In the talk about oil cycle phases, one pattern that has emerged in recent years is the appearance of “mini-trends” within the industry that are often at odds with what is happening in the larger market.
As a result, data is growing increasingly complex, and even single data sets contain a “story-behind-the-story” which often makes more complete interpretations necessary and keeps journalists and researchers busy “Deciphering It All.”
Case in point–one of many–is the offshore industry which is undergoing a slump in dayrates, particularly for deep- and ultra-deep waters, while the onshore sector–which at least in the US and increasingly overseas now consists of unconventional drilling–churns ever-higher amid what is generally agreed to be a larger, unprecedented boom.
These small counter-trends have occurred for several years and appear related to North America’s unconventional oil and gas revolution. For instance, it used to be that you could look at the Baker Hughes weekly rig count and predict what was going on in the industry solely from the rise and fall of the numbers.
But with rig efficiencies, that hasn’t been true for awhile. Rigs can now “do more with less” so that even areas where rig counts have fallen are showing increasing production.
North Dakota is a good example.
In the Williston Basin that encompasses the giant Bakken Shale (which also spans northeast Montana), the rig count was 179 in the first quarter; that figure is down from a peak of 206 rigs working in June 2012. But during the same periods, the well count rose to 707 in Q1 2014, up from 507 in Q1 2012. And the 707 wells were down from 737 wells drilled in Q4 2013 due to a particularly brutal winter this year in North Dakota. So, that’s 200 more wells in a period where 27 fewer rigs were used.
Further within the upstream industry, there are other market bifurcations: new rigs command premium dayrates while the old standbys built 30 years ago, which were good enough to drill most wells prior to the unconventional revolution, are now virtual industry wallflowers that can be had cheaply for conventional wells.
Many of those rigs are just too old to keep up with current requirements and are being retired. And in some places such as the Bakken Shale of North Dakota, West Texas’ Permian Basin and elsewhere, there is no longer one large “play” but “benches” of plays–distinct substrata with separate unique geological characteristics that offer differing production potential.
For instance, a small company named Petrohawk Energy discovered the Eagle Ford Shale in 2008. Not long after, the play was found to contain at least three separate “windows”–of oil, dry gas and gas liquids/condensate.
Now, operators in the South Texas field are not only combing separate Upper and Lower Eagle Ford intervals for their potential, but Halcon Resources (whose CEO Floyd Wilson headed up Petrohawk but sold it in 2011 for $12 billion) has a big operation in a field it calls “El Halcon” in East Texas near Houston which it also dubs “Eagle Ford East.” Wilson also sees similarities in those two fields, along with the emerging Tuscaloosa Marine Shale over in Louisiana and Southwest Mississippi.
At the same time, the need to understand the bigger, total unconventionals picture across the value chain has become paramount, including the rapidly-changing midstream and refining sectors. Industry conferences are also proliferating as demand increases for information on how all the pieces fit together.
A handful of years ago, midstream was a profitable but virtually ignored sector that didn’t get much press except during hurricanes, accidents or outages. Now, midstream has become one of the sexiest dishes around as new money-making opportunities have cropped up in moving crude from one area of the US to another via not just pipelines but rail, barge and truck to take advantage of regional oil prices.
Newer, faster, better has always distinguished operators in the upstream sector and funneled out the winners. Just a few years ago, those who cornered the sweet spots oil first, got the highest-quality goodies out of the ground and became the authorities in their geological nook. That is still happening, but on a vastly multiplied level. Events, plays and movements are dividing and subdividing at a dizzying pace.
This rapid partitioning has become one of industry’s newest and best, but also most overwhelming, features. Poet W.B. Yeats, in his celebrated poem “The Second Coming,” said, “Things fall apart; the centre cannot hold.”
With respect to industry’s current trends, the center may not be holding, but the subdividing certainly has churned out a lot of opportunity, wealth and analysis.