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Schlumberger CEO sees financial, technical constraints on US shale
Alan Bailey Petroleum News
For a second year running Paal Kibsgaard, chairman and CEO of oil services company Schlumberger, has expressed a cautious view about the near-term prospects for the U.S. shale oil industry. Somewhat reflecting comments he made at around this time last year, Kibsgaard said during the company’s first quarter 2019 earnings call that a combination of financing constraints and technical challenges will slow growth in the U.S. shale oil sector.
Investment constraints The relatively high cost of capital, low borrowing capacity and investor expectations for high returns in North America will likely result in investment being constrained by companies’ free cash flow, Kibsgaard said. As a consequence, Schlumberger sees onshore exploration and production investment in North America falling by about 10% in 2019, he said.
Moreover, as shale oil development continues, there are increasing technical challenges associated with interference between neighboring wells during infill drilling, Kibsgaard said. There are limited opportunities for increasing lateral well lengths and for increasing the use of injected fluids at each hydraulic fracturing stage. And it is becoming necessary for companies to step out from core acreage, he said.
Tightening market Looking more broadly at the global oil industry, Kibsgaard said that slowing growth in shale oil production, combined with production cuts by OPEC countries and Russia, set against a solid outlook for oil demand, are pushing the oil price higher. And the impact of four years of underinvestment in the upstream industry is becoming increasingly evident. So far, new project startups have been offsetting aging production in key oil producing countries, but there is a need for a stronger response to addressing oil supplies. And more investment is needed in countries such as Mexico, Angola, Indonesia and China, where production has been declining for several years, Kibsgaard said.
Kibsgaard also said that international investment levels in the upstream oil industry are currently at around half the levels observed in the period 2010 to 2014, when oil prices were particularly high. Even to move to investment levels halfway between current levels and the level in 2014 would require multiple years of single digit and probably double-digit investment growth. And increased investment is needed to address production declines in mature oil basins, he said.
Shale oil transition Kibsgaard’s comments come during an era when the business of U.S. shale oil is undergoing something of a transition, with major oil companies such as BP and ExxonMobil moving into an arena that has traditionally been the domain of small operators. This would appear to indicate that the majors have confidence in the long-term value of the U.S. shale oil industry. ConocoPhillips has major shale oil holdings and sees U.S. shale oil production as a core part of its portfolio. Growth in U.S. shale oil production has become a major factor in the global oil market.
- ALAN BAILEY
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