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Schlumberger COO: U.S. Shale Technology Not Easily Transferred

The "brute force" drilling process that unlocked North America's shale deposits won't easily be transferred overseas, Schlumberger Ltd. COO Paal Kibsgaard said Wednesday.

Kibsgaard's comments came during a two-day conference with financial analysts, which was held at the company's research facility in Cambridge, MA. The world's largest oilfield services company, he said, is working on refinements to transfer technology to other parts of the globe.

However, "we are convinced that the brute force approach established in North America will not be practical overseas, either from a financial or an operational standpoint."

Schlumberger technology has been instrumental in helping to successfully extract gas and oil from shale deposits in the United States and Canada. And the technology continues to be refined, Kibsgaard told participants.

As an example, Petrohawk Energy Corp.'s management team last Tuesday reported that in four test wells in the Eagle Ford Shale Schlumberger's new hydraulic fracturing technology, HiWAY, pumped up production by up to 37% and increased estimated ultimate recoveries by up to 90% (see Shale Daily, Feb. 25).

Successfully exporting some of the hydraulic fracturing technology, however, requires more than technology, said the COO. It also requires abundant water supplies, proppants of fine sand or ceramic materials, as well as enough pumping equipment. In some areas where shale deposits could yield gas and oil reserves, there just aren't enough of the required materials, said Kibsgaard.

"We need to establish a workflow and corresponding technology offering built around a better evaluation of shale gas reservoirs," he said. "The goal will be to only drill the best wells, and only stimulate the best intervals, while we continue to look for [fracturing] solutions that further minimize the usage of both water and proppant."

Schlumberger's North American operations, said Kibsgaard, have profited since its $11 billion merger last year with Smith International Ltd. (see Daily GPI, Feb. 23, 2010). The Smith assets gave the company an improved internal supply chain of well services, as well as a drilling fluids business. Integrating the Smith operations into the corporation is ongoing, but he said synergies already are being achieved.

Technology may not be easily transferred overseas, and other issues also may hinder development, according to CEO Andrew Gould. He told investors in a conference call in January that "a lot of the environmental concerns and the infrastructure concerns that can be addressed in the North American market cannot be addressed overseas, and therefore, people are going to be a lot more careful. And we, definitely, are seeing that."

Following the two-day investor conference Goldman Sachs analysts said in a note to clients they "came away with confidence" that Schlumberger (SLB) would maintain its leadership position. "A newer aspect of SLB's growth strategy appears to be focused on lower-tech but high-volume markets, given new products with lower price points and the recent reorganization toward more of a product/service line focus, which can be more effective in markets like U.S. land. Maintaining premium margins will be the key challenge of this strategy, in our view, but SLB's large scale should prove to be an advantage."

Analysts with Jefferies and Co. Inc. reiterated their "buy" rating on Schlumberger and wrote that the management team had "set forth a goal to continue to lead in international margins and become the leader in North America." The company's restructuring efforts in North America "certainly have helped," but "we believe SLB would need a rebound in the Gulf of Mexico, some improvement in Mexico and a more balanced supply/demand situation in U.S. pressure pumping if it is to pass [Halliburton's] margins."

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