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Schlumberger CEO: More Drilling Needed to Offset Decline Rates

Rising global demand for natural gas and steep decline rates in many fields mean the industry needs to drill more, Schlumberger CEO Andrew Gould told a New Orleans audience last week. Other challenges facing exploration and production companies include growing resource nationalism by national oil companies and a crippling shortage of skilled workers, particularly engineers, he said.

Citing statistics from the International Energy Agency, Gould told attendees at the annual Howard Weil Energy Conference that global gas demand is projected to rise 2.5% annually until 2015 and then slow somewhat thereafter.

"Cumulative investment of $3.9 trillion will be required to grow global supply to the levels needed to meet this demand through 2030, and demand growth will be fastest in the developing economies," Gould said. "But it is in North America that capital costs are highest and where spending goes mainly on combating rapid decline rates to maintain production."

In the short term, the outlook for gas in North America has improved on current strength in gas prices due to lower storage levels, declining Canadian production and the decline of liquefied natural gas (LNG) deliveries compared to what was experienced in 2007, Gould noted. Canada should see a more active drilling season after the spring ice break-up, and there should be some uptick in Lower 48 activity, he said.

"Many of these reservoirs display high decline rates, and this has important consequences in service intensity and technology needs. In particular, the shift to horizontal wells is becoming more marked as a means to improve reservoir contact and therefore initial production rates. We believe that the high decline rates of existing fields and poorer quality reservoirs will continue to underpin activity in the medium to longer term and that excess service capacity will be gradually absorbed," he said.

Fragilities in the oil and gas supply chain mean it will take longer than originally expected to build adequate new supplies. "Lack of access, lack of resources, uncertain fiscal terms, project delays and new equipment delays are all hampering the supply response," Gould said.

Another factor affecting the industry's productivity and ability to run faster than decline rates is a growing reliance on unconventional resources. "The greater service intensity required to produce unconventional natural gas in North America is just one example of this challenge," Gould said. "The move to heavier oil production in Canada and Venezuela is another. In addition, extreme conditions of temperature and pressure together with increasing toxicity of crudes and gases all make new exploitation more difficult."

With the going having gotten tough, the industry will just have to drill more.

"The fragile balance of natural gas supply in the Lower 48 is perhaps the best example of this," Gould said. "Following the dramatic decline in [continental] shelf gas supply, the industry has had to increase drilling for lower-quality natural gas resources to levels never seen before to compensate for [Gulf of Mexico] production losses."

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