moderate’. With the global situation as it is, ‘moderate’ is unlikely to be achieved until the end of 2022 at least, if ‘moderate’ is taken to be the previous level of palm oil prices – roughly half of current pricing. Logistically, Indonesia cannot hold out on the ban for more than two months. Only a third of Indonesia’s monthly palm oil production is consumed domestically; the rest is exported. An indefinite ban means that not only fill storage tanks up beyond capacity and estates forced to let fruit rot, but Indonesia will be missing out on crucial revenue from its crude palm oil export tax. Which is used to fund its biodiesel subsidies.
And that’s where the implications on oil come in. Indonesia’s ham-fisted attempt at protectionism has dire implications on biofuels policies in Asia. Palm oil prices within Indonesia might sink as long as surplus volumes can’t make it beyond the borders, but international palm oil prices will remain high as consuming countries pivot to producers like Malaysia, Thailand, Papua New Guinea, West Africa and Latin America. That in turn, threatens the biodiesel mandates in Thailand and Malaysia. The Thai government has already expressed concern over palm-led food price inflation and associated pressure on its (subsidised) biodiesel programme, launching efforts to mitigate the worst effects. Malaysia – which has a more direct approach to subsidised fuels – is also feeling the pinch. Thailand’s move to B10 and Malaysia’s move to B20 is now in jeopardy; in fact, Thailand has regressed its national mandate from B7 to B5. And the reason is that the differential between the bio- and the diesel portion of the biodiesel is now so disparate that subsidy regimes break down. It would be far cheaper – for the government, the tax-payers and consumers – to use straight diesel instead of biodiesel, as evidenced by Thailand’s reversal in mandates.
That, in turn, has implications on crude pricing. While OPEC+ is stubbornly sticking to its gentle approach to managing global crude supply, the stunning rebound in Asian demand has already kept the consumption side tight to match that supply. Crude prices above US$100/b are a recipe for demand destruction, and Asian economies have been preparing for this by looking at alternatives; biofuels for example. In the past four years, Indonesia has converted some of its oil refineries into biodiesel plants; in China, stricter crude import quotas are paving the way for China to clamp down on its status of a fuels exporter in favour of self-sustainability. But what happens when crude prices are high, but the prices of alternatives are higher? That is the case for palm oil now, where the gasoil-palm spread is now triple the previous average.
Part of this situation is due to market dynamics. Part of it is due to geopolitical effects. But part of it is also due to Indonesia’s knee-jerk reaction. Supply disruption at the level of a blanket ban is always seismic and kicks off a chain of unintended consequences; see the OPEC oil shocks of the 70s. Indonesia’s palm oil export ban is almost at that level. ‘Indefinite’ is a vague term and offers no consolation to markets looking for direction. Damage will be done, even if the ban lasts a month. But the longer it lasts – Indonesian general elections are due in February 2024 – the more serious the consequences could be. And the more the oil and refining industry in Asia will have to think about their preconceived notions of the future of oil in the region.
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An online shop is a type of e-commerce website where the products are typically marketed over the internet. The online sale of goods and services is a type of electronic commerce, or "e-commerce". The construction supply online shop makes it all the more convenient for customers to get what they need when they want it. The construction supply industry is on the rise, but finding the right supplier can be difficult. This is where an online store comes in handy.
Nowadays, everyone is shopping online - from groceries to clothes. And it's no different for construction supplies. With an online store, you can find all your supplies in one place and have them delivered to your doorstep. Construction supply online shops are a great way to find all the construction supplies you need. They also offer a wide variety of products from different suppliers, making it easier for customers to find what they're looking for. A construction supply online shop is essential for any construction company. They are the primary point of contact for the customers and they provide them with all the goods they need.
Most construction supply companies have an online shop where customers can purchase everything they need for their project, but some still prefer to use brick-and-mortar stores instead, so it’s important to sell both in your store.
Construction supply is an essential part of any construction site too. Construction supply shops are usually limited to the geographic area where they are located. This is because, in order for construction supplies to be delivered on time, they must be close to the construction site that ordered them. But with modern technology and internet connectivity, it has become possible for people to purchase their construction supplies online and have them shipped right to their doorstep. Online stores such as Supply House offer a wide variety of products that can help you find what you need without having to drive around town looking for it.