SHALE Featured Website Nov Dec 2018 Advancing Tech Blackmon

Advancing Technology Has Created a “New Normal” for the Oil and Gas Industry

As I mentioned in our last issue, I’ve been employed in some way, shape or form by the oil and gas industry since my first summer job working as a welder’s helper on a pipeline crew in South Texas in 1976. The minimum wage at the time was something like $2.21 per hour, and that’s what I was paid that first summer — I got a 25 cents/hr. raise the next year. But we did get paid double time for overtime, and since we worked 80 to 90 hours each week, that 10 weeks of work paid for everything but tuition and fees for the fall and spring semesters. Living was cheaper then. So was a college education.

So much has changed in the industry — and the world — since then, and given that the theme of this issue of Shale Magazine is all about the deployment of high technology in the industry, I spent some time reflecting on just how much has changed the last 42 years.

The truth is, anyone under the age of 40 today will have a hard time imagining the scope of the advances of technology since that time. When I obtained my first full-time job at Coastal States Oil & Gas Company in June 1979, the advent of the common use of even fax machines was still a decade into the future. Lease agreements and other legal documents common to the industry were still typed up on forms that created multiple carbon copies because high-speed copiers still had not come into use in most offices.

There was no such thing as a personal computer in the workplace. The huge mainframe computers in use at the time had less memory than your microwave oven (far less) and still used card-based programming and tape drives. I was an accountant early in my career, and the first adding machine I was assigned by Coastal States was one of those old hand-crank mechanical things. No joke.

In 1979, most Americans still got up to walk to the television in our living rooms to change the channel. The more well-to-do at the time were able to record TV shows, but used either Sony Betamax or VHS recorders to do it. There was no such thing as email, or even the internet for that matter. No cell phones, and thus no texts. If you were on the road for business travel and wanted to call home to check in with your spouse and kids, you found this thing called a “pay phone” or just waited until you got to your hotel room and called from there.

No really, I’m not putting you on here, kids. That’s how I communicated home with the wife until 1996, when my employer literally forced me to get my first cellphone, which I resisted doing for at least two years because it seemed silly.

We did have hydraulic fracturing — or “Fracking,” as it is called today — back in the dark ages of the 1970s, but it was a little different at the time. Frac jobs then were much smaller, used much less water and were used mainly to free up more production out of vertical wells drilled into “tight” sand formations or coal seams.

Horizontal drilling? Are you kidding me? Not in 1979. While the first successful true “horizontal” well was drilled and completed way back in 1929 (in Texas, of course,) efforts to deploy it for the next 50 years or so were isolated and experimental in nature. It did not truly become a widely-deployed technology in the oil patch until the late 1980s, when the first oil fields to see it commonly used were the Austin Chalk in Texas and the upper Bakken Shale formation in North Dakota.

The typical horizontal lateral displacement at that time was generally measured in terms of a few hundred feet or so, in stark contrast to the laterals of two miles or longer that are common today. To illustrate just how far the technology has advanced in that time, those 1980s-era wells took months to drill and complete. Today’s wells are drilled, fracked and completed in 10 to 15 days.

That is one of the most amazing aspects of the rapid pace of change the oil patch has experienced over the last half-decade since the bust in oil prices began forcing oil producers and service companies to become more efficient and effective in everything they do. Everyone was able to make money when oil was selling for $100 a barrel; but when the price fell to $40 and below for a span of two to three years, companies had no choice but to become much better in every aspect of the business in order to just survive. In fact, those who failed to evolve didn’t survive.

At the same time, service companies who were having to cut their rates dramatically and lay off much of their staff in order to retain business during the down times knew they would have to become far more efficient and technology-driven if they wanted to still be around a few years into the future. As with the operators, most were able to do that, but some did not survive. But the advances these companies produced in their technology offerings have enabled the industry to move into what I call the industry’s “new normal,” which is a far higher degree of profitability at lower prices, driven by technology and human ingenuity.

In just the past few years, average per-well recoveries in many of the country’s oil shale basins have more than doubled. At the same time, the average number of days needed to drill, frac and complete a well has been cut essentially in half. Obviously, a company that can now recover twice as much production from each well and drill twice as many wells with each active rig than it formerly could is going to be much more profitable than it was in the past. That would be the case even had the commodity price remained at $40, but at $70 a barrel and higher, it’s easy to see why the U.S. domestic oil and gas industry is in a full-fledged boom today.

Rapid improvements in an array of technologies, both above the surface and down the hole, have played an enormous role in making this new boom time for the industry come about. While the stronger crude price has certainly helped, this “new normal” boom doesn’t need $100 oil in order to be sustained for some time to come. That’s good news for everyone.

Thank you for indulging me in this little walk down memory lane. I hope you enjoy the rest of this issue of SHALE Magazine.

About the author: David Blackmon is the Editor of SHALE Oil & Gas Business Magazine. He previously spent 37 years in the oil and natural gas industry in a variety of roles — the last 22 years engaging in public policy issues at the state and national levels. Contact David Blackmon at david@shalemag.com.

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