The growth in oil and gas production from the US shale industry has had a transformational effect on US energy balance, economy, industrial competitiveness and employment levels. Many other countries with shale reserves are now looking at the US experience and hope to take advantage of lessons learned in order to exploit and benefit from their own reserves. Regester Larkin shared their latest Shale Report with PESA to look at the opportunities that these developments offer for integrated service companies.
The latest copy of the Regester Larkin Shale Report looks at the role of service companies in the ever-growing oil shale market. A convergence of two main factors offer integrated service companies (ISC) significant opportunities in the current climate for operators and the article looks at these factors and identifies three different situations ISC may want to consider.
Firstly, following the steep decline in oil prices in the 1990s, the international oil companies (IOC) cut back dramatically on the research and development budgets in contrast to ISC which increased investment. In fact, ISCs now hold a higher patenting rate than IOCs and, when compared by percentage of annual revenue, spend up to 10 times as much as oil companies on R&D. In some cases, the actual amount spent by ISCs rivals that of an IOC, for example Schlumberger’s R&D spend of $1.2bn approaches Shell’s budget of $1.3bn.
This technical knowledge is also coupled with increased capability and many ISCs are now able to conduct full field development activities, particularly onshore. This expansion of the role of ISCs initially met with resistance by the IOCs but many service companies now fulfill this role on behalf of an IOC or national oil company (NOC) license holder. This combination of technical knowledge and development capability present significant opportunities for ISCs in the shale sector in three different sets of circumstances.
Firstly, in countries with little or no significant previous hydrocarbon exploitation, ISCs have a significant opportunity not only with respect to development of the fields themselves, but also to help develop and build the necessary infrastructure that is currently lacking in undeveloped locations. In some cases, such as South Africa, enormous reserves of shale are believed to exist but the lack of existing pipeline infrastructure, poor roads and limited water would make exploitation of these reserves a significant challenge. This is something that only the largest IOCs may want to tackle but only with the expertise and capability that ISCs can offer.
A second situation is where countries have a history of hydrocarbon production but declining output. In light of reduced production, countries may begin to look towards shale as an alternative source of crude to bolster output. Although some countries may be nervous about turning over field development to an ISC, it is likely that significant opportunities will exist in a traditional service company role.
Lastly, countries that continue to enjoy long-term production of conventional hydrocarbons may still want to survey, explore and inventory their shale reserves. In these circumstances, NOCs will wish to take advantage of the technical skills and expertise in shale that service companies offer.
In the changing shale environment, ISCs have a number of opportunities to apply their technical and development expertise. Those with the appetite and ability to manage above ground risks will be well-placed to take advantage of these opportunities.
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