FEBRUARY 2020 / DEFINING CONVENTIONAL, SHALE AND OFFSHORE TECHNOLOGY FOR OIL AND GAS / WorldOil.

com

2020 FORECAST
E&P outside North America shows promise,
as offshore activity rebounds

DRILLING TECHNOLOGY
Smart bits and wellbore guidance improve
drilling accuracy and efficiency

REGIONAL REPORT: BRAZIL

Short-term gains vs. long-term questions

SHALETECH: MARCELLUS/UTICA
Capital discipline reins in rigs, production
 CONTENTS
FEBRUARY 2020 / VOL. 241 NO. 2

58

29 66
SPECIAL FOCUS: DRILLING TECHNOLOGY COLUMNS
2020 FORECAST & REVIEW 49 Gyro-while-drilling technology 7 First oil
improves drilling efficiency and A mixed outlook seen
23 Global capex to grow for global upstream industry
moderately, but less than well placement
A. Ledroz / C. Hartley / 9 What’s new in exploration
last year 2020—Had enough yet?
S. Forrester
J. West 11 Drilling advances
53 Adjustable smart-bit increases
25 High electoral stakes The silly season
durability and ROP during
for U.S. oil and gas industry 13 What’s new in production
drilling operations
R. Bezdek Optimizing perforation
B. Ivie cluster efficiency
29 U.S. on a downward trajectory
as shale industry matures 15 Oil and gas in the capitals
EDITORIAL ADVISORS’
Oil, government change
C. Fleming / K. Abraham PERSPECTIVE and a Chinese virus…
34 Spending discipline slows 57 OFS technology: The driver 17 Executive viewpoint
drilling activity in shale plays of energy transition In an era of low oil prices,
L. Beyer how do we break even?
36 U.S. crude output surges,
overproduction wallops gas 74 The last barrel
prices SHALETECH: MARCELLUS/ Sustainability:
UTICA SHALES Are we moving too fast?
37 U.S. reserves reach new
record-high 58 Capital discipline reining in
NEWS AND RESOURCES
rigs, production
39 E&P outside the U.S. shows 19 Industry at a glance
J. Redden
promise 71 Companies in the news
World Oil editorial team DEEPWATER/SUBSEA 72 Advertisers’ index /
45 Canada re-adjusts to low Advertising sales offices
63 Innovative strategy increases
prices, limited access profitability of ultra-deepwater 73 New products and services
R. Curran fields
ABOUT THE COVER
R. Shilling / C. White / On Jan. 23, 2020, Rig 26, the largest land-
V. Achanta / P. Hyatt / H. Day based rig in North America, is rigged-up at
Doyon Drilling’s yard in Deadhorse/Prudhoe
REGIONAL REPORT: Bay, Alaska. Members of Doyon Drilling,
BRAZIL National Oilwell Varco and Third Party Service
Providers have been working on the North
66 Short-term gains; Slope since August 2019, to prepare Rig 26
long-term questions for final start-up, commissioning and the
M. Slaton rig’s move to its first assigned well. Rig 26 is
expected to go to work for ConocoPhillips by
April. Image: Doyon Drilling.

World Oil® /FEBRUARY 2020 3


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4FEBRUARY 2020/WorldOil.com
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A mixed outlook seen
for global upstream industry
We’re in the early stages of yet anoth-
er year in the worldwide E&P industry,
which means that it must be forecast time.
From the looks of results assembled, this
particular forecast has a split personality—
not so good in the U.S. and Canada, and
noticeably better outside North America.
In the U.S., it boils down to shale having
its problems, while conventional oil and
offshore activity will do better. In Canada,
the industry will suffer another drilling de-
cline, but it won’t be nearly as sharp as in
2019. But the country is still begging for
new pipelines. Mexico continues to have
issues, and you can see a larger discussion
of this, farther down on this page.
The Middle East remains the world’s
best-performing region, thanks to NOC
agendas. And Australia, while carrying the
South Pacific on its back, may pass up Qatar
in 2020 as the world’s largest LNG exporter.
Massive UAE gas find struck. Abu
Dhabi and Dubai have made what could
be the largest natural gas discovery since
2005. If so, it will help the two biggest
emirates in the UAE push the area to en-
ergy self-sufficiency and break a reliance
on imports from Qatar, with which they
are in a 21/2-year diplomatic feud.
Abu Dhabi state firm ADNOC struck
80 Tcf of gas resources in the Jebel Ali res-
ervoir situated between the two emirates.
As reported by Bloomberg, this was con-
firmed by tweets from Sheikh Mohammed
bin Zayed Al Nahyan, Abu Dhabi’s crown
prince, and Sheikh Mohammed bin Rashid
Al Maktoum, the UAE’s prime minister
and Dubai’s ruler. ADNOC will jointly de-
velop the reservoir with local gas distribu-
tor, Dubai Supply Authority. The Jebel Ali
project marks the first time that ADNOC
has explored for gas offshore Dubai. The
company reportedly drilled more than 10
wells to firm up its discovery and will use
both standard and unconventional drilling
techniques to develop the find.
“This is an enormous discovery for the
UAE,” said Liam Yates, an analyst at Wood
Mackenzie Ltd. The deposit, he said, could
meet the country’s entire gas demand for
FIRST OIL
KURT S. ABRAHAM, EDITOR-IN-CHIEF
nearly three decades, depending on the
amount of gas that can be recovered.
Mexico could kill the golden goose.
One has to wonder what officials run-
ning Mexico’s E&P sector are thinking
lately, as it’s definitely lacking in common
sense. Compared to the previous several
years, Mexico in 2019 took a number of
steps backwards under President Andres
Manuel Lopez Obrador—better known
as “AMLO.” Since taking office, AMLO
has suspended licensing rounds but left
existing agreements with private opera-
tors in effect. Also, an effort by state firm
Pemex to drill new wells at 20 “priority”
fields by using smaller, local service con-
tractors has faltered, and the company ex-
pects to re-bid some of the work later this
year. Meanwhile, AMLO appears bent on
restoring Pemex to its pre-reform status
and perhaps wiping out all the “reforms”
instituted previously.
Relating to the latter point, Pemex CEO
Octavio Romero told a news conference
on Jan. 29 that his firm wants operational
control over the Zama major offshore oil
area discovered by the Talos Energy-led
consortium of private companies before
development gets underway. Romero said
that Pemex believes most of the crude
found in Zama lies in an adjacent block,
where it holds development rights. Talos
CEO Tim Duncan reacted swiftly, citing a
technical analysis that showed Talos had a
large majority of Zama.
Earlier in January, Talos said a third-
party study by Netherland, Sewell & As-
sociates—a reserves consulting firm that
Pemex also has used—estimated that 60%
of the 700-MMbbl find lies in the Talos
Block that the company operates, while
Pemex holds 40%. As this issue went to the
printer, there was no definitive resolution.
One thing is for sure: If Pemex manages
to wrest control of developing this find,
then all the private and foreign operators
can kiss the previous oil reforms goodbye,
because Pemex will find a way to control
everything, but it will hurt the rebuilding
of oil production.
IN THIS ISSUE
23
Special focus: 2020 global
forecast. For the 94th con-
secutive year, the World Oil staff has as-
sembled its annual review and forecast of
worldwide E&P activity. In the Forecast
section, we feature the capital spending
outlook, the regulatory/political picture
in Washington from Contributing Editor
Roger Bezdek, and the U.S. drilling fore-
cast, compiled by our editorial team. The
U.S. report includes well, footage and rig
counts. Additional reports cover E&P out-
side the U.S., including Canada, profiled
by our contributing editor in Calgary.
49 Drilling technology: Gyro-
while-drilling improves
wellbore precision and accuracy.
As described by Gyrodata authors, ex-
pediting wellbore construction has been
supplanted by the requirement to drill
boreholes more intelligently. A new, real-
time, wellbore guidance technology of-
fers operators and service companies a
means of improving precision and accu-
racy in wellbore placement. The system
satisfies several major points: The tech-
nology reduces the amount of rig time; it
makes avoiding wellbore collision simpler
than ever before; and the new systems in-
crease hydrocarbon recovery factors.
63
Lower
D e e p w a t e r/S u b s e a :
Developing the Gulf’s
Tertiary more efficiently.
Several authors from Frontier Deepwater
Appraisal Solutions explain that to solve
complex issues related to developing
deepwater GOM reserves, a standardized
system was conceived. It enables opera-
tors to capture critical, dynamic reservoir
data with a phased development strategy.
The deepwater Frontier Production Sys-
tem reduces risk and costs by using reliable
completions and technology; providing
inexpensive drilling, completion, mainte-
nance and intervention; and using the pad
concept to drill and develop a “cube.”
 EDITORIAL@WORLDOIL.COM
World Oil®/FEBRUARY 20207

WILLIAM (BILL) HEAD, CONTRIBUTING EDITOR
2020—Had enough yet?
Exploration is all about remote sensing,
dividing noise in data from meaningful
signals. New discoveries are finally on the
way up, noted around the Med, Africa and
especially offshore Guyana. However, ex-
ploration is not pervasive around the plan-
et. Even with oil on your boots, you may
not have found an exploitable resource.
Mentioning oil and exploitation to-
gether seems to be a political bomb. We
observe data showing that noise from out-
side our industry is killing the useful sig-
nal of energy independence. Exploration
worldwide has been under attack for some
time, and not just from the price of oil and
mergers. Enviro alternate energy initia-
tives have been telling us to move away
from hydrocarbon dependence while cre-
ating an intense political drumbeat.
On, Jan. 23, 2020, the U.S. EPA an-
nounced that it was modernizing the 1972
Clean Water Act, to reflect new technol-
ogy, today’s issues and the fact that U.S.
onshore water has been the cleanest since
the 1960s. EPA technical “reform” should
help our industry perform more efficient-
ly. No news, yet, on any specific changes
to frac water regs.
In the 1970s, chemists could measure
water to a ppm; today better than a ppb.
EPA panicked about what they saw and
tried to regulate all minerals, if not all
molecules, from human interaction. Oil
practice was, and remains, a target of gen-
uine concern, but amplified exponentially
by politics. We keep making failing logical
arguments to explain away an emotional
condition. I realize that the earth is not
flat, depending on your altitude of view,
but lemmings one way or the other, the oil
industry’s people are not. However, I kept
my horse—just saying.
Inside our industry, I see an apolo-
getic environmental plea from a director
of the SEG, in the January 2020 LEAD-
ING EDGE, Vol. 39, No. 1. That edition
features CO2 studies. The President’s
Page submitted a 2-page pontification
(usually my role) on the evils of CO2,
using non-cited stats and a NASA (from
WHAT’S NEW IN EXPLORATION
NOAA) illustration of estimated and in-
ferred CO2 relationships, back 400,000
years, referred to as data, p. 6–7.
Starting as an argument on the quan-
tity and distribution of CO2, the director
recommends that we eco-volunteer and
participate with a list of some oil-hater
litigants to mitigate personal CO2 use!
I admit to disappointment in the politi-
cal tone, but the director is quoted in the
December LE, p. 9–11, “I enjoy the chal-
lenge of changing the rules of the game…”
Congrats on your work with the SEG, but
do all geos share your view? I told you
SEG is drifting, in trying to defend declin-
ing member roles and relevance. The oil
industry is the largest consumer of CO2
(DOE). Like many others, I cannot find
enough CO2 to work oil field opportunities.
I was encouraged slightly, when the
newish SEG policy noted that authors in
the same LE volume on CO2 research can
make real data available to researchers and
interpreters to test concepts and conclu-
sions independently. That is the essence
of the scientific method, not just restating
the restatement of others’ opinions.
When material data are collected,
we are often not just wrong, but misled.
Quote: Carbon dioxide emissions from
U.S. energy operations, including petro-
leum, natural gas and coal, dropped 2.1%
in 2019 and are expected to fall by 2%
and 1.5%, respectively, this year and next,
according to EIA. The drop can be at-
tributed to a decline in coal-fired genera-
tion, in favor of gas-fired generation and
increased renewable generation.
Alternately, a 2018 study in the jour-
nal, Proceedings of the National Academy of
Sciences, suggested that Earth’s magnetic
field got weaker before the last big mag-
netic pole flip. Magnetic field calculators
from NOAA (https://www.ngdc.noaa.
gov/geomag/magfield.shtml) are useful
for global warming predictions of protec-
tion from solar radiation, the main source
of surface planetary heat. The rate of mag-
netic polar movement has measurably
increased along the same timeframe as
the appearance of man, and the interpret-
ed industrial impact on earth’s climate.
Hmmm…. After all, “Facts are stubborn
things; and whatever our wishes may be,
our wishes, our inclinations, or the dic-
tates of our passion, they cannot alter the
state of facts and evidence.”—John Ad-
ams, circa way before technology could
measure a ppm of anything.
EDITORIAL: The Obama adminis-
tration, for which I served about five years
within a DOE surrogate, worked hard to
disincentivize oil. I used to think that the
newly appointed energy leaders were na-
ïve amateurs. After working with them for
a while, I no longer thought them naïve.
Solyndra, a $500-million failure, was a
misdirection. Same as the $1.3 billion in
cash-equivalent given to Iran. How did
those ideas work out?
Ending $50 million/year in mineral tax
severance funding for U.S. government
and industry research into safe oil produc-
tion (U.S. Energy Policy Act of 2005),
Paul Ryan/Biden/Obama sent $220 mil-
lion to Ukraine for energy development.
(https://obamawhitehouse.archives.gov/
the-press-office/2016/06/15/fact-sheet-
us-assistance-ukraine-february-2014)
So, we are supporting Ukrainian efforts
to enhance their own energy production,
including through technical assistance
to help restructure Ukraine’s national oil
and gas company, Naftogaz, and through
the introduction of new technologies to
boost outputs from existing and new con-
ventional gas fields in Ukraine. (https://
obamawhitehouse.archives.gov/the-
press-office/2014/11/21/fact-sheet-us-
assistance-ukraine)
IPAA states that there are 9,000 inde-
pendent oil and gas producers in the U.S.
with $62.6 billion in capital investment.
Worldwide, this number is limited, since
most other nations do not allow indepen-
dent producers outside of government or
their associated VIP “friends.”
 WJHTEXAS@AOL.COM / William (Bill) Head is a technologist
with over 40 years of experience in domestic and international
exploration.
World Oil®/FEBRUARY 20209

The silly season
As we’ve seen countless times, a shaky
and inconsistent political structure can
undermine the economic viability of a
drilling asset, regardless of rock quality.
That hard truth is playing out in much of
the Americas these days, as onshore and
offshore rigs are being held hostage to po-
litical machinations and irksome prattle.
Today, we have the latest presidents of
Argentina and Mexico, which for better or
worse, are hell-bent on reversing energy
legislation that were the centerpieces of
the previous administrations.
With the U.S. embroiled in a typically
rancorous presidential election year, the
leading Democratic Party contenders vow
to not only put the kibosh on oil and gas
development on federal properties, but
ban fracing nationwide. While operators
view this appeal to the party’s more pro-
gressive wing as largely unrealistic, they
nonetheless have no choice but to con-
sider contingencies. And, in Canada, the
not-so-friendly oil and gas directives of
the recently re-elected administration are
blamed for literally running off one of the
country’s flagship operators.
Changing courses. Let’s begin in Ar-
gentina, where Alberto Fernández had
barely had time to hang up the first picture
in his presidential office in December be-
fore the immediate future of the sweeping
Vaca Muerta shale play was thrown into
doubt. While Fernández is yet to formu-
late a concrete direction for the petroleum
sector, analysts say it should not resemble
former President Mauricio Macri’s un-
fettered 2018 Energy Plan that directed
Argentina to double production and
become a global exporter. “Rather than
concentrating on oil and gas for export
into an oversupplied global market like his
predecessor, the Fernández government
has an opportunity to focus instead on
developing low cost energy for Argentine
domestic consumption,” Kathy Hipple, an
analyst for the Institute for Energy Eco-
nomics and Financial Analysis (IEEFA),
wrote in a December briefing note.
In the meantime, international and do-
DRILLING ADVANCES
JIM REDDEN, CONTRIBUTING EDITOR
mestic operators and service companies
have largely hit the brakes on drilling and
completion activity in the sweeping Vaca
Muerta. Schlumberger, for one, hopes to
fully divest its joint development interest
in the Bandurria Sur shale asset in the first
quarter of 2020. Speaking of Argentina
during the fourth-quarter 2019 earnings
call, CEO Olivier Le Peuch said only that
“activity remains muted, due to the diffi-
cult investment climate.”
The presidential posture in Mexico is
dumbfounding, at best. As soon as pas-
sionate nationalist Andres Manuel Lo-
pez Obrador assumed the presidency
in December 2018, he proceeded to roll
back former President Enrique Peña Ni-
eto’s historic 2014 energy reforms, which
opened a long-closed door to international
operators. Despite promising discoveries
resulting from Nieto’s reforms, Lopez Ob-
rador cancelled upcoming auctions, and
advised Pemex to concentrate on onshore
and shallow-water reserves, citing deepwa-
ter development as too expensive. Exxon-
Mobil, Chevron and Shell led a coalition
of international oil companies (IOC),
which in December urged the president
to re-consider the suspended auctions—a
plea that has thus far fallen on deaf ears.
The frailty of Lopez Obrador’s jingoistic
policy will be on display this year, as debt-
ridden Pemex is forced to re-bid awards
issued last May for drilling 20 “priority”
fields. The closed-bidding round was in-
tended to buoy local service companies
and contractors, which were later found to
have neither the expertise nor resources to
sufficiently service the contracts, accord-
ing to a Jan., 2 Bloomberg report.
Ban improbable. Meanwhile in the
U.S., independents with exposure to fed-
erally controlled land and water say the
position espoused by Democrat presi-
dential candidates to ban drilling and
fracing is likely unenforceable. “You can
rest assured that we’ve done a lot of back-
ground legal work around this issue,” says
Devon Energy CEO David Hager. “But,
I think that at a high level, we would say
that we think it is really fraught with seri-
ous legal ramifications.”
Cimarex Energy CEO Tom Jorden
agrees, saying “We’re in a primary (elec-
tion) season and, as always in the primary
season, some ideas get floated that are a bit
extreme. We don’t think that there is going
to be a ban on fracking on federal lands.”
Murphy Oil, the fifth largest producer
in the Gulf of Mexico, suggests any prohi-
bition could ignite a consumer backlash.
“First thing to happen, oil is going to go al-
most to $100, and gas will probably go to
$8 or $9,” said President and CEO Roger
W. Jenkins. “The Gulf of Mexico produc-
es 2.5 MMbopd as an industry. I doubt
very seriously, that would be closed off.”
Of course, the ban promoters have given
no indication how they plan to make up
the just-under-$12 billion in federal roy-
alties operators pumped into the national
treasury last year.
To the north, the re-election of Ca-
nadian Prime Minister Justin Trudeau
was the coup de grace that convinced
Alberta-based Encana to pull up stakes
and become a corporate citizen of the
U.S., says the company’s founder. “Given
the re-election of national government
ideologically opposed to the oil and gas
industry’s very existence, it’s clear to me
that its re-election struck the final blow
to Encana as a Canadian-headquartered
company,” long-retired Encana founder
and CEO Gwyn Morgan wrote in a No-
vember Financial Post op-ed.
Encana says the re-location was to
simply put it closer to deeper pools of
investor capital, which, in itself, speaks
volumes about the Canadian oil and gas
investment climate. To top off Canxit
(with apologies to the UK), Encana is
re-branding as Ovintiv. “Apparently, the
company’s board concluded even keeping
a name that implies Canadian roots repels
investors,” Morgan wrote.
 JIMREDDEN@SBCGLOBAL.NET / Jim Redden, a Houston-based
consultant and a journalism graduate of Marshall University, has
more than 40 years of experience as a writer, editor and corporate
communicator, primarily on the upstream oil and gas industry.
World Oil®/FEBRUARY 202011

Optimizing perforation
cluster efficiency
“Achieving a high perforation clus-
ter efficiency (PCE) in shale laterals has
been a challenge for the industry for many
years. Early, PLT-based results suggested
that perforation cluster efficiency in hori-
zontal shale wells was as low as 40%. More
recently, fiber optics-based analysis sug-
gests that current cluster efficiency is be-
tween 50% and 70%, depending on com-
pletion design and pumping conditions.”
So say Samuel French and his co-au-
thors in a recent paper that describes what
they term an “innovative fracturing treat-
ment design.” It was created “…to opti-
mize perforation cluster efficiency, lateral
placement and production results…” in
the NEBU 602-1H, a Mancos shale gas
appraisal well.
Immediately following “oil” and “gas,”
the next two most often used words in this
business surely must be “optimization”
and “efficiency.” Their profligate use has
no doubt helped to establish eyeball-cast-
ing skepticism as the default reaction upon
hearing them. But, in this case, French, et
al., may be on to something.
Overcoming extreme stress shad-
owing effects. Maximizing gas produc-
tion from this New Mexico appraisal well
required a fracture design that would
maximize perforation cluster efficiency,
and a lateral placement strategy that
would maximize gas recovery. A key chal-
lenge was to design a fracture treatment
that would overcome the extreme stress
shadowing effects. As the authors point
out, the core data indicated that the Man-
cos was a very hard, stiff rock with a hori-
zontal Young’s Modulus of approximately
5 x 106 psi. The Mancos also had a large
horizontal stress anisotropy. The stress
shadowing effects while fracturing such a
stiff rock would be large, and it would be
a challenge to achieve a high perforation
cluster efficiency.
Fracture treatment simulations were
completed for various designs. Fracture
simulations indicated cluster efficiency
could be improved by optimizing the way
[the pad is pumped]. A step-up technique
WHAT’S NEW IN PRODUCTION
DON FRANCIS, CONTRIBUTING EDITOR
for increasing pumping rates during the
pad stage helped to initiate more frac-
tures. Intra-stage diversion was [used].
Fracture simulations were performed to
optimize lateral placement. This required
balancing multiple factors to access the
highest gas-in-place interval yet facilitate
more fracture initiations per stage.
Step-up pumping rate technique. As
noted in the paper, previous authors have
documented the use of a “step-up” pump-
ing rate technique to create more fractures
and increase fracture complexity during
the pad. Bartko et al. (2017) used control
pressure pumping (CPP), in conjunction
with a near-wellbore diverter to ensure
the maximum number of clusters break
down. King et al. (2017) refer to stepping
up the rate gradually as being preferred.
Frac model cases were run with the
Mancos model and indicated a positive
benefit could be expected for using the
step-up technique. This method was in-
corporated on most stages of the NEBU
602-1H. The pumping rate was stepped up
in increments of 10 to 15 BPM, then held
constant for 90 sec to 2 min. Fracture initia-
tions are indicated by the rapid decrease in
surface treating pressure at a constant rate.
Fracturing fluid optimization focused
on meeting fluid viscosity requirements
defined by the frac modeling results, re-
ducing conductivity damage due to un-
broken polymer retention in the proppant
pack, and minimizing the proppant em-
bedment that occurs with exposure of the
Mancos shale to water-based fluids. Higher
polymer concentrations, with optimized
oxidative breaker, were the key to meeting
the viscosity requirements and minimizing
conductivity damage. Clay stabilizer opti-
mization, using Mancos core, was impor-
tant in minimizing proppant embedment.
Effective intra-stage diversion. Intra-
stage diversion was used on as many stages
as possible, to increase the probability of
improved cluster efficiency. Granular bio-
degradable polylactide acid (PLA) resin
diverter was used. The authors uncharita-
bly characterize diverters in general as “…
usually commodity chemicals applied with
a minimum amount of engineering consid-
eration.” Diverter placement typically in-
volves pumping slickwater as a carrier fluid
at a low rate (30 bpm), with a large amount
of diverter mass (200-350 lb). Poor di-
verter placement can lead to low cluster ef-
ficiency, directly affecting gas productivity.
Improvements to the diverter pump-
ing design were made to achieve a higher
effective diversion. Results indicate that
the new placement design had a higher,
more consistent pressure response.
Choke management. A choke man-
agement strategy is necessary in shale
gas wells to avoid damaging productiv-
ity and expected ultimate recovery. One
of several concepts warns that increasing
the rate and pressure drawdown too soon,
before fractures have “clamped down” on
proppant, risks moving proppant out of
the fractures and into the wellbore, due to
increased velocity in the fracture.
This appraisal well was the most pro-
ductive Mancos gas well ever delivered
in the San Juan basin. The 9,546-ft lateral
produced at a choke-constrained plateau
rate of about 13 MMscfd for seven months
and produced over 6 Bcf during the first
20 months. A radioactive tracer log indi-
cated an overall perforation cluster effi-
ciency of 83%, a significant achievement.
The fracturing fluid design, diverter
design and pumping techniques can be
applied in many other shales as a low-cost
way to increase perforation cluster effi-
ciency, which will, in turn, result in higher
production rates and higher cumulative
recovery. Building on the success observed
in the Mancos wells, BP and BPX Energy
have subsequently utilized these tech-
niques in other shale plays with success.
There’s more to the story, but the au-
thors say the concepts and workflow used
to decide the optimal lateral placement is
a well-defined approach that can be ap-
plied to other unconventional wells.
 DON@TECHNICOMM.COM / For more than 30 years, Don Francis
has observed the global oil and gas industry as a writer, editor and
consultant to companies marketing upstream technologies.
World Oil®/FEBRUARY 202013

DR. JACQUES SAPIR, CONTRIBUTING EDITOR, FSU
Oil, government change
and a Chinese virus…
Two important facts—not correlated—
are shaping early 2020 in Russia. The first
one is President Vladimir Putin’s speech at
the Duma and the change of government
that surprised some commentators. This
could be extremely important for coming
years. The second one is the lowering of
oil prices, due to the Chinese Coronavi-
rus pandemic, a situation that could have
significant economic consequences. They
could be linked in the next few months.
A significant governmental change.
New Russian Prime Minister Mikhail Mi-
shustin, appointed just after the presiden-
tial address to the Duma, presented a new
cabinet, mixing the old and the new. The
key news was that the presidential eco-
nomic advisor, Mr. Andrei Belousov, was
appointed First Deputy PM. Belousov
was known as a high-ranking civil ser-
vant, and for years he supervised Rostat,
the state statistical agency. Before then,
he was one of the major scientists (1991-
2006) at the Institute of Economic Fore-
casting, one of the leading institutes of the
Russian Academy of Sciences.
From June 2013 to January 2020, he
held the position of presidential economic
advisor. The new position he was appoint-
ed to had been held by Anton Siluanov,
who retained his position of Finance Min-
ister. The replacement of Siluanov by Be-
lousov could mean that a turn toward more
state intervention is on the horizon.
The new cabinet has been instructed
to deliver on Putin’s growth agenda. Pu-
tin mentioned in his Duma speech that
Russia’s growth should exceed the global
average, starting in 2021, and continuing
to 2024. This implies that Russia should
deliver around 3%, y-o-y, GDP growth.
Belousov’s appointment highlights that
National Projects are considered the main
tool for accelerating economic growth.
However, the actual problem faced by
Russia’s economy is demand. The sharp
rise in taxes, which took place during the
end of 2018 and the beginning of 2019, se-
riously damaged growth potential. Growth
fell to slightly more than 1% for 2019. De-
OIL AND GAS IN THE CAPITALS
mand then had to be boosted, one thing
clearly acknowledged by Putin. One can
expect intensified construction activity to
take place across the country this year.
The second fact is that two people with
high-level regional experience joined the
new Cabinet: Perm Regional Governor
Maxim Reshetnikov (who in 2010-2017
worked in the Moscow City government)
was appointed Economy Minister; and
Deputy Moscow Mayor Marat Khusnul-
lin (who in 2001-2010 was Construc-
tion Minister of Tatarstan) was appointed
Deputy PM. This is also significant.
An important change in governmen-
tal priorities. The fact that formation of
the new cabinet took a week, following
the previous cabinet’s resignation, was a
sign that the president’s decision was not
known in advance and was taken quite
abruptly. One can speculate that the main
reason for this is the reduced geopolitical
pressure on Russia.
Actually, since 2014, Putin has focused
on solving the consequences of the Ukrai-
nian crisis and the Crimea acquisition.
Only since last December has that situa-
tion eased. Putin conducted a successful
Normandy Quartet meeting in Paris and
established constructive dialogue with
the new Ukrainian president. Sanctions
risk is likely to ease. That will allow Putin
to refocus on domestic politics.
The president’s approval rating is now
below 70%, according to a recent Levada-
Center poll, well below 2014’s high of 80%-
90%. This is a direct consequence of a badly
managed pension reform and the 2018 tax
hike. GDP growth was around 1% in 2019.
Thus, we can expect the president’s atten-
tion to return to domestic politics, a move
positive for economic growth in 2020-
2021. However, the risk of overheating will
build by 2022, as production capacities are
constrained by low investment. The infla-
tion rate is now about 3%/year. This is low
for Russia, but it could move significantly
higher by the end of 2020.
Thus, Belousov’s new position may cre-
ate some friction between the cabinet and
the Central Bank of Russia (CBR). The
previous government’s economic team was
unified by the view that without structural
reforms, growth would remain weak and
any stimulus would lead to overheating.
But Belousov is a strong advocate of a pow-
erful state, and he is probably willing to
deliver on growth. So, it is possible that he
will see CBR monetary policy as an unwel-
come constraint. He clearly has a stronger
hand than that of Mrs. Elvira Nabiullina,
the CBR head. This could imply that fiscal
consolidation is over. But that would also
put a premium on state financial resources.
Oil prices, state resources and the
Chinese Coronavirus. Here, we con-
nect with the latest oil market develop-
ments. Oil prices fell last month, in the
wake of the Chinese pandemic. Oil prices
declined 12%, year-to-date, and they fell
4% in the last week of January, while some
emerging currencies dropped 6%.
It is too early to predict how low prices
will go. Nevertheless, this environment
is not well-adapted to new governmental
economic priorities. If oil prices had con-
tinued to move toward $70/bbl, potential
tensions between the new government
and the CBR would have eased. If oil pric-
es go below $50 for several months, the
potential conflict could become sharper.
Belousov’s position as First Vice-Pre-
mier is both a strategic asset and a strategic
issue. As the leading economic decision-
maker, Belousov will execute the presi-
dent’s growth strategy. The way that he
acts will be very meaningful. If he faces
some kind of budget constraint and is in-
structed to go on, regardless of possible
consequences, this could imply a signifi-
cant turn toward a more directed economy.
What would be helpful to know is to what
extent Putin is serious about boosting Rus-
sia’s growth during the next year.
 SAPIR@MSH-PARIS.FR / Jacques Sapir is a professor of
economics at the School for Advanced Studies in the Social Sciences
(EHESS) in Paris, and at the Higher School of Economics in Moscow.
An expert on Russian economic policy, he graduated from the Institute
of Political Studies in Paris in 1976, and earned a PhD in economics
from EHESS in 1980.
World Oil®/FEBRUARY 202015

JOHN CLEGG, WEATHERFORD FELLOW, DRILLING
In an era of low oil prices,
how do we break even?
In August 2019, a well-regarded oil
and gas publication printed an article on
break-even oil prices for a number of U.S.
basins. Break-even prices shown in the
article ranged from the $20s/bbl to the
mid-$70s/bbl, with an average for each
basin surprisingly consistent at around
the mid-$50s. Other published work from
late 2019 shows break-even for the rest of
the world. Examples include important
producers, such as onshore Middle East,
averaging low $40s but as high as upper
$50s, and onshore Russia averaging high
$50s to low $70s.
Set against this, World Oil (Feb. 4,
2020) quotes Citigroup as reducing its
forecast for Brent crude price in the first
quarter to $54/bbl from $69, and even
saying that the price could fall as low as
$47, later in the year. Compared with the
figures above for break-even prices, $47
would have a potentially severe impact on
almost every active basin in the world.
The reason for this marked price
drop? For starters, wildly varying predic-
tions of a demand drop, anywhere from
300,000 bopd to 3.0 MMbopd in China,
the world’s largest oil importer. And, of
course, the reason for reduced demand,
and the uncertainty about its extent,
is the economic disruption caused by
“2019 nCOV,” the “coronavirus” that has
gripped the world’s attention since mid-
January. The onset of an epidemic is an
unusual event, but the point here is that
with a small margin between day-to-day
oil prices and break-even, our industry
will continue to be vulnerable to similar,
unusual and unanticipated events.
Working in the E&P industry, we
would like to think that there is more that
we can do to further reduce break-even
costs than there is to impact global com-
modity prices. But how? Efficiencies on
drilling and well construction have been
dramatic and impressive in the last few
years. Despite that, supply chain margins
remain wafer-thin. It would appear that
reducing cost, and improving efficiency,
are at the point of diminishing returns.
EXECUTIVE VIEWPOINT
Using technology to increase asset
values. Fortunately, there is another way,
and that is to use technology to increase
the value of assets rather than (only) re-
ducing their cost. In an SPE paper in
2002, Chen, Gaynor, Comeaux and Glass
described a high-quality wellbore as one
that “is generally considered to have 1)
a gauge hole; 2) a smooth wellbore wall;
and 3) a wellbore with minimum tortuos-
ity.” There are significant benefits to drill-
ing a high-quality wellbore, as described
almost 20 years ago by these authors.
I’m going to suggest that if we focus
on drilling high-quality wellbores, we
can simultaneously reduce the cost and
increase the value of the wells we drill.
Increasing the value is achieved by boost-
ing either a well’s initial production or ul-
timate recovery, or both. If we get more
barrels for the same cost, the cost-per-
barrel reduces. If we get them sooner,
cash flow is improved, and the cost of
capital is reduced.
That high-quality wellbore can im-
pact cost and value in numerous ways.
Generally, a smooth well is easier to drill,
with fewer stuck pipe incidents and a
typically higher rate-of-penetration, as
shown by numerous recent studies. A
smoother wellbore also can reduce prob-
lems running casing or completions, and
it will reduce the risk of premature dam-
age to production equipment, including
ESPs and sucker rods. All of these fac-
tors can conspire to reduce well cost, if
drilled smoothly.
Perhaps less intuitively, but (I would
argue) equally importantly, a smooth
wellbore will increase production. One
example of how to achieve this is to think
about vertical undulations, that is “up
and down” undulations, in an unconven-
tional reservoir. Once production starts
to flow, the lowest parts of the undulating
well will form sumps, in which sand can
collect and hold back production. This
can exert a significant effect, if liquids are
being produced, but it also can impact
gas production. So, a smooth wellbore
not only reduces the cost of drilling and
completing a well, it also reduces ongo-
ing production costs and potentially en-
hances output.
That’s all good, but the benefits
don’t stop there. A smoothly, accurately
drilled directional well also will increase
exposure to the reservoir’s sweet spot,
enhancing production. Accurate geo-
steering, being the marriage of directional
drilling and real-time formation evalua-
tion, can ensure that the well accurately,
but smoothly, follows the reservoir’s un-
dulations and allows extraction of the
maximum amounts of hydrocarbons. The
last few years have seen the emergence
of directional drilling solutions that au-
tomate control of toolface, or direction,
and the parallel emergence of directional
drilling advisory systems that indicate the
best way to get to Target Depth. It’s not
hard to see a future, where increasingly
autonomous directional drilling systems,
most likely based on RSS’s, will combine
the technologies we already have and be-
gin to geo-steer autonomously.
And, finally, new logging-while-
drilling (LWD) tools allow us to look at
unconventional reservoirs before we hy-
draulically fracture them, identifying hy-
drocarbon locations and shale types, and
showing natural stresses and fractures in
detail, allowing us to maximize the well’s
value by careful design of frac stages.
All of this readily available technology
is there to allow us to not only reduce the
well’s cost, but also to increase its value.
In difficult times like these, we should be
looking at how we can best maximize our
asset values, thereby reducing our break-
even costs and protecting ourselves as
far as possible against the next price
shock.
 JOHN CLEGG is a Weatherford Fellow, in the Drilling domain.
For more than 33 years, Mr. Clegg has worked in multiple countries
engaged in engineering, manufacturing and operations with upstream
technologies, particularly relating to drilling. He holds a Master’s
degree in Engineering Science from Oxford University, England. He has
14 patents, is the author of multiple technical papers and sits on two
SPE Technical Section Boards.
World Oil®/FEBRUARY 202017
 INDUSTRY AT A GLANCE
CRAIG.FLEMING@WORLDOIL.COM

U.S. production surged to 12.87 MMbopd in December, adding WORLD OIL & NGL PRODUCTION Million barrels per day
to global supply, while Asia’s Coronavirus health scare battered DEC 2019 NOV 2019 AVG. 2019 AVG. 2018
demand. The one-two punch put downward pressure on crude OPEC–CRUDE OIL
benchmarks, with WTI ($57.92) and Brent ($64.16) dropping Saudi Arabia 9.68 9.88 9.81 10.33
3.3% and 4.7% in January, respectively. A lack of corrective ac- Iran 2.11 2.13 2.36 3.58
tion by OPEC+ caused a discount on prompt crude (contango), Iraq 4.59 4.65 4.71 4.57
a pattern that indicates oversupply. Drilling in U.S. shale fields United Arab Emirates 3.07 3.10 3.08 3.00
continued to wane, with large y-o-y losses reported in Oklahoma Kuwait 2.71 2.71 2.68 2.75
(60.6%), Pennsylvania (48%), Colorado (40%), Ohio (35.3%) and Neutral Zone 0.00 0.00 0.00 0.00
Angola 1.41 1.28 1.39 1.49
Texas RRC 7C (29.3%). Overall, drilling in the U.S. averaged 791
Nigeria 1.66 1.70 1.74 1.60
rigs in January, 26% less than the year-ago figure of 1,065. The
Libya 1.14 1.16 1.09 0.97
U.S. DUC count dropped to 7,573 in December, a y-o-y reduction
Algeria 1.02 1.03 1.02 1.04
of 13.2%. International drilling activity increased 7 rigs m-o-m, to
Congo 0.35 0.34 0.34 0.32
average 1,239 units in December. Gabon 0.21 0.20 0.21 0.19
Equatorial Guinea 0.12 0.10 0.11 0.12
U.S. OIL PRODUCTION1 Thousand barrels per day
Ecuador 0.55 0.55 0.53 0.52
DAILY AVERAGE FOR MONTH Venezuela 0.82 0.79 0.87 1.40
DEC DEC NOV NGLs & condensate1 5.50 5.50 5.49 5.50
STATE 20192 20183 % DIFF. 20192
TOTAL OPEC 34.94 35.12 35.44 37.38
Alabama 14 15 –6.7 14
Alaska 485 496 –2.2 481 OECD2
Arkansas 14 14 0.0 14 U.S. 17.65 17.80 17.17 15.54
California 465 477 –2.5 469 Mexico 1.97 1.95 1.93 2.07
Colorado 552 541 2.0 550 Canada 5.61 5.68 5.53 5.41
Florida 6 5 20.0 6
United Kingdom 1.20 1.14 1.13 1.11
Illinois 24 23 4.3 25
Norway 2.01 2.02 1.73 1.85
Kansas 96 89 7.9 97
Kentucky 6 9 –33.3 6 Europe-others 0.44 0.44 0.46 0.50
Louisiana4 1,792 1,654 8.3 1,763 Australia 0.50 0.50 0.43 0.34
Michigan 14 14 0.0 14 Pacific-others 0.07 0.07 0.07 0.07
Mississippi 50 45 11.1 48 TOTAL OECD 29.45 29.60 28.46 26.90
Montana 67 63 6.3 68
NON–OECD
Nebraska 6 5 20.0 6
Russia 11.60 11.59 11.58 11.49
New Mexico 984 829 18.7 978
FSU-others 3.13 3.13 3.05 3.07
North Dakota 1,488 1,403 6.1 1,477
Ohio 90 68 32.4 91 China 3.87 3.89 3.88 3.81
Oklahoma 606 584 3.8 599 Malaysia 0.70 0.70 0.67 0.71
Texas4 5,622 5,277 6.5 5,589 India 0.78 0.78 0.80 0.84
Utah 110 100 10.0 113 Indonesia 0.73 0.74 0.75 0.80
West Virginia 52 40 30.0 52 Asia-others 0.95 0.96 0.98 1.01
Wyoming 297 261 13.8 300 Europe 0.12 0.12 0.12 0.12
Others5 30 26 15.4 30
Brazil 3.26 3.21 2.90 2.71
TOTAL U.S. 12,870 12,038 6.9 12,790
Argentina 0.60 0.61 0.60 0.58
LOWER 48 12,385 11,542 7.3 12,309
Colombia 0.88 0.88 0.89 0.87
1 Includes lease condensate. 2 Preliminary estimate, API.
3 DOE estimate. 4 Includes federal OCS production. Latin America-others 0.36 0.36 0.35 0.36
5 Includes Arizona, Indiana, Missouri, Nevada, New York, Pennsylvania, South Dakota, Tennessee and Virginia. Oman 0.98 0.98 0.98 0.99
U.S. GAS PRICES ($/MCF) & PRODUCTION (BCFD) Qatar 1.96 1.96 1.96 1.97
Syria 0.02 0.02 0.02 0.02
120 7 Yemen 0.07 0.07 0.07 0.07
6 Egypt 0.62 0.62 0.63 0.65
100
Africa/Middle East-others 0.85 1.06 1.05 1.01
80 5 TOTAL NON–OECD 31.69 31.67 31.30 31.09
4 PROCESSING GAINS3 2.35 2.35 2.35 2.32
60 TOTAL SUPPLY 98.44 98.74 97.55 97.68
3
40 Monthly price (Henry Hub) Source: International Energy Agency. Note: Totals and subtotals may not add, due to rounding.
2 1 Includes condensates reported by OPEC countries, oil from non-conventional sources, e.g. Venezuelan Orimulsion
20 12-month price
12-month price avg.
avg.
Production 1 (but not Orinoco extra-heavy oil) and non-oil inputs to Saudi Arabian MTBE.
2 Comprises crude oil, condensates, NGLs and oil from non-conventional sources.
0 0 3 Net of volumetric gains and losses in refining (excludes net gain/loss in China and non-OECD Europe) and marine
M J J A S OND J F MAM J J A S OND J F MAM J J A S OND J transportation losses.
2017 2018 2019 2020
Production equals U.S. marketed production, wet gas. Source: EIA.
WORKOVER RIG COUNT
DEC 2019 YR. AGO
SELECTED WORLD OIL PRICES ($/BBL) REGION ACTIVE AVAIL. IDLE STACKED TOTAL % UTIL. ACTIVE
Texas Gulf Coast 140 45 43 114 342 41% 169
100 ArkLaTex 35 14 31 74 154 23% 50
90 Eastern U.S. 31 24 15 9 79 39% 26
80 South Louisiana 17 1 6 1 25 68% 10
70 Mid-Continent 75 32 72 135 314 24% 128
60 West Texas / Permian 366 72 233 259 930 39% 490
50 W. Texas Inter. Rocky Mountains 278 42 115 128 563 49% 270
40 Brent Blend West Coast / Alaska 166 17 127 115 425 39% 152
Dubai Fateh TOTAL U.S. 1,108 247 642 835 2,832 40% 1,295
30 Source: DOE
20 Active - crewed and worked every day during the month. Source: AESC
J F M A M J J A S O N D J F M A M J J A S O N D J Available - has crew ready to work.
Idle - capable of being put to work in 48 hr and does not require spending in excess of $50,000.
2018 2019 2020 Stacked - cannot work without investment in excess of $50,000.

World Oil®/FEBRUARY 202019

 INDUSTRY AT A GLANCE
CRAIG.FLEMING@WORLDOIL.COM

INTERNATIONAL ROTARY RIG COUNT Monthly average INTERNATIONAL ROTARY U.S. ROTARY
DEC 2019 NOV 2019 DEC 2018 DRILLING RIGS DRILLING RIGS
REGION & COUNTRY LAND OFFSHORE LAND OFFSHORE LAND OFFSHORE
CANADA* 133 2 134 2 139 2 1,400 1,400
EUROPE 100 39 104 43 57 38
Germany 4 0 4 0 5 0 1,250 1,100
Italy 4 1 4 0 2 1
Netherlands 0 3 0 3 0 1
Norway 0 17 0 18 0 18 1,100 800
Poland 6 0 6 0 6 0
Romania 10 0 10 0 10 0 500
950
Turkey 22 1 18 2 19 1
United Kingdom 0 11 1 14 0 11
Others 54 23 62 6 15 6 800 D J F M A M J J A S O N D J F M A M J J A S O N D 200 J F M A M J J A S O N D J F M A M J J A S O N D J
2017 2018 2019 2018 2019 2020
MIDDLE EAST** 371 59 364 53 338 56
Abu Dhabi 42 22 41 21 36 19 Source: Baker Hughes, a GE company.

Egypt 23 8 20 8 21 6
Iraq 77 0 77 0 62 0
Kuwait 50 0 48 0 41 0
Oman 53 0 53 0 51 0
U.S. ROTARY RIG COUNT Monthly average

Pakistan 15 0 18 0 19 0 % DIFF.
Saudi Arabia 98 17 95 12 104 21 JAN DEC JAN JAN ’20
Syria 0 0 0 0 0 0 STATE & AREA 2020 2019 2019 DEC ’19
Others 13 12 12 0 4 10 ALABAMA-TOTAL 0 1 2 –100.0
AFRICA** 90 28 89 27 93 15 Land 0 1 2 –100.0
Algeria 42 0 39 0 50 0 Inland water 0 0 0 …
Angola 0 5 0 3 0 5 Offshore 0 0 0 …
Kenya 5 0 5 0 8 0 ALASKA-TOTAL 9 7 10 –10.0
Libya 14 2 14 2 7 2 Land 9 7 10 –10.0
Nigeria 9 8 11 9 8 3 Offshore 0 0 0 …
Others 20 13 20 13 20 5 ARKANSAS 0 0 0 0.0
LATIN AMERICA 154 37 161 35 170 27 CALIFORNIA-TOTAL 14 15 8 75.0
Argentina 50 0 55 0 74 0 Land 14 15 8 75.0
Brazil 6 8 7 7 4 6 Offshore 0 0 0 0.0
Colombia 33 0 32 0 30 0 COLORADO 21 22 35 –40.0
Ecuador 5 0 7 0 12 0 FLORIDA 0 1 0 0.0
Mexico 22 27 24 26 13 18 KANSAS 0 0 2 –100.0
Venezuela 25 0 25 0 25 2 KENTUCKY 0 0 0 0.0
Others 13 2 11 2 31 1 LOUISIANA-TOTAL 55 57 63 –12.7
ASIA-PACIFIC 132 94 131 89 133 98 North - Land 31 33 35 –11.4
Australia 24 1 24 1 20 2 South - Inl. water 1 1 2 –50.0
China, offshore 0 38 0 37 0 35 South - Land 3 2 6 –50.0
India 77 32 77 32 85 39 Offshore 20 22 20 0.0
Indonesia 22 4 22 3 21 3 MICHIGAN 0 0 0 …
Malaysia 0 12 0 12 0 7 MISSISSIPPI 0 4 2 –100.0
New Zealand 2 0 2 0 1 0 MONTANA 1 2 2 –50.0
Thailand 2 2 0 1 2 5 NEBRASKA 0 1 0 0.0
Vietnam 0 3 0 1 0 3 NEVADA 1 1 0 …
Others 5 2 5 2 4 4 NEW MEXICO 106 103 108 –1.9
TOTAL 980 259 983 249 930 236 NEW YORK 0 0 0 …
*Updated with most recent data. Source: Baker Hughes, a GE company NORTH DAKOTA 51 50 54 –5.6
**No data available for Iran and Sudan/South Sudan. OHIO 11 12 17 –35.3
OKLAHOMA 52 51 132 –60.6
INTERNATIONAL OFFSHORE RIGS PENNSYLVANIA 25 25 48 –47.9
SOUTH DAKOTA 0 0 0 …
U.S. GULF OF MEXICO NORTHWEST EUROPE WORLDWIDE
JAN 2020 JAN 2019 JAN 2020 JAN 2019 JAN 2020 JAN 2019 TENNESSEE 0 0 0 …
TEXAS-TOTAL 398 406 526 –24.3
Total rigs in fleet 69 71 92 89 761 758
Offshore 1 1 1 0.0
Marketed Supply 40 41 77 75 647 653 Inland water 0 0 0 …
Marketed Contracted 31 31 69 65 551 500 District 1 34 34 47 –27.7
Rig utilization, % 77.5 75.6 89.6 86.7 85.2 76.6 District 2 32 28 30 6.7
District 3 12 13 17 –29.4
Source: IHS Petrodata Weekly Rig Count.* District 4 4 6 12 –66.7
District 5 1 0 4 –75.0
U.S. DRILLED BUT UNCOMPLETED WELLS District 6 16 20 28 –42.9
District 7B 2 3 1 100.0
DEC NOV DEC Y-O-Y
District 7C 29 30 41 –29.3
REGION 2019 2019 2018 DIFF.
District 8 259 259 324 –20.1
Anadarko 632 686 1,077 –41.3% District 8A 8 10 13 –38.5
Appalachia 427 448 529 –19.3% District 9 2 1 2 0.0
Bakken 813 795 731 11.2% District 10 0 2 6 –100.0
Eagle Ford 1,427 1,442 1,561 –8.6% UTAH 5 4 7 –28.6
W. VIRGINIA 16 15 15 6.7
Haynesville 214 208 193 10.5%
WYOMING 24 27 33 –27.3
Niobrara 448 446 455 –1.5%
OTHERS 3 3 2 50.0
Permian 3,612 3,598 4,048 –10.8% U.S. OFFSHORE TOTAL 21 23 21 0.0
BASIN TOTALS 7,573 7,623 8,723 –13.2% U.S. GRAND TOTAL 791 804 1,065 –25.7
Source: EIA. Note: Totals may not add, due to rounding Source: Baker Hughes, a GE company. Note: State monthly averages may not add up to U.S. total, due to rounding.

20FEBRUARY 2020/WorldOil.com
 SPECIAL FOCUS: FORECAST 2020 – E&P SPENDING

Global capex to grow moderately,

but less than last year
Worldwide E&P expenditures Table 1. North American upstream spending. Source: Evercore ISI Research, company data.
should grow 2% during 2020 Survey data, $ millions 2020 Year-on-year change
2020, slightly less than Region 2019E 2020F $+/– %
in 2019. North America is U.S. spending $107,261 $99,610 –$7,651 –7.1%
Canadian spending $21,162 $21,291 $129 0.6%
projected to decline 6%, NAM spending $128,423 $120,901 –$7,522 –5.9%
while international spending
should trend upward. Table 2. Global upstream spending, excluding North America. Evercore ISI Research,
company data.
2020 Survey data, $ millions 2020 Year-on-year change
Region 2019E 2020F $+/– millions %
 JAMES WEST, Evercore ISI Middle East $44,200 $47,828 $3,628 8.2%
Latin America $33,766 $32,670 –$1,096 –3.2%
Russia/FSU $49,400 $52,479 $3,079 6.2%
Europe $30,293 $30,425 $132 0.4%
As 2019 came to a close, the global India, Asia, Australia $82,133 $82,820 $687 0.8%
growth rate for oil and gas spending was Majors, Int’l spending $70,479 $80,200 $9,721 13.8%
set to come in at 3% versus 2018, a level Africa $11,125 $11,489 $364 3.3%
that is moderately below global GDP NAM independents, int’l spending $5,186 $4,808 –$378 –7.3%
growth and significantly less than our pre- Other $13,900 $14,499 $599 4.3%
liminary 8% forecast estimate a year ago. International spending $340,482 $357,218 $16,736 4.9%

The main culprit driving this variance is

North America (NAM), as global growth
would have come in at 4.4% for 2019, if the
U.S. and Canada had managed flat y-o-y
results. Instead, NAM posted a year very
different to the one prior, where we saw
20% y-o-y growth for 2018. We estimate
that 2019 had a 6.5% reduction in spend-
ing, driven by a 6% decline in the U.S. and
an 8.5% decrease in Canadian budgets. As
we look at 2020, we foresee a similar story
playing out in NAM. We project that Ca-
nadian budgets will improve marginally
at 0.6%, y-o-y, for 2020, while the U.S. is
set to decline 7.1%, leading to a 5.9% de-
crease for the broader region, Table 1.
Investments go international. On
the international scene, the story for up-
stream spending is much different. For
2019, we estimate that capex rose 6.3%,
y-o-y, below our 7.2% y-o-y forecast last
year. However, at this juncture, we moder-
ate our forward outlook for international
spending, as we go into 2020. But the
story is still constructive, and we believe
that unlike NAM, there are upside risks to
our international forecasts for 2020. With
higher spending needed just to maintain
current production in U.S. shale, we be-
lieve that international and offshore will
provide future output growth. For 2020,
we forecast 4.9%, y-o-y, growth interna-
tionally, led by the Middle East and the
super-majors, Table 2.
Loss of private equity funding. Bank-
ruptcies among operators were trending
higher during 2019, and the same is oc-
curring for OFS companies. Among the
two groups, a total of $20 billion in debt
has gone through Chapter 11, and the fig-
ure goes to $175 billion, if the baseline is
set in 2015. These numbers clearly indi-
cate that capital has dried up, and private
equity is not coming to the rescue.
Cash flow reigns supreme. With
the industry’s focus on living within its
means, it is not surprising that cash flow
remained the number-one factor driving
budgets for 2020. Over the past six years,
cash flow has taken the crown, and its im-
portance ramped up 23%, relative to last
year’s survey. We believe this is a longer-
term positive for the industry, as inves-
tors have told E&P management teams to
learn to live within their cash flow, or else.
Oil prices took the second-place spot for
the second consecutive year, while capital
availability rose in prominence, firmly se-
curing its status in third place for the sec-
ond year in a row.
Oilfield service outlook. During the
second half of 2019, many oilfield service
companies were surprised by the dramat-
ic pullback in activity levels. Although we
had been warning that operator budget ex-
haustion would occur in the first quarter
of 2019, the majority of OFS companies
were surprised by the dramatic pullback
in activity levels. While commodity price
volatility did not help, operators have
remained focused on being disciplined
with their spending. Also, increased frac
efficiencies ended some completion pro-
grams earlier than expected.
Rising uncertainty in shale plays.
We strongly believe that the NAM shale
industry is maturing, and there will be
greater differentiation in performance
across the entire energy industry in 2020.
Efficiency gains have plateaued across the
U.S. Lower 48, and capital markets are not
willing to fund growth, as in the past. This
points to more uncertainty around expec-
tations for U.S. oil production growth in
2020 than we have seen since the collapse
of oil prices in 2014. Operators remain
World Oil®/FEBRUARY 202023
FORECAST 2020 – E&P SPENDING
extremely disciplined with their spend-
ing levels, as the market demands they
stay within cash flows. This has put ad-
ditional pressure on OFS companies that
are working hard to adapt to these shorter
cycles in unconventional development.
The key challenges for U.S. shale are: 1)
consolidation has been slow to develop;
2) there are too many assets (DUCs) and
companies in the field.
Technology revolution. We are con-
vinced that technology will play a larger
role in the oil patch in the near future.
Historically, the industry has been a slow
adopter of technology in favor of long-
standing practices and legacy agreements
with key contractors and suppliers. R&D
spending across the sector has always been
a small percentage of SG&A, approxi-
mately 0.5% of revenues. Today the push
for greater efficiencies in the manufactur-
ing mode of unconventional development
is driving technological innovation.
Offshore upturn. We expect double-dig-
it growth in offshore markets. We forecast
that 2020 spending for the offshore sector
will be up 10.3%, compared to 2019. We
expect a squeeze on engineering capacity,
on offshore assets, and on crews to be-
come apparent as 2020 unfolds. Through
innovation, cost reductions and reduced
cycle times, the offshore industry is leaner
and ready for a long, strong upcycle.
REGIONAL BREAKDOWN
North America. The pullback in U.S.
land drilling started earlier in 2019 than
in 2018, and the decline in the rig count
was steeper than most companies had
expected. Spending on U.S. land has gen-
erally been down in the low double dig-
its, as the rig count continued to decline
and operators remained disciplined with
their capital spending. Some manage-
ment teams described this volatility as
the “new normal” for NAM unconven-
tional development. We disagree. It is
extremely challenging to build a sustain-
able business model, long-term, around
this kind of volatility and with the lack of
visibility that OFS companies currently
have to their customers’ spending levels.
A better approach is required. Our 2020
survey suggests capex will decline 6%, as
operators remain disciplined with their
capital spending. Consolidation among
NAM operators will continue to have an
24FEBRUARY 2020/WorldOil.com
impact on activity levels, as the combined
entity typically spends less than the sepa-
rate stand-alone companies.
Canada. For 2019, we estimate an 8.5%
y-o-y decline in E&P capex, although
2020 is shaping up for 0.4% growth,
which industry observers will likely take
as a win. The Canadian Association of
Oilwell Drilling Contractors (CAODC)
forecasts 128 active rigs in the region for
2020, a roughly 4% decline below the
2019 YTD average. Meanwhile, the CA-
ODC expects wells drilled in 2020 to be
essentially flat, y-o-y. With $30 billion in
foreign capital leaving the industry since
2017, along with nearly 30 high-spec
drilling rigs, it’s easy to see why sentiment
in Canada continues to be poor.
Middle East. In the Middle East, capital
expenditures are set to rise 8% in 2020, y-
o-y, although this follows a flattish 2019,
which reflects reductions in output, due
to OPEC agreements. We believe that the
region will provide ample opportunity
to grow the topline for service providers,
although NOC customers have become
more cost-conscious since the downturn.
Conversely, geopolitical risk has increased
this past year, as the spillover effects from
a weakened Iran threaten to engulf nearby
countries. Countering this are rumors
of a potential deal to remediate relations
between Qatar and the GCC contingent,
which includes Saudi Arabia, the UAE,
Bahrain and Egypt.
Russia/FSU. Capex in Russia and the
FSU will grow 6%, y-o-y, in 2020, fol-
lowing a projected 8% decline in 2019.
But downside risks are prevalent, due to
OPEC compliance. We expect Lukoil,
Gazprom and Rosneft to meet their pro-
duction goals and investment plans, al-
though recent production quotas could
see spending underwhelm in 2020. The
country is becoming an LNG supply be-
hemoth, and pipeline gas exports are at
record levels. Also, the recently commis-
sioned Power of Siberia pipeline will con-
nect to China and should alter energy pol-
itics going forward. EIA forecasts that gas
production in Russia will increase 40%,
over its projection period out to 2050,
with Asia and Europe purchasing most of
the new production.
Latin America. The market has been
waiting several years for Latin American
growth to break out. The quality of the re-
source was never a question, between the
pre-salt fields offshore Brazil and the Vaca
Muerta shale play in Argentina. The re-
gion experienced three years of spending
declines in 2015–2017. Then there were
two years of a rebound, with Latin Ameri-
can capex growing 19% in 2018 and 3%
in 2019. Still capex remains well below
2013–2015 levels, as key countries are
still experiencing increasing geopolitical
instability and the impact from inflation.
It will be challenging for Latin America
to return to a sustainable period of ca-
pex growth without seeing more stability
around Mexico, Brazil and Venezuela.
European spending is set to increase
for a fourth straight year in 2020, for the
first time since 2011–2014. From 2016,
spending by select European companies
has grown 26% and has moved above
2015 spending levels. However, looking
back at our 2019 capex survey, we initially
estimated that spending would grow 1%.
We increased our estimate to 3% at our
mid-year survey and again have revised
2019 higher to 11%. The upside has been
driven by spending by new regional op-
erators, as private equity-backed indepen-
dents have acquired assets from the ma-
jors. However, we are starting our survey
process expecting 1% growth in 2020.
Asia/Australia capex for 2020 is pro-
jected to gain just 1% after a 13% increase
in 2019. Despite the large drop-off, we see
a number of positive trends in the region
that should be a boon for offshore drill-
ing and service providers. With a number
of project starts by Woodside, CNOOC,
Medco Energi, Premier Oil and Shell, the
region is set to prosper, even while several
majors/IOCs exit the region.
Africa. We project that spending in Af-
rica will increase 3% in 2020, following
a 9% jump in 2019. A more malleable
stance from local governments, combined
with offshore drilling campaigns being
implemented by IOCs and independents,
points to solid activity. However, we don’t
rule out political risk. Algeria is a prime
example of stability, while unfavorable
regulations toward E&Ps in Nigeria point
to unrest. Overlay increased investments
from LNG projects in Mozambique, Ni-
geria LNG Train 7, and Rovuma, and our
base case estimate of 3%, y-o-y, growth in
regional spending seems sturdy.
 SPECIAL FOCUS: FORECAST 2020 – WASHINGTON OUTLOOK
High electoral stakes
for U.S. oil and gas industry
 DR. ROGER H. BEZDEK, Contributing
Editor, Washington, D.C.
The U.S. national election will be held
Nov. 3, 2020, and there is much at stake
for the oil and gas (O&G) industry. Aside
from the presidency, 470 congressional
seats are in play (35 Senate seats and all
435 House seats). The Democrats will
likely retain control of the House of Repre-
sentatives, but the presidency and the Sen-
ate are in play. The election has significant
implications for the O&G industry, Fig. 1.
HOUSE RACES
Democrats hold a majority in the
House, as a result of the 2018 elections,
when they won 235 seats. To win a major-
ity, Republicans need a net gain of 20 seats.
The Democrats will likely retain the major-
ity, as evidenced by the fact that, thus far,
27 House Republicans are retiring—in-
cluding six from Texas—compared to nine
Democrats. Thus, the House will likely
continue to be a source of proposed en-
ergy, environmental and regulatory legisla-
tion detrimental to the industry.
SENATE RACES
The major uncertainty concerns con-
trol of the Senate. Republicans currently
hold a majority, with 53 seats. Fig. 2. There
are 45 Democrats and two independents,
who caucus with the Democrats. Repub-
licans are defending 23 seats while Demo-
crats are defending 12. The larger number
of Republican seats up for election makes
them more vulnerable to losing seats.
However, 20 of the Republican incum-
bents are from states that Trump carried in
2016. Two Democrat-held seats are rated
as competitive, and five Republican seats
are rated competitive.
Thus, even though Republicans are
defending nearly twice as many seats,
the Democrats have a difficult task to re-
gain control of the Senate. Assuming that
Democrats win all of the 10 seats they
are defending that are not rated as com-
petitive, they still have to win at least four
Fig. 1. The U.S. oil and gas industry could
of the seven competitive seats—three be affected greatly by who controls which
if Democrats win the presidential/vice houses of Congress at the U.S. Capitol.
presidential race, since the Vice President Image: Architect of the Capitol.
breaks ties in the Senate.
The path to a Democratic Senate ma-
jority would be shaped by complex politi-
cal dynamics—including the tumult of the
Trump impeachment and the strength of
the Democrats’ presidential nominee. In
2016, every Senate contest went in the di-
rection of the presidential vote. Each party
is defending two states, where the opposite
party’s presidential candidate won in 2016.
Republicans are defending seven seats in
states with Democratic governors, while
Democrats are defending three seats in
states with Republican governors.
However, 2020 is a presidential election
year, and this usually works to the Demo-
crats’ advantage. Presidential elections gen-
erate high voter turnout, especially among
Democratic constituencies. Nevertheless,
Republicans are still likely to maintain
control of the Senate, but Democrats have
a reasonable path to victory, especially if ergy, environmental and regulatory legis-
they were to win the presidency. lation detrimental to the O&G industry.
While the Presidential race has gener-
ated the most interest, the battle for the THE PRESIDENTIAL RACE
Senate is arguably just as important. Un- The presidential race is uncertain.
less Democrats flip the Senate, the grand President Trump has a disapproval rating
plans of the presidential candidates—dis- as high as 54% (depending on the poll-
cussed below—are moot. Holding the ing) and an approval rate as low as 42%
Senate is just as significant if Trump is (Gallup recently put him at 50%). Demo-
re-elected; it would give Democrats con- crats overwhelmingly disapprove of him,
trol of the legislative agenda, budget and Republicans overwhelmingly approve of
judicial confirmations, and hand them him, and independents are split. Perhaps
control of both Houses of Congress. of more concern to Republicans, this level
The ages of several of the justices indi- of disapproval exists, both in battleground
cate that there will likely be openings in the states and in swing counties, where the
Supreme Court within the next few years, 2016 margin was 10 points or less.
and the Senate confirms court nomina- However, the polls in the 2016 election
tions. Beyond that, a unified Democratic were notoriously misleading. Further, the
Congress would be a major advantage for election will be decided in the Electoral
a Democratic president in 2021, or a ma- College, where Trump won in 2016 de-
jor hindrance to Trump, if he is re-elected. spite losing the popular vote. In addition,
Further, if a Democrat also wins the presi- the Democrats’ war on fossil fuels may
dency, then the Democrats would control come back to haunt them in states critical
both Congress and the White House. This to the election. Ohio and Michigan have
would ensure a plethora of economic, en- a combined total of more than 400,000
World Oil®/FEBRUARY 202025
FORECAST 2020 – WASHINGTON OUTLOOK
workers in the shale industry, Pennsylva- • Enacting numerous policies that fa-
nia has 320,000, and entire cities in Ohio cilitate development of U.S. energy
and Pennsylvania have been revitalized resources.
by fracing and related industries. Colo- • Rolling back policies enacted by the
rado and Florida, each, have more than previous administration that were
200,000 workers in O&G. hindering O&G development.
• Downplaying the extent to which
PRESIDENT TRUMP climate change is considered a
The Trump administration has been national security threat.
beneficial for the industry, and if the Pres- • Withdrawal from the Paris Agree-
ident (Fig. 3) is re-elected, will likely con- ment on Climate Change and
tinue to be. His campaign is not hesitant opposition to international climate
about publicizing the administration’s en- negotiations.
ergy initiatives, which include: • Eliminating many costly Obama-
era regulations, such as the Stream
Protection Rule.
Fig. 2. The Republican majority in the
Senate, led by Majority Leader Mitch • Rescinding the Obama administra-
McConnell (R-Ky., pictured), has been tion’s Clean Power Plan and revers-
President Trump’s firewall in Congress. ing Obama’s carbon mandates.
Image: Office of Sen. Mitch McConnell.
• Legislation to open the Alaska
National Wildlife Refuge for energy
exploration.
• The holding of 28 onshore oil and
gas lease sales in 2019, generating a
record $1.1 billion in revenue.
• Facilitating energy infrastructure
development, to ensure that U.S.
energy can be produced
• Approval of the Dakota Access
Pipeline, the Keystone XL Pipeline,
and the New Burgos Pipeline.
• Executive Orders (EOs) to reduce
red tape that hinders construction
of new energy infrastructure, such
as pipelines.
• Streamlining permitting for LNG
terminals.
• Simplifying environmental review
Fig. 3. President Trump points with pride processes.
to his record on energy, particularly oil and • Reduction of business taxes, includ-
gas, calling oil the “lifeblood” of the nation. ing those on the industry.
Image: The White House.
• Revising the Obama administra-
tion’s CAFE standards.
• An EO expanding offshore O&G
drilling, and opening more leases to
facilitate offshore drilling.
• Reform of the Smart Sectors Pro-
gram, to partner with the private
sector to achieve improved environ-
mental outcomes.
Under the Trump administration, U.S.
energy production is increasing. The ad-
ministration’s energy agenda has helped
drive the economy, with mining and O&G
extraction contributing to growth in 49
states. Energy production has reached re-
cord levels, and U.S. crude oil output has
exceeded the previous record set in 1970.
Crude oil production increased 17% in
2018, reaching 10.96 MMbpd. The U.S.
26FEBRUARY 2020/WorldOil.com
has become the world’s largest crude oil
producer, reaching about 12.2 MMbpd in
2019. Similarly, U.S. natural gas production
also reached a new high in 2019, marking
the second straight year of record output.
Trump refers to oil as the “lifeblood”
of the nation. His administration has
opened new export opportunities for
U.S. energy producers, and the U.S. is ex-
porting increased energy, as production
increases and improved market access
for producers is negotiated. Crude oil ex-
ports nearly doubled in 2018, reaching a
record-average 2 MMbpd, and the U.S.
has become a net natural gas exporter for
the first time since 1957. Negotiations
have resulted in the European Union
agreeing to import more U.S. LNG. Ac-
cordingly, U.S. exports of LNG to the EU
have increased 272%, and they reached an
all-time high in March 2019.
These initiatives and accomplishments
are especially relevant for the industry,
when compared to what the Democratic
presidential candidates are proposing.
DEMOCRATIC CANDIDATES
There are currently 12 Democrats
running for the nomination. All are left-
of-center, differing only by degrees. The
nominees’ current rankings are: 1) Sena-
tor Bernie Sanders (I-Vt.); 2) former
South Bend, Indiana, Mayor Pete But-
tigieg; 3) Senator Elizabeth Warren (D-
Mass.); and 4) Former Vice President Joe
Biden (Fig. 4). The nominating process
and primaries have pushed all candidates
to the left, and they all are competing on
attacking the energy industry.
The Democratic candidates:
• Would spend between $5 trillion
and $17 trillion on energy, envi-
ronmental, and climate mitigation
programs that would dramatically
reshape the U.S. economy.
• All support implementation of
some form of the Green New Deal.
• All consider the climate crisis
(aka global warming, aka climate
change) to be a severe national
security threat.
• All would make climate change a
top priority of U.S. foreign policy,
and intensify U.S. and international
actions to mitigate it.
• All would rejoin the Paris Agree-
ment on Climate Change.
• All would end “fossil fuel subsidies.”
• All would seek to achieve net-zero
CO2 emissions between 2045 and
 FORECAST 2020 – WASHINGTON OUTLOOK

2050. lived Presidential candidate,

Fig. 4. Former Vice President Joe Biden was the early favorite
• All would terminate to win the Democratic nomination, but he faces a stiff challenge
Jay Inslee (D) failed to per-
O&G development on from Sanders and Buttigieg. Image: Biden for President. suade the Washington legisla-
federal lands and limit or ture to pass his cap-and-trade
end offshore drilling. proposal. Undaunted, he at-
• All would institute car- tempted to implement, by fiat,
bon pricing and regula- his own carbon cap policy, but
tions. was thwarted (for now) by the
• All would dramatically Washington Supreme Court.
increase Federal spend- New York Governor An-
ing on renewable R&D drew Cuomo (D), who has
programs, and increase banned fracing and new gas
tax incentives and pipelines, instructed state
mandates for renewable agencies to develop shovel-
energy. ready sites for large-scale re-
• All would implement newable projects, since “the
the Obama-era CAFE state needs to take the lead in
standards. doing more, faster, on the issue
• All endorse increased of climate change.”
EPA regulation of energy industries. els and who has thus far spent $110 The California Public Utilities Com-
• All favor increased pipeline and rail million of his own money on the mission has initiated rulemaking to accel-
regulations. campaign) would declare the cli- erate a transition from natural gas. Within
• All, except for Biden and Buttigieg, mate crisis a national emergency on the state, the city of Berkeley on Jan. 1,
would ban new O&G pipelines. his first day in office, would imple- 2020, initiated a ban on new natural gas
• All, except for Biden and Buttigieg, ment his Justice-Centered Climate hookups, and similar bans are being rep-
would ban fossil fuel exports. Plan, with or without Congress (!), licated in a dozen other California cities,
• All, except Biden, would ban fracing. and would use the emergency pow- including Menlo Park, Mountain View,
• All, except Biden, would not sup- ers of the presidency to combat the Palo Alto, San Jose, San Luis Obispo,
port carbon capture, utilization and “climate crisis.” San Mateo, and Santa Monica, as well as
sequestration or CO2 enhanced oil • Candidate Michael Bloomberg— Marin County.
recovery. former New York City mayor and The Berkeley ban is metastasizing rap-
Democrat candidates propose some Democrat-turned-Republican- idly in other states, including Massachu-
truly draconian actions, including: turned Democrat, who has thus far setts, Oregon and Washington. In Massa-
• Biden, Sanders and Warren advo- spent over $210 million of his own chusetts, gas bans are being implemented
cate criminal prosecution and jail money on the campaign—would in several cities, but they have hit a road-
terms for O&G executives, for alleg- require all new U.S. cars to be block. Massachusetts regulates building
edly causing global warming. electric by 2035 and would “fully codes and gas utilities, and if local ordi-
• Sanders and Warren would ban use decarbonize” the U.S. economy nances interfere with state regulations,
of natural gas in new buildings and prior to 2050. state laws take precedence. However,
eliminate its use in power plants. California allows municipalities to set lo-
• Sanders and Warren contend that STATE AND LOCAL RED FLAGS cal building codes that have higher energy
a price on carbon is “too slow” and While attention is focused on the na- efficiency standards than state codes.
would instead implement com- tional elections, there are ominous poli- Not to be outdone, Bellingham, Wash.,
mand-and-control legislation to rap- cies gestating at the state and local gov- is proposing to ban natural gas heating,
idly decarbonize the U.S. economy. ernment levels. not only in new construction, but also
• Warren would spend $10 trillion In Colorado, a November 2018 bal- eliminating it in existing homes and busi-
to transform the U.S. economy, to lot initiative on restricting fracing was nesses. It would require conversions to
achieve net-zero CO2 emissions by overwhelmingly defeated. Yet, since then, electric heating when people purchase ex-
2030. the enviros have filed six new state ballot isting homes and conversion of all struc-
• Sanders would declare climate initiatives requiring the same draconian tures by 2030. For now, natural gas cook-
change a national emergency, and setback restrictions defeated in 2018, and ing would still be allowed.
require that U.S. transportation and increasing the cost of drilling bonds by a
electricity generation be 100%-re- factor of 25. DR. ROGER BEZDEK is an internationally
recognized energy analyst and president of
newable by 2030. Rhode Island Governor Gina Rai- MISI, in Washington, D.C. He has over 30 years’
• Biden would eliminate fossil fuels mondo (D) has signed an EO directing experience in the energy, utility, environmental
and build 500,000 charging stations the state to meet 100% of its electricity and regulatory areas, serving in private industry,
academia and government. He has served as
throughout the U.S., to ensure that requirements with renewable energy by senior adviser in the U.S. Treasury Department,
by 2030, all U.S. vehicles are electric. 2030—probably the fastest timetable in U.S. energy delegate to the EU and NATO,
and as a consultant to the White House, the
• Candidate Tom Steyer (a billionaire the U.S. UN, government agencies, and numerous
who made his money from fossil fu- Washington State Governor, and short- corporations and organizations.
World Oil®/FEBRUARY 202027
 SPECIAL FOCUS: 2020 FORECAST – U.S. DRILLING

U.S. on a downward trajectory

as shale industry matures
 CRAIG FLEMING, Technical Editor,
and KURT ABRAHAM, Editor-in-Chief/
Chief Forecaster
Despite flagging drilling activity in
2019, the U.S. became the world’s larg-
est crude producer, with output hit-
ting a record-high in December at 12.87
MMbopd, a 10.4% y-o-y gain. However,
the flood of crude and “every-man-for-
himself ” mentality of U.S. shale produc-
ers put downward pressure on global
crude benchmarks during 2019.
To avoid a crash in oil prices, OPEC
elected to yield, with Saudi Arabia gradu-
ally reducing its output during the year
by 1.11 MMbopd, from a high of 10.24
MMbopd in January to just 9.13 MMbopd
in September. The masterfully staged cut-
backs were enough to balance markets and
keep benchmark prices relatively steady
throughout the year. Geopolitical factors
also caused occasional price spikes. Ten-
sions in the Middle East escalated, when an
Iranian-sponsored attack on a large Saudi
Arabian production facility curtailed out-
put in September. In addition, a U.S. drone
strike killed an Iranian military leader in
January. However, after the immediate risk
to supply waned, crude prices returned to
trading in line with market fundamentals.
Even with surging U.S. crude output,
are downsizing their business in the region
to match lower demand. The OFS indus-
try, in general, has cut thousands of jobs, as
shale companies slash spending to gener-
ate cash flow.
The aforementioned factors, along
with World Oil’s surveys of operators
and state agencies, have all shaped this
cycle’s U.S. forecasting process. Accord-
ingly, World Oil’s editorial staff presents
its 2020 U.S. forecast, as follows:
• U.S. drilling will decrease 7.7%, to
22,002 wells, Table 1.
• U.S. footage will decline 8.4%, to
261.5 MMft of hole
• The U.S. Gulf of Mexico should
improve 2.6%, to 155 wells.
U.S. MARKET FACTORS
During the past year, U.S. E&P contin-
ued to lose momentum, and 2020 will be
driven by lower-for-longer spending and
reduced activity levels. M&A among U.S.
shale companies will have an impact on
activity, as the consolidated entity typically
spends less than the separate stand-alone
Table 1. Forecast of 2020 U.S. wells and footage to be drilled.
Total wells
2020 2019
State or area forecast estimated3
Texas1 8,262 9,204
companies. The pullback in drilling and
completions started early in 2019, and the
decline in the rig count was steeper than
most companies had expected (see p. 34).
The ability and willingness of OPEC+ to
orchestrate production cuts, to stabilize
crude markets, was significant in helping
U.S. oil producers remain profitable.
Excess service capacity. The declining
activity in U.S shale plays was so severe that
the OFS sector was forced to scrap entire
fleets of fracing equipment. With half of
the available hydraulic horsepower sitting
idle, shale completion specialists retired
truck-mounted pumping units and other
redundant equipment. Approximately 2.2
million hydraulic horsepower, or 10% of
industry capacity, have been earmarked
for scrap. In previous market slumps, un-
used equipment was mothballed for use
when demand increased. This time, gear
is being stripped down for parts or sold for
scrap. The scrapping of frac equipment is a
clear indication that a significant change in
mindset has occurred. And the problem is
Total footage, 1,000 ft
% 2020 2019 %
diff forecast estimated3 diff
–10.2 113,174.9 126,116.3 –10.3

it is becoming apparent that shale is not a Southeast1,4 662 694 –4.6 6,967.8 7,554.4 –7.8
Northeast5 1,818 2,034 –10.6 23,158.3 25,921.6 –10.7
panacea for production growth. Drilling in
Midwest6 500 362 38.1 1,266.9 843.9 50.1
U.S. shale fields continued to wane, with y-
Mid-continent7 4,159 4,200 –1.0 49,360.5 51,281.1 –3.7
o-y (Dec. 2018 to Dec. 2019) declines of
Rocky Mountains8 4,382 4,784 –8.4 58,502.7 63,423.1 –7.8
64% in Oklahoma, 47% in Pennsylvania, West Coast9 2,052 2,375 –13.6 6,384.2 7,490.2 –14.8 x
35% in Colorado and a 20% reduction in Alaska–offshore2 7 6 16.7 66.5 56.9 16.9
Wyoming, Ohio and Texas RR District 8 California–offshore2 5 23 –78.3 30.0 140.6 –78.7
(Baker Hughes). Also, the depletion of pre- Gulf of Mexico2 155 151 2.6 2,603.8 2,553.4 2.0
mium drilling locations and capex cuts of Total U.S. 22,002 23,833 –7.7 261,515.6 285,381.5 –8.4
7% are projected to reduce oil and liquids 1 Excludes state and federal offshore wells, which are included in the GOM total.
growth in 2020 to around 500,000 bpd 2 Includes state and federal offshore wells.
and 200,000 bpd, respectively. According 3 2019 estimates are based on well counts furnished by state and federal regulatory agencies, and API.

4 Includes Alabama, Arkansas, Florida, Louisiana, Mississippi and Tennessee.

to Halliburton and Schlumberger, U.S. 5 Includes New York, Ohio, Pennsylvania, Virginia and West Virginia.

shale fracing has peaked and is in a period 6 Includes Illinois, Indiana, Kentucky, Michigan and Missouri.

of sustained contraction. Both companies 7 Includes Kansas, Nebraska, North Dakota, Oklahoma and South Dakota.

8 Includes Colorado, Idaho, Montana, Nevada, New Mexico, Utah and Wyoming.
predict that spending in North America 9 Includes Alaska-onshore, California-onshore and Oregon.
will continue to decline this year, and both
World Oil®/FEBRUARY 202029
2020 FORECAST – U.S. DRILLING
also spreading to sand mines and the truck-
ers who haul it.
Oilfield service pricing. The OFS in-
dustry has struggled to capture much of
the value that it provided to E&P compa-
nies during, and after, the downturn (Ever-
core investment firm). This is evidenced
by the sector’s decline in returns on capi-
tal, which pales in contrast to production
efficiency gains. This, coupled with a shift
toward more commoditized shale activity,
led to a collapse of the industry’s return
on capital employed. A major problem is
industry fragmentation, which has driven
irrational pricing schemes and product line
instability. When market share changes
are volatile, economic profitability tends
to suffer. Given the impact of unfavorable
supply/demand trends, Evercore predicts
that pricing will decline in 2020 for North
American drilling, completion and pro-
duction services.
Crude output. Surprisingly, U.S. oil
production continued to grow steadily
in 2019 (see page 36). The year started
with operators pumping an average 11.94
MMbopd in January. Total production
increased to an all-time high of 12.87
MMbopd in December, a 9% y-o-y in-
crease. EIA forecasts that U.S. oil output
will average 13.3 MMbopd in 2020 and
13.7 MMbopd during 2021. Most of the
growth is forecast to occur in the Permian
region of Texas and New Mexico.
Capex. The oil and gas industry is at a
crossroads, says James West, chief ana-
Fig. 1. In RRC District 8, the heart of the Permian, operators are slowing their drilling, as
they address the need to make a better financial return, reduce overproduction, and cut
down on flaring. Image: Apache Corporation.
30FEBRUARY 2020/WorldOil.com
lyst at Evercore (see page 23). Investor
demands for returns have turned off the
capital spigot for U.S. shale, the main
driver of global oil growth during this past
decade. Equally disturbing, the oil price
crash of 2014 cut non-shale E&P spend-
ing by 40%, and the industry is barely off
the budget bottom.
Spending discipline to slow shale
output. U.S. oil production growth is
heading for a major slowdown, as capital
discipline and weak prices play out, said
IHS Markit V.P. Raoul LeBlanc. A new
outlook for oil market fundamentals for
2019-2021 predicts total U.S. produc-
tion growth to be 440,000 bopd in 2020
before flattening out in 2021. Modest
growth is expected to resume in 2022, but
those volumes will be in stark contrast to
the boom levels of recent years.
The key challenge for producers now
is to meet investors’ new focus on return
on capital. This comes at a time when
companies face prolonged, lower prices
and when access to financing from capital
markets is more difficult.
Drilled-but-uncompleted. The num-
ber of U.S. DUCs is finally dropping.
As of December, the DUC total stood
at 7,573, or 11.9% less than reported by
EIA a year earlier. DUCs in the Permian
also are declining, with 3,612 tallied in
December, 10.8% less than the year-ago
figure of 4,048. Although some consult-
ing firms have suggested that there is no
DUC backlog beyond a normal drilling
and completion cycle, why does EIA keep
reporting this large backlog of wells?
Commodity prices. WTI and Brent oil
prices started 2019 at $51.38 and $59.41/
bbl, respectively, before WTI topped out at
$63.86/bbl in April, and Brent peaked in
May at $71.32/bbl. Prices remained rela-
tively stable throughout the remainder of
the year despite escalating geopolitical ten-
sions in the Middle East and the ongoing
trade dispute between China and the U.S.
And with Saudi Arabia quietly returning
to the role of swing producer, both crude
benchmarks were higher at the end of the
year, with Brent trading at $67.31 and
WTI priced at $59.88, an increase of 13%
and 17%, respectively. The EIA forecasts
that Brent spot prices will average $65/bbl
in 2020 and $68/bbl in 2021, compared
with an average $64/bbl during 2019. EIA
predicts that WTI will average $5.50/bbl
lower than Brent through 2020 and 2021.
Henry Hub (HH) spot natural gas
prices averaged $2.57/MMBtu in 2019,
down 19% from 2018. HH prices hit their
high point of $3.11/MMBtu in January
2019, but they quickly retreated during
the year, as abundant supply from U.S.
shale fields overwhelmed demand and
the fledgling LNG industry’s capacity to
export product. And on Jan. 22, 2020,
HH posted the lowest January price in
more than 20 years, dropping to $1.89/
MMBtu, the lowest January price since
1999. However, Evercore expects a slight
rebound, and predicts that natural gas
will average $2.37/MMBtu in 2020. EIA
forecasts that HH spot prices will average
$2.33/MMBtu in 2020, and then increase
in 2021 to an average $2.54/MMBtu.
LNG exports. EIA expects U.S. net nat-
ural gas exports to double by 2021. The
federal agency forecasts that U.S. natural
gas exports will exceed natural gas im-
ports by an average 7.3 Bcfd in 2020, 2
Bcfd higher than in 2019, and 8.9 Bcfd
in 2021. Growth in U.S. net exports will
be led primarily by increases in LNG ex-
ports and pipeline exports to Mexico. Net
natural gas exports doubled in 2019, com-
pared to 2018, and EIA expects that they
will double again by 2021.
U.S. FORECAST
The substantial ramp-up in U.S. shale
drilling activity, which started in January
2018, is staring to wane, despite produc-
tion cuts by Saudi Arabia and Russia that
have supported crude prices during the
 2020 FORECAST – U.S. DRILLING

last 12 months. Years of costly drilling
and highly questionable buying sprees
have gutted shareholder returns of large-
and mid-sized shale producers. To stave
off further deterioration of stock prices
and dwindling investor returns, operators
will reduce drilling expenditures in 2020,
in line with cuts implemented during
second-half 2019. As expected, the Perm-
ian will remain a major target for compa-
nies seeking to add oil reserves, but at a
slower pace. However, operators working
in several premier shale plays in Oklaho-
ma, Pennsylvanian, Ohio and Colorado
are indicating that these areas are reach-
ing maturity or are no longer profitable.
World Oil forecasts that the trend will
continue in 2020.
Gulf of Mexico. With the limitations of
the unconventional plays becoming more
apparent, operators plan to increase drill-
ing in the Gulf of Mexico. World Oil pre-
dicts a 2.6% increase in wells drilled and a
2% jump in total footage during 2020. In
the GOM, average time from discovery to
first production has been cut in half over
the last four to five years, and final invest-
ment decision to first production has de- With overproduction/flaring reaching
clined 33% (Wood Mackenzie). a critical point, Permian basin operators
working in RRC District 8 (Fig. 1) plan
U.S. REGIONAL ACTIVITY to slow drilling 13%, with a reduction in
World Oil projects that nationwide footage of 12.7% in 2020. In District 7C,
drilling was down 7.1% in 2019. With World Oil forecasts a 6.7% reduction in
the shale field development continuing wells and a 6.6% decline in footage. In the
to slack off, a 7.7% decrease is forecast heart of the Eagle Ford in District 1, op-
in 2020, Table 1. With the lack of new erators plan to reduce drilling 10.3%, with
drilling locations and dwindling ROIs in an accompanying 10% drop in footage.
the heavily drilled shale fields becoming The natural gas oversupply has led to
more apparent, a swing back toward con- bust scenarios in Districts 4 and 10, which
ventional plays should start to gain mo-
mentum in 2020.
Fig. 2. In North Dakota’s oil-rich Bakken
shale, operators are likely to keep drilling
Texas. Shale drilling will continue to at a level consistent with 2019’s activity.
dominate the Lone Star State, but at lower Image: ConocoPhillips.
activity levels. Still, the relentless pace of
activity during the boom era pushed Tex-
as oil production to 5.62 MMbopd in De-
cember, a 12% y-o-y increase. However,
the higher crude output produces a sig-
nificant amount of casinghead gas, and in
the Permian, operators are flaring enough
gas to meet the residential demand across
the whole of Texas. Local gas prices will
remain under stress until more pipelines
come online.

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2020 FORECAST – U.S. DRILLING

we predict will suffer 22.6% and 12%
drilling declines, respectively. Districts
8A, 5 and 9 also will decline, with losses
of 20%, 13.7%, and 3.4% respectively. In
East Texas’ mature Panola gas area of Dis-
trict 6, drilling and footage may plummet
25%. World Oil forecasts total combined
Fig. 3. Colorado’s activist legislature
and governor seem bent on wrecking
E&P activity in their state, and the
consequences are beginning to show.
Some operators are abandoning locations
in Colorado for better conditions in
neighboring pro-drilling states, and
activity is forecast to drop 15%. Image:
ConocoPhillips.
activity in Texas will decrease 10.2% dur-
ing 2020, with footage down 10.3%.
Southeast. In northern Louisiana, the
flood of natural gas will force operators to
decrease Haynesville shale activity to cur-
tail production. Activity by smaller com-
panies also will slow in the state’s mature
shallow oil fields. Drilling activity in the
northern half will be down 9.2%, with foot-
age decreasing 10.1%. In southern Louisi-
ana, footage is forecast to slump 10%, with
well spuds down 10.2%. Combined, Loui-
siana will suffer a 9.4% decline in wells and
a 10.1% reduction in footage during 2020.
Northeastern states. A warm winter
and excess Marcellus production forced
spot gas prices to drop to a 20-year low in
January. Despite increased pipeline capac-
ity in the Appalachia basin and a ramp-up
of the Cove Point LNG facility in Mary-
land, activity in the Marcellus-Utica shale
play continues to slow. Drilling in Penn-
sylvania is forecast to decline 14.9%,
with footage dropping 13.7%. In West
Virginia, World Oil forecasts total wells
and footage to decline 5%. After suffering
a 17% reduction in activity during 2019,
we forecast Ohio’s wells and footage to
decline another 9.8% in 2020. Excessive
horizontal well lengths and low gas prices
are partially to blame for the collapse.
Midwest. Activity levels should remain
subdued in this region. In Michigan, the
factors affecting drilling activity are main-
ly low commodity prices, and possibly rig
availability. However, Illinois’ state regu-
latory agency, the Office of Oil and Gas
Resource Management, is predicting an
increase of 108% in drilling activity and
a 110% jump in footage. Indiana’s opera-
tors cite price and political uncertainty as
major factors limiting drilling. However,
we forecast a 21.4% increase in spuds and
footage during 2020.
Mid-continent. Disappointing results in
the SCOOP and STACK plays of Oklaho-
ma have forced operators to curtail drilling
operations in the state despite the applica-
tion of updated technologies and comple-
tion practices. During 2020, we predict
that Oklahoma’s activity will decrease 7.7%
overall, with a 10.6% reduction in footage.

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 2020 FORECAST – U.S. DRILLING

After declining to 420,000 bopd in 2015,
the 2017-2019 drilling boom increased the
state’s production 44% to 606,000 bopd,
as of January 2020. Activity in the Sooner
State continues to be dominated by Conti-
nental, Encana (formerly Newfield), Dev-
on and Cimarex.
In the oil-rich Bakken shale of North
Dakota, drilling remained relatively con-
sistent during the 2017-2019 boom era,
Fig. 2. And 2020 should be no exception,
as World Oil forecasts that drilling and foot-
age will increase just 0.4%. We predict the
trend to laterals approximately two miles
long will continue through 2020, with
some wells reaching an MTD of 21,000 ft.
Oil transport from the remote location is
still an issue, but the region’s entrenched
operators will continue to support large
drilling and completion investments. Oil
production climbed to 1.49 MMbopd in
December, a 7.5% y-o-y increase.
In conventionally oriented Kansas, op-
erators continue to drill relatively shallow
oil and gas wells to maintain production.
And with the shale plays waning, investors
are starting to shift attention back to tra-
ditional prospects that don’t require high-
cost horizontal drilling and staged fracing.
We predict a 3.4% increase in total wells
and a 2.6% jump in footage in 2020.
Rocky Mountain states. The pro-green
political climate taking hold in Colorado
will put a dent in the state’s drilling (Fig.
3) during 2020. In April 2019, Senate Bill
118 was passed and it “fundamentally al-
tered the oil and gas industry’s future in
the state,” according to Governor Jared
Polis. In 2020, we predict that operators
will abandon drilling locations in the state
in search of more favorable conditions in
neighboring pro-drilling states. As such,
we project 15% fewer wells and 13.5%
less footage in 2020. However, Colorado’s
crude production continues to climb, hit-
ting 552,000 bopd in December, up 13.8%.
On the Wyoming side of the Niobr-
ara shale, operators plan a 7% slowdown
in drilling activity, making 7.3% less hole
in 2020. The state still benefits from the
2017-2019 drilling boom, with produc-
tion rising to 297,000 bopd in December,
a 12.5% y-o-y increase. In northeastern
Utah’s multi-horizon Uinta basin, drill-
ing activity is forecast to increase 2.2%.
Approximately 67% of the state’s mineral
acreage is controlled by the U.S. BLM.
Although New Mexico was late to
the Permian shale boom, that situation
started changing in 2018-2019. However,
we predict a slight slowdown in drilling
during 2020, despite an increase in com-
pletion efficiencies in the Bone Springs
formation. We forecast that the state will
experience a 5.8% decline in well spuds
and a 5.5% drop in footage.
West Coast. Drilling in California has
been an up-and-down proposition over
the past several years. In 2020, onshore
operators should reduce drilling 15%,
with total footage down 18.9%. As in pre-
vious years, most drilling is conducted by
just four companies. Offshore California,
we expect a 78% decrease in activity and
total footage compared to last year. De-
spite erratic drilling activity, operators
managed to pump 465,000 bopd in De-
cember, just 3.5% less than in 2018.
In Alaska, offshore work in the Cook
Inlet will remain steady. Onshore activity
on the North Slope is projected to increase
2.6%, with total footage up 2.7%.

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World Oil®/FEBRUARY 202033

 SPECIAL FOCUS: 2020 FORECAST – U.S. ROTARY RIG COUNT

Spending discipline slows

drilling activity in shale plays
The U.S. has become the world’s larg- rigs in 2018, to 106 units in 2019. And in shale fields, horizontal drilling accounted
est crude producer, with output hitting Wyoming, the state’s rig count jumped for the overwhelming majority of wells
12.87 MMbopd in December. In 2019, 23.4%, from an average 27 rigs in 2018, to drilled. During 2019, nearly 88% of all
operators started reducing activity, in an 33 units in 2019. wells drilled in the U.S. were horizontal,
attempt to meet new ROI expectations. with the remaining 17% split between di-
The average U.S. rig count for 2019 Target split. With activity in the Mar- rectional and vertical wells.
was 943.8 units, an 8.5% decline com- cellus and Utica slowing, the overall ratio Several industry experts are predicting
pared to the previous year’s average of of rigs targeting natural gas versus those an offshore resurgence, and despite long
1,031.5. Starting in December 2018, the drilling for crude oil shifted slightly by start-up times required in deepwater op-
U.S. rig count fell 12 consecutive months, the end of 2019, with approximately erations, there was some evidence of a re-
to average just 804 units in December 84% of rigs targeting oil, and 16% target- bound, as active rigs rose 20.9% in 2019,
2019. Oklahoma and Ohio suffered the ing gas. Despite slowing activity in the to an average 23.1 units.
largest percentage declines in the shale
states, losing 33% and 29%, respectively. U.S. drilling split by target. U.S. drilling split by trajectory.
In Texas, 10 of the 12 RRC districts ex- 100 100
perienced a deterioration in activity, with
a statewide decline of 51 rigs, a drop of 80 80
10%. In the Permian, RRC District 7C
dropped 20%, and RRC District 8 suf- 60 60
fered a 7% setback. In District 1, the Eagle
Ford play was down an average eight units 40 40
in 2019, an 8% decline. Vertical,%%
Vertical
20 Gas drilling 20 Directional %%
Directional,
However, not all shale states declined. Oil drilling Horizontal,%%
Horizontal
On the New Mexico side of the Perm- 0 0
ian, the rig count increased 11%, from 95 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020

Average number of U.S. rotary rigs in operation1

State or area 2018 avg. 2019 avg. % diff. State or area 2018 avg. 2019 avg. % diff.
Alabama 1.1 1.1 0.0 Ohio 20.8 14.7 –29.3
Alaska 6.1 7.8 27.9 Oklahoma 134.3 90.4 –32.7
Land 6.1 7.8 27.9 Pennsylvania 40.9 37.9 –7.3
Offshore 0.7 0.5 –28.6 Texas 513.5 462.6 –9.9
Arkansas 0.4 0.0 … Offshore 1.2 1.3 8.3
California 14.6 14.7 0.7 Inland water 0.0 0.0 …
Land 14.6 14.7 0.7 District 1 41.4 38.2 –7.7
Offshore 0.0 0.0 … District 2 29.8 30.0 0.7
Colorado 31.9 29.6 –7.2 District 3 15.3 12.6 –17.6
Florida 0.3 0.8 166.7 District 4 13.9 10.5 –24.5
Illinois 0.3 0.3 0.0
District 5 3.1 2.6 –16.1
Indiana 1.3 0.7 –46.2
District 6 23.8 23.8 0.0
Kansas 0.4 0.3 –25.0
District 7B 2.0 3.3 65.0
Kentucky 0.3 0.0 …
District 7C 40.2 32.2 –19.9
Louisiana 60.1 61.8 2.8
District 8 313.3 290.7 –7.2
North - Land 34.8 35.0 0.6
South - Inl. water 3.0 1.9 –36.7 District 8A 17.7 13.3 –24.9
South - Land 5.5 3.8 –30.9 District 9 2.7 1.8 –33.3
Offshore 17.2 21.3 23.8 District 10 10.7 3.6 –66.4
Michigan 0.0 0.1 … Utah 7.3 6.1 –16.4
Mississippi 3.8 3.3 –13.2 Virginia 0.8 0.8 0.0
Montana 1.0 0.6 –40.0 W. Virginia 15.0 18.0 20.0
Nebraska 0.0 0.1 … Wyoming 26.9 33.2 23.4
Nevada 0.8 0.2 –75.0 Others2 0.3 0.3 0.0
New Mexico 95.4 106.1 11.2 U.S. Offshore Total 19.1 23.1 20.9
North Dakota 52.7 54.2 2.8 U.S. Grand Total 1,031.5 943.8 -8.5
1 Totals may not add due to rounding. 2 Others comprise Arizona, Idaho, New York, Oregon, South Dakota and Washington. Source: Baker Hughes

34FEBRUARY 2020/WorldOil.com
 SPECIAL FOCUS: 2020 FORECAST – U.S. OIL AND GAS PRODUCTION

U.S. crude output surges,

overproduction wallops gas prices
Despite a reduction of drilling activ-
ity in the shale plays, U.S. oil production
hit an all-time high of 12.87 MMbpd in
December. This rise in U.S. output is due
largely to a decision by Saudi Arabia to
curb its production during 2019 by 1.11
MMbopd, to support benchmark prices.
Crude oil. U.S. oil production increased
11.4% in 2019, with noticeable growth
reported in Texas, New Mexico, North
Dakota, Colorado and Oklahoma. WTI
started 2019 at $51.38, before topping
out at $63.86/bbl in April. Prices re-
Natural gas. Henry Hub gas prices av- steadily throughout 2019, increasing to
eraged $2.57/MMBtu in 2019, down 103,683 Bcfd in December, a y-o-y gain
$0.58/MMBtu from 2018. HH prices hit of 8.8%. The increase is likely attributed
a high of $3.11/MMBtu in January, but to a ramp-up of LNG exports. The EIA
retreated 18.4% during the year to average forecasts that HH spot prices will average
$2.22/MMBtu in December. The large $2.33/MMBtu in 2020 and $2.54/MMB-
price drop is due to surging output from tu in 2021. The EIA expects U.S. net gas
shale plays that overwhelmed demand exports to double by 2021 and forecasts
and export capabilities. that exports will exceed gas imports by an
Marketed gas production climbed- average 7.3 Bcfd in 2020.
U.S. oil and natural gas production.
120 14,000

U.S. crude oil production, MMbpd

100 13,000
Marketed production, Bcfd

mained relatively stable throughout the 12,000

80
remainder of the year in spite of escalating 11,000
geopolitical tensions in the Middle East 60
10,000
and the ongoing trade dispute between 40 9,000
China and the U.S. 20 8,000
Of the 10 largest oil-producing states 0 7,000
(>100,000 bopd), gainers outnumbered J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
2017 2018 2019
losers, with operators in eight states up-
ping overall production, and just two U.S. crude and condensate production by state
states suffering losses. Texas oil produc- Daily, 1,000 bbl Annually, 1,000 bbl
STATE 20191 20182 20191 20182
tion climbed 14.2%, increasing to a daily Alabama 13.3 16.1 4,830 5,884
average of 5.43 MMbpd in 2019, despite Alaska 466.1 479.3 170,089 174,800
slumping activity in the Permian and Ea- Arkansas 13.0 13.8 4,711 5,018
gle Ford plays. On the New Mexico side of California3 457.2 476.9 166,853 217,313
the Permian, production increased 36%, Colorado 514.8 487.0 187,908 177,817
up to 923,600 bopd, the largest percent- Florida 5.3 4.9 1,818 1,839
Illinois 22.6 23.0 8,252 8,420
age gain of any of the big-10 states. Bakken
Kansas 90.9 95.2 33,213 34,714
production in North Dakota registered an Kentucky 6.2 6.3 2,260 2,265
11.4% increase, up to 1.41 MMbopd. Louisiana3 1,637.4 1,539.6 597,868 438,017
In the Western states, Colorado en- Michigan 14.1 14.8 5,129 5,408
joyed a 5.7% increase to 514,800 bopd, Mississippi 47.3 46.4 17,243 16,953
while Wyoming was up 16%, to 278,300 Montana 63.5 59.0 23,167 21,540
bopd. In California, a catastrophic re- Nebraska 5.4 5.8 1,982 2,056
New Mexico 923.6 681.4 337,206 248,958
duction in drilling activity that started in
North Dakota 1,407.4 1,263.8 513,962 461,531
2015, has had little effect on output as the Ohio 77.3 63.6 28,229 23,224
state’s production remained resilient at Oklahoma 582.9 549.6 212,822 200,685
457,200 bopd, a loss of just 4%. Pennsylvania 17.5 17.8 6,354 6,478
In the Mid-continent, production Texas3 5,433.5 4,758.0 1,983,575 1,609,075
in Oklahoma shot up 6.1%, despite Utah 103.3 101.5 37,716 37,063
disappointing results in the SCOOP West Virginia 45.4 31.8 16,597 11,618
Wyoming 278.3 240.8 101,646 87,955
and STACK plays. Shale-poor Kansas Others4 27.6 29.0 9,903 10,474
dropped 4.5%, to average 90,900 bopd, TOTAL U.S. 12,235.4 10,986.7 4,467,003 4,011,521
while Louisiana and the federal offshore 1Estimated using API and EIA data. Totals may not add due to rounding.
increased 6.4%, up to 1.64 MMbopd. 2 Revised using EIA data.
3 Includes state and federal offshore.
Alaska was not as fortunate, dropping 4 Includes Arizona, Indiana, Missouri, Nevada, New York, South Dakota, Tennessee and Virginia.
2.8% to average 466,100 bopd.
36FEBRUARY 2020/WorldOil.com
 SPECIAL FOCUS: 2020 FORECAST – U.S. RESERVES

U.S. reserves reach new record-high

According to the U.S. Energy Information Administration
(EIA), U.S. oil and natural gas proved reserves increased to
yet another record-high in 2018. This correlated with a 17%
increase in U.S. crude oil and lease condensate production, as
well as a 12% increase in total U.S. natural gas production. This
is largely due to another year of stronger oil and gas prices, the
EIA said.
From the late 1970s through the late 1990s, natural gas and
crude oil reserves maintained a steady downward trend. Around
1997, however, this changed, due to several new innovations in
horizontal drilling and hydraulic fracturing techniques. In re-
cent years—from 2016 to year-end 2018—the EIA reported
that prices and reserves have been trending upward.
Crude oil proved reserves increased 11.7%, from 39.2 Bbbl at
year-end 2017 to 43.8 Bbbl at year-end 2018. This was an in-
crease of 4.6 Bbbl from the previous record set in 2017. Proved
reserves of lease condensate increased 14.3%, from 2.8 Bbbl at
year-end 2017, to 3.2 Bbbl at year-end 2018. Adding lease con-
densate to crude oil yields total liquids proved reserves of
47.1 Bbbl, a 12.1% increase over year-end 2017.
In Texas, alone, producers added 2.3 Bbbl of crude oil and
lease condensate proved reserves—a 13.2% increase from
2017. It was a result of increased prices and development in the
Permian basin. This was the largest net increase of all states dur-
ing 2018. After Texas, the next largest net gains in crude oil and
lease condensate proved reserves were in New Mexico (750
MMbbl) and North Dakota (422 MMbbl), which saw 27.9%
and 7.7% increases from 2017, respectively. Conversely, Louisi-
ana saw the largest net decline in proved reserves during 2018,
a 32-MMbbl decrease (-6.2%) in crude oil and lease condensate
proved reserves.
The EIA reported that operators saw the largest volume of
extensions and discoveries of crude oil and lease condensate
proved reserves in the past decade during 2018.
Natural gas proved reserves also increased 8.7%, from 464.3
Tcf at year-end 2017 to 504.5 Tcf at year-end 2018. This, too,
was another U.S. record for total natural gas proved reserves.

Table 1. Crude oil and lease condensate proved reserves, reserves changes, and production, 2018, MMbbl
Changes in reserves during 2018
Proved Revision Revision Extensions & Estimated Proved
State and Reserves Adjustments increases decreases Sales Acquisitions discoveries production reserves
subdivision 12/31/17 (+,–) (+) (–) (–) (+) (+) (–) 12/31/18
Alaska 2,016 3 465 24 0 21 116 176 2,421
Lower 48 States 39,974 761 4,226 4,254 1,364 2,019 7,078 3,808 44,632
Alabama 54 2 15 6 0 0 1 6 60
Arkansas 37 4 5 0 9 0 1 5 33
California 2,209 –37 379 142 26 16 59 162 2,296
Colorado 1,593 30 250 225 44 102 176 171 1,711
Kansas 304 48 19 12 0 1 3 33 330
Kentucky 9 1 1 0 2 1 0 1 9
Louisiana 516 4 45 43 6 6 12 50 484
Michigan 59 11 3 4 21 0 0 5 43
Mississippi 124 20 11 3 1 2 1 17 137
Montana 302 30 10 52 0 0 10 21 279
Nebraska 13 3 0 0 0 1 0 2 15
New Mexico 2,689 18 219 346 66 51 1,123 249 3,439
North Dakota 5,473 251 343 385 91 35 729 460 5,895
Ohio 189 10 79 40 38 24 8 22 210
Oklahoma 2,250 124 161 496 154 59 734 194 2,484
Pennsylvania 91 4 13 2 0 6 25 6 131
Texas 17,327 160 1,525 1,939 702 1,413 3,444 1,611 19,617
Utah 318 34 56 44 45 41 109 37 432
West Virginia 211 –9 14 26 3 1 59 13 234
Wyoming 1,119 26 85 117 21 40 175 88 1,219
Federal Offshorea 4,948 56 969 370 135 220 404 649 5,443
Miscellaneousb 138 –28 24 2 0 0 5 6 131
U.S. Total 41,990 764 4,691 4,278 1,364 2,040 7,194 3,984 47,053
aIncludes Federal offshore Louisiana, Mississippi, Alabama and Florida. b M - Miscellaneous states include Arizona, Florida, Idaho, Illinois, Indiana, Maryland, Missouri, Nevada,
New York, Oregon, South Dakota, Tennessee and Virginia. Note: The production estimates in this table are based on data reported on Form EIA-23L, Annual Report of Do-
mestic Oil and Gas Reserves. Source: U.S. Energy Information Administration.

World Oil®/FEBRUARY 202037

2020 FORECAST – U.S. RESERVES

The previous record was set in 2017. Likewise, natural gas
proved reserves from shale increased from 66% of total U.S. gas
proved reserves in 2017 to 68% at year-end 2018.
Proved natural gas reserves increased in five of the top eight
U.S. natural gas reserves states in 2018. Three of the eight larg-
est gas reserves states reported a net decrease in proved reserves
in 2018—Louisiana, Colorado and Ohio. The EIA attributed
this decrease to net downward revisions to natural gas proved
reserves in 2018, despite each reporting an increase in proved
reserves greater than 9 Tcf during the previous year.
The largest net increase of natural gas proved reserves was
in Texas, where producers added 22.9 Tcf (+19.9%). This was
a result of increased prices and development in the Wolfcamp/
Bone Spring shale play. The next largest net gains in natural gas
proved reserves by volume in 2018 were in Pennsylvania (14.1
Tcf) and New Mexico (4.2 Tcf), increases of 15.6% and 20.3%,
respectively. These gains were a result of development in the
Marcellus shale play and in the Appalachian basin, as well as the
Wolfcamp/Bone Spring shale play in eastern New Mexico.
The EIA’s report estimates U.S. proved reserves of crude
oil and lease condensate and proved reserves of natural gas at
the end of 2018. According to the EIA, proved reserves are
estimated volumes of hydrocarbon resources that analysis of
geologic and engineering data demonstrates with reasonable
certainty are recoverable under existing economic and operat-
ing conditions.

Table 2. U.S. tight oil plays–production and proved reserves, 2017-2018, MMbbl
Change,
2017 2017 2018 2018 2017–2018
Basin Play State(s) production reserves production reserves reserves
Permian Wolfcamp/Bone Spring NM, TX 592 8,319 922 11,096 2,777
Williston Bakken/Three Forks ND, MT, SD 387 5,447 458 5,862 415
Western Gulf Eagle Ford TX 411 4,815 449 4,734 –81
Anadarko, S. Okla. Woodford OK 36 412 34 560 148
Appalachian Marcellus PA, WV 17 279 17 345 66
Denver Niobrara* CO, KS, NE, WY 11 232 25 317 85
Fort Worth Barnett TX 2 20 2 20 0
Sub-totals 1,456 19,524 1,907 22,934 3,410
Other tight oil 35 449 NA NA NA
U.S. tight oil totals 1,491 19,973 1,907 22,934 3,410
Note: Includes lease condensate. Bakken/Three Forks tight oil includes fields reported as shale or low permeability on Form EIA-23L. Other includes fields reported as shale
on Form EIA-23L, not assigned by EIA to the Eagle Ford, Bakken, Barnett, Marcellus, or Niobrara resource plays. * The Niobrara estimate may contain some reserves from the
Codell sandstone. Source: U.S. Energy Information Administration, Form EIA-23L, Annual Report of Domestic Oil and Gas Reserves, 2017 and 2018

Table 3. Total natural gas proved reserves, reserves changes, and production, wet after lease separation, 2018, Bcf
Changes in reserves during 2018
Proved Revision Revision Extensions & Estimated Proved
State and Reserves Adjustments increases decreases Sales Acquisitions discoveries production reserves
subdivision 12/31/17 (+,–) (+) (–) (–) (+) (+) (–) 12/31/18
Alaska 6,574 86 2,086 575 0 777 265 328 8,885
Lower 48 States 457,718 8,684 39,380 68,578 24,875 37,844 79,192 33,749 495,616
Alabama 1,542 –85 81 47 84 28 0 134 1,301
Arkansas 8,272 –258 83 193 5,851 5,278 7 595 6,743
California 1,663 –40 138 112 18 17 42 134 1,556
Colorado 28,727 18 2,939 5,140 987 954 1,431 1,810 26,132
Kansas 2,897 29 95 136 5 0 0 195 2,685
Kentucky 1,221 5 7 53 962 1,279 0 103 1,394
Louisiana 36,481 –1,309 3,767 7,221 2,293 1,585 6,201 2,818 34,393
Michigan 1,509 178 79 35 128 0 0 90 1,513
Mississippi 351 2 14 8 52 9 0 36 280
Montana 631 43 53 64 8 0 3 46 612
New Mexico 20,858 –370 1,892 2,150 605 1,503 5,474 1,512 25,090
New York 104 –25 38 3 0 0 0 12 102
North Dakota 10,376 441 1,228 490 115 89 1,507 862 12,174
Ohio 27,021 1,015 2,803 9,316 4,388 7,218 2,426 2,381 24,398
Oklahoma 38,549 3,454 2,968 8,774 1,520 354 8,398 2,916 40,513
Pennsylvania 90,788 3,962 4,440 14,803 172 4,675 22,263 6,210 104,943
Texas 115,249 3,492 13,874 11,306 5,226 10,324 20,997 9,206 138,198
Utah 3,889 76 219 136 705 5 294 297 3,345
Virginia 2,741 –8 46 168 90 87 57 111 2,554
West Virginia 35,855 –133 2,034 6,816 1,124 1,453 8,946 1,771 38,444
Wyoming 22,352 –1,952 1,349 1,138 343 2,736 802 1,501 22,305
Federal Offshorea 6,472 216 1,225 463 193 250 344 1,004 6,847
Miscellaneousb 170 –67 8 6 6 0 0 5 94
U.S. Total 464,292 8,770 41,466 69,153 24,875 38,621 79,457 34,077 504,501
aIncludes Federal Offshore Louisiana, Mississippi, Alabama and Florida. b M - Miscellaneous states include Arizona, Florida, Idaho, Illinois, Indiana, Maryland, Missouri, Ne-
braska, Nevada, Oregon, South Dakota and Tennessee. Note: The production estimates in this table are based on data reported on Form EIA-23L, Annual Report of Domestic
Oil and Gas Reserves. Source: U.S. Energy Information Administration.

38FEBRUARY 2020/WorldOil.com
 SPECIAL FOCUS: FORECAST 2020 – INTERNATIONAL DRILLING & PRODUCTION

E&P outside the U.S. shows promise

Improved offshore activity, coupled with really needed, however, is approval of pipeline projects that
significant conventional oil development would add nearly 600,000 bpd of shipping capacity. In the short
programs operated by NOCs, should push run, the Canadian Association of Petroleum Producers expects
drilling marginally higher in 2020. drilling to decline another 8.4% during 2020, with offshore
work remaining nearly flat. For more details on Canadian activ-
ity, please turn to page 45.
 WORLD OIL Editorial Team Mexico. Compared to several previous years, Mexico in 2019
under President Andres Manuel Lopez Obrador (AMLO)
seemed to step backwards. Since taking office, AMLO has sus-
Even though drilling took a dive during 2019, the U.S. became pended licensing rounds but left existing agreements with pri-
the world’s largest crude producer, reaching a record-high 12.87 vate operators in effect.
MMbopd in December, and averaged 12.2 MMbpd for the year. Furthermore, an effort by state firm Pemex to drill new wells at
To avoid an oil price crash, OPEC+ decided to cut production, 20 “priority” fields by using smaller, local service contractors has
with 1.195 MMbpd pledged. Actually, production in December faltered, and the company expects to re-bid some of the work later
was only 44.081 MMbpd, resulting in a 1.569-MMbpd reduc- this year. Meanwhile, AMLO appears bent on restoring Pemex to
tion. The cutbacks were enough to balance markets and keep its pre-reform status. He said that he would lower the company’s
benchmark prices relatively steady. tax burden in 2020 and contribute government funds toward pay-
Geopolitical factors also caused occasional price spikes, but ing down near-term bonds. Accordingly, we expect Mexican drill-
oil prices, on the whole, remained within a fairly constant range ing, at least the Pemex share, to be up 20.9% during 2020, Fig. 1.
between the low $50s/bbl and $60/bbl. The industry’s top-per-
forming region remains the Middle East, supported by multi-year SOUTH AMERICA
development programs. And while Qatar has been the world’s This region has good resources, but it suffers inconsistent
leading LNG exporter, Australia may claim that title shortly. performance. Yet, drilling appears close to turning the corner,
The aforementioned factors, along with World Oil’s surveys with just a 1.5% decline in wells forecast. Offshore activity is on
of international petroleum ministries and departments have the rebound, slated to rise 28%.
all shaped this cycle’s forecasting process. Accordingly, World
Oil’s editorial staff forecasts 2020 international E&P activity,
Table 1. Forecast of 2020 drilling outside the U.S.*
as follows:
Region Wells forecast Wells drilled
• Canadian wells will drop 8.4%, while Mexican drilling or country 2020 2019 % diff.
will rise 20.9% North America1 4,798 5,163 –7.1
• Global drilling, excluding the U.S., will edge up 0.3%; South America2 2,401 2,438 –1.5
without Canada, the rate of increase jumps to 2.1% Western Europe3 456 455 0.2
• Global offshore drilling is forecast to rise 4.7%, with Eastern Europe/FSU4 10,539 10,357 1.8
increases expected in every region except North America. Africa5 1,124 1,107 1.5
Middle East6 3,032 2,935 3.3
After two years of improvement in global drilling outside the
Far East/South Asia7 21,183 20,939 1.2
U.S., the number of wells drilled last year fell 4.0%, to 43,734,
South Pacific8 346 340 1.8
Table 1. This year, we predict that global drilling will inch up
World Total 43,879 43,734 0.3
0.3%, to 43,879 wells. Offshore activity continues to rebound, * Some countries are estimated.
with a 4.7% pick-up to 2,411 wells forecast, Table 2. Global oil 1 Includes Canada, Cuba, Mexico and Others.
2 Includes Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Peru, Trinidad &
and condensate production averaged 82.432 MMbpd during Tobago, Venezuela and Others.
2018, down 0.7%, Table 3. 3 Includes Austria, Denmark, France, Germany, Italy, Netherlands, Norway, UK and

Others.
4 Includes Albania, Croatia, Czech Republic, Hungary, Poland, Romania, Russia and
NORTH AMERICA Others.
Outside the U.S., North American drilling is slated to decline 5 Includes Algeria, Angola, Congo, Egypt, Gabon, Libya, Nigeria, South Sudan,

Sudanm Tunisia and Others.

7.1% during 2020, with Canada down and Mexico up. Offshore 6 Includes Iran, Iraq, Kuwait, Neutral Zone, Oman, Qatar, Saudi Arabia, Syria, Turkey,

activity in these two nations should rise 16.4%, to 85 wells. UAE-Abu Dhabi, UAE-Dubai, Yemen and Others.
7 Includes Brunei, China, India, Indonesia, Japan, Malaysia, Myanmar, Pakistan, Phil-

ippines, Thailand, Vietnam and Others.

Canada. After a wild ride for producers over the last several 8 Includes Australia, East Timor, New Zealand and Papua New Guinea.

years, the Canadian E&P outlook is a bit better for 2020. What’s
World Oil®/FEBRUARY 202039
 FORECAST 2020 – INTERNATIONAL DRILLING & PRODUCTION

Brazil leads in offshore development. The country reportedly Venezuela. Despite claiming the world’s largest proved oil
will deploy 21 FPSOs between 2019 and 2025. These vessels’ reserves, Venezuela’s production continues a rapid descent,
crude oil production capacities are expected to total 2.5 MMbopd slumping to a 75-year low last year at 792,000 bopd. U.S. sanc-
during that period. Accompanying this uptick in production, we tions crippled the economy and cut off access to U.S. refiners.
expect to see a 20% increase in Brazilian drilling. State-owned According to Baker Hughes, the average number of active rigs
Petrobras operates most of the current development.
Fig. 1. Mexico’s drilling was up significantly during 2019, as
exemplified by 13 wells drilled on contract by Simmons Edeco
Table 2. Forecast of 2020 offshore drilling worldwide.*
in southeastern Mexico. The Calgary-based firm subsequently
Region Wells forecast Wells drilled won a second contract for additional drilling in the area. Image:
or country 2020 2019 % diff. Simmons Edeco.
North America1 252 253 –0.4
South America2 122 95 28.4
Western Europe3 400 386 3.6
Eastern Europe/FSU4 104 93 11.8
Africa5 297 273 8.8
Middle East6 319 295 8.1
Far East7 902 895 0.8
South Pacific8 15 13 15.4
World Total 2,411 2,303 4.7
*Some countries are estimated.
1 Includes Canada, Cuba, Mexico, U.S. (Alaska/California/Gulf of Mexico) and

Others.
2 Includes Argentina, Brazil, Chile, Colombia, Ecuador, Peru, Trindad & Tobago,

Venezuela and Others.

3 Includes Denmark, France, Germany, Italy, Netherlands, Norway, UK and Others.
4 Includes Croatia, Poland, Romania and Others. Russia not available.
5 Includes Angola, Congo, Egypt, Gabon, Libya, Nigeria, South Africa, Tunisia and

Others.
6 Includes Oman, Qatar, Saudi Arabia, Turkey, UAE-Abu Dhabi, UAE-Dubai and

Others. Iran not available.

7 Includes Brunei, China, India, Indonesia, Japan, Malaysia, Myanmar, Pakistan,

Philippines, Thailand, Vietnam and Others.

8 Includes Australia, East Timor, New Zealand and Papua New Guinea.

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40FEBRUARY 2020/WorldOil.com
 FORECAST 2020 – INTERNATIONAL DRILLING & PRODUCTION

fell from 78.7 in 2013 to just 24.5 during 2019. Given the cur-
rent governmental situation in Caracas, Venezuela’s E&P sector
is not likely to see any relief in the near future.
Argentina. With the world’s fourth-largest reserves of shale oil
and second-largest reserves of shale gas, Argentina’s oil produc-
tion has stabilized at 500,000 bpd or above, with 2019’s gas out-
put at 4.8 Bcfd. Drilling should remain almost steady.
Guyana has become South America’s exploration success lead-
er, producing the highest number of discoveries of any South
American country during third-quarter 2019. Not only has
ExxonMobil reported 16 discoveries on the Stabroek Block, to
date, but two recent discoveries by Tullow Oil in the neighbor-
ing Orinduik Block have opened an entirely new Upper Tertiary
oil play.
WESTERN EUROPE
Significant interest continues in exploring the UK and Nor-
wegian continental shelves. New production from large projects
offshore Norway and the UK demonstrates continued long-
term opportunities. Supermajor operators continue to divest
legacy assets to regional specialists. Offshore drilling should
grow 3.6%. Activity, overall, will be up slightly.
Norway. Norwegian oil production received a boost, when
Johan Sverdrup field went onstream in October. Production
should reach 440,000 bopd by this summer, generating a 33%
increase in Norway’s production during first-half 2020. Equinor
expects Johan Sverdrup to deliver more than $100 billion in rev-
enue over the next 50 years.
Operator interest in the Norwegian Continental Shelf re-
mains strong, with the Norwegian Petroleum Directorate
awarding 69 new production licenses to 26 companies in Janu-
ary 2020. World Oil projects a 0.9% increase in Norwegian wells
drilled during 2020.
of 26 MM tons of LNG per year, doubling existing capacity.
Additionally, Gazprom completed 176 gas production wells at
its Chayandinskoye field in Yakutia, to fill its Power of Siberia
gas pipeline servicing Chinese markets. We expect a 1.5% in-
crease in wells drilled.
Other Eastern European and FSU countries. Exploration
is picking up in the Balkans, with Bosnia-Herzegovina offer-
ing its first-ever exploration licensing round. The country joins
Croatia, which offered acreage in 2019. Meanwhile, in Azerbai-
jan, drilling should be up 13% this year, with increases expected
both onshore and offshore. Kazakhstan will be up modestly, an-
chored by additional development drilling at Tengiz field. The
FSU countries, other than Russia, will be up 3.9% this year.
AFRICA
After bottoming out in 2017, African drilling has been
building back. We predict a further 1.5% gain to 1,124 wells
during 2020. Offshore, Africa’s drilling should up 8.8%, to
nearly 300 wells.
Egypt’s E&P market is doing well. According to one report,
Egyptian General Petroleum Corp. had the highest number of
oil and gas finds globally during third-quarter 2019, three of
which were in the Western Desert basin. Given these recent suc-
cesses and other ongoing projects, World Oil anticipates a nearly
4% drilling increase.
Fig. 2. Saudi Arabian activity will be a significant component of
Middle Eastern drilling during 2020, as illustrated by this scene of
jackup rigs at work in Hasbah field. Image: Saudi Aramco.

United Kingdom. The 32nd and largest offshore licensing

round for the UK Continental Shelf concluded in December,
attracting 104 applications that covered 245 blocks and partial
blocks. Licenses should be let during second-quarter 2020. Else-
where on the shelf, Equinor started production at Mariner field,
which should produce more than 300 MMboe over 30 years.
On land, drillers were dealt a significant blow at the end of 2019,
when the Conservative UK government effectively banned hy-
draulic fracturing in new wells. We anticipate British wells drilled,
both offshore and onshore, will remain even with 2019’s levels.

EASTERN EUROPE / FSU

Development of gas export pipelines, and the production to
fill them, remains a key interest for operators in Russia and be-
yond. Wells drilled in Eastern Europe and the FSU, combined,
are projected to increase 1.8% during 2020. The U.S. economic
sanctions against Russia are bringing offshore drilling to a vir-
tual standstill in that country.

Russia continues to focus on projects in its far eastern region

as a means to becoming a dominant player in global gas and
LNG markets. Rosneft and Novatek PJSC, the country’s larg-
est LNG producer, approved projects with an export capacity
World Oil®/FEBRUARY 202041
FORECAST 2020 – INTERNATIONAL DRILLING & PRODUCTION
Nigeria’s offshore sector is building momentum, with four FP-
SOs planned for deployment by 2025. Nigeria has been work-
ing to boost oil output, as well as keep up with rising natural
gas demand. As of December 2019, plans for a $10-billion ex-
pansion of Nigeria LNG, Africa’s largest natural gas plant, were
moving forward. World Oil anticipates a 5.8% increase in drill-
ing activity for 2020.
Angola. Behind Brazil, Angola expects to deploy the second-
highest number of FPSOs by 2025. Five vessels are planned dur-
ing that period, which should boost oil production after several
years of decline. Following a recent licensing round for 10 frontier
offshore blocks, Angola may increase drilling nearly 3.0%.
Libya. Between civil war and export blockages, Libya’s E&P ac-
tivity has decreased dramatically. Since an eastern military com-
mander halted exports at ports under his control, the OPEC
nation’s output has dropped approximately 800,000 bopd from
1.174 MMbopd. If export blockages finally cease, then drilling
activity should rise modestly.
MIDDLE EAST
The Middle East continues to be a stellar E&P performer.
Thanks to the steady development programs of various NOCs,
regional drilling has remained at an historically high rate for
several years. For 2020, Middle Eastern drilling should increase
3.3%. Offshore drilling will be up 8.1%, Fig. 2.
Saudi Arabia remains the global oil exports leader. A Septem-
ber 2019 attack on Saudi Aramco’s Abqaiq oil processing facility
and Khurais oil field, however, resulted in the largest daily spike
in global oil prices in the last decade. Nevertheless, the company
reportedly restored the field’s production to full capacity by the
end of the month. The country’s heavy development work and
associated drilling continue, although drilling will be down 6.0%.
Iraq. Despite tensions with Washington of late, Iraq remains the
Middle East’s second-largest oil producer. In spite of political
tumult and requisite OPEC cuts, Iraq expected to see a 15.8%
drilling increase this year.
UAE-Abu Dhabi. Government-owned Abu Dhabi National
Oil Co. (ADNOC) recently reported a 7% surge in oil reserves,
increasing to 105 Bbbl. Presently, the company produces ap-
proximately 2.9 MMbpd. ADNOC also claims to have increased
its gas reserves to about 273 Tcf, amid discovery of unconven-
tional gas deposits. Additionally, ADNOC Drilling announced
a major rig fleet expansion program in November that will add
dozens of rigs by 2025.
Oman, the largest Middle Eastern driller, is home to a significant
new exploration opportunity after BP and Eni signed an E&P
agreement for Block 77 in July 2019. Block 77 is situated east of
BP’s Block 61, where the Khazzan and Ghazeer gas projects are
found. Meanwhile, an 8.0% increase in drilling is anticipated.
 FORECAST 2020 – INTERNATIONAL DRILLING & PRODUCTION

FAR EAST taken to process more resources domestically to boost export

The Far East is expected to post a 1.2% gain in wells. How- revenue. This year, we expect a 3.3% drilling increase.
ever, if China is filtered out, then the region will barely post an
increase, at 0.7%. SOUTH PACIFIC

China. As the world’s biggest oil importer, China could see a
significant dip in demand growth this year. State firm CNPC
said demand could slip by as much as half of last year’s level,
amid the ongoing trade dispute and Coronavirus epidemic. The
country’s oil demand should still grow, at perhaps 2.4%, CNPC
told Bloomberg, but there is no way to be sure. For now, Chi-
nese drilling should grow at about 1.2%.
Indonesia. State firm PT Pertamina, however, has taken re-
cent steps to reduce oil imports. In November, an overhaul of
the company’s management team was ordered by Indonesian
President Joko Widodo. He also announced that steps would be
Australia has been one of the world’s leading LNG producers.
According to the U.S. EIA and Australia’s Department of Indus-
try, Innovation, and Science, Australia is on track to surpass Qa-
tar as lead producer. And operators continue to look for more
oil, too, so drilling is expected to increase 1.2% during 2020.
Papua New Guinea’s Papua LNG plant was anticipated for
development in conjunction with Exxon-operated PNG LNG,
through an expansion of the existing plant in Caution Bay.
However, the government walked away from negotiations on
the $10-billion project in January, putting the project on hold.
Nevertheless, PNG drilling will be up slightly.

Table 3. World crude/condensate production by countries, 2019 and 2018*

Daily production Daily production
Region or (thousands of barrels) % Region or (thousands of barrels) %
country 2019 2018** Diff. country 2019 2018** Diff.
North America 18,679.9 17,491.8 6.8 Angola 1,445.0 1,546.3 –6.6
Canada1 4,700.0 4,592.0 2.4 Congo 331.9 333.6 –0.5
Cuba 50.3 50.9 –1.2 Egypt 607.2 619.8 –2.0
Mexico 1,684.0 1,851.8 –9.1 Equatorial Guinea 154.4 172.2 –10.3
United States 12,235.4 10,986.7 11.4 Gabon 206.0 193.2 6.6
Others 10.2 10.4 –1.9 Libya 1,013.0 988.0 2.5
South America 5,888.6 6,225.5 –5.4 Nigeria 2,015.0 1,917.0 5.1
Argentina 506.5 489.1 3.6 Sudan/South Sudan 248.9 223.7 11.3
Bolivia 52.5 53.8 –2.4 Tunisia 40.7 41.1 –1.0
Brazil 2,758.2 2,586.8 6.6 Others 466.0 453.6 2.7
Chile 2.3 2.2 4.5 Middle East 26,083.7 27,521.3 –5.2
Colombia 886.2 865.2 2.4 Iran 3,035.0 4,250.5 –28.6
Ecuador 529.7 517.7 2.3 Iraq 4,536.3 4,412.1 2.8
Peru 153.6 134.4 14.3 Kuwait 2,793.5 2,778.5 0.5
Trinidad & Tobago 68.2 72.6 –6.1 Neutral Zone 0.0 0.0 …
Venezuela 915.0 1,487.0 –38.5 Oman 969.5 978.6 –0.9
Others 16.4 16.7 –1.8 Qatar 1,518.3 1,465.1 3.6
Western Europe 2,750.3 2,824.8 –2.6 Saudi Arabia 9,710.0 10,300.0 –5.7
Austria 12.9 13.4 –3.7 Syria 23.7 23.6 0.4
Denmark 110.0 114.0 –3.5 Turkey 57.4 55.0 4.4
France 14.3 15.5 –7.7 UAE - Abu Dhabi 3,044.5 2,894.8 5.2
Germany 37.4 40.9 –8.6 UAE - Dubai 245.0 225.2 8.8
Italy 79.9 87.7 –8.9 Yemen 69.7 60.5 15.2
Netherlands 28.6 30.4 –5.9 Others 80.8 77.4 4.4
Norway 1,436.8 1,517.0 –5.3 Far East/South Asia 6,501.5 6,564.1 –1.0
United Kingdom 1,026.0 1,000.1 2.6 Brunei 119.2 112.1 6.3
Others 4.4 5.8 –24.1 China 3,782.0 3,717.0 1.7
Eastern Europe 14,231.7 14,223.9 0.1 India 664.5 702.6 –5.4
Albania 15.7 16.5 –4.8 Indonesia 729.7 772.5 –5.5
Bulgaria 1.2 1.1 9.1 Malaysia 606.9 648.8 –6.5
Croatia 14.9 15.2 –2.0 Myanmar 11.1 11.2 –0.9
Czech Republic 1.8 2.0 –10.0 Pakistan 89.5 89.1 0.4
Former Soviet Union 14,075.5 14,060.0 0.1 Philippines 14.4 13.4 7.5
Russian Federation 11,155.3 11,072.3 0.7 Thailand 228.6 228.9 –0.1
FSU - Others 2,920.2 2,987.7 –2.3 Viet Nam 228.2 242.1 –5.7
Hungary 14.5 18.4 –21.2 Others 27.4 26.4 3.8
Poland 19.5 20.9 –6.7 South Pacific 465.6 385.6 20.7
Romania 72.2 72.3 –0.1 Australia 360.9 283.8 27.2
Serbia 16.2 17.3 –6.4 East Timor 28.3 32.9 –14.0
Others 0.2 0.2 0.0 New Zealand 25.0 24.3 2.9
Africa 7,831.1 7,792.5 0.5 Papua New Guinea 51.4 44.6 15.2
Algeria 1,303.0 1,304.0 –0.1 World Total 82,432.4 83,029.5 –0.7
*Some countries are estimated. None contain NGLs or refinery gains. **Revised 1Includes bitumen and synthetic oil output.
Sources: World Oil’s surveys of governments and companies, plus some third-party data.

World Oil®/FEBRUARY 202043

 SPECIAL FOCUS: 2020 FORECAST – CANADIAN E&P
Canada re-adjusts to low prices, limited access
As the beleaguered Canadian oil patch
struggled through another difficult year in
2019, it is beginning to appear that despite
some early signals to the contrary, no respite
is in sight; this low-price environment, with
limited access to overseas markets, may, in
fact, be the new normal.
 ROBERT CURRAN, Contributing Editor, Calgary
The waters that producers must currently navigate are
fraught with dangers, most of which are global in scope, al-
though political battles at home have also conspired to limit the
Canadian industry’s hopes for any economic recovery. There
was some early optimism, with oil prices spiking on U.S./Iran
tensions, and a modest recovery in domestic natural gas prices,
but it seems that optimism may have been overstated, Fig. 1.
Pipelines and problems. The domestic issues that face the
industry are many, but the most critical remains the lack of pipe-
line capacity from landlocked Alberta to tidewater. Ongoing
political issues have also hurt the industry, including new fed-
eral CO2 emissions targets, and other provincial jurisdictions
that have deliberately set out to oppose both pipeline develop-
ment, and further development of Alberta’s oil sands deposits.
In fact, the issue of hydrocarbon development has blossomed
into a full-scale national crisis, with some politicians abandoning
any semblance of a national perspective, focusing almost exclu-
sively on regional issues. This has led to court challenges, divisive
policymaking, negative rhetoric, and hypocritical bombast de-
signed to win local votes, irrespective of the national cost.
The issue has been complicated by the confusing and often
oppositional policies of Prime Minister Justin Trudeau’s Liberal
party, which narrowly won the federal election last fall, and now
sits as a minority government. Trudeau appears to support in-
dustry, in that his government purchased the Trans Mountain
pipeline in May 2018, and since then, has consistently stated it
will be built, asserting the federal government’s primacy over
provincial jurisdiction in these matters.
But the same government has implemented a carbon tax
that appears to unfairly target Alberta’s oil and gas industry, and
in particular oil sands development; banned oil tankers from
much of Canada’s west coast; and instituted project review re-
quirements that most believe will make approving another ma-
jor pipeline next to impossible.
Trans Mountain recently received some good news, as one
of the last challenges to its approval was rejected in February of
Fig. 1. It looks like another year of diminished expectations for
Canada’s upstream industry, particularly if pipeline bottlenecks
are not addressed. Image: Repsol Canada.
this year. A group of First Nations had appealed the federal gov-
ernment’s approval, but the Federal Court of Appeal ruled that
the government’s consultations with Indigenous groups about
the pipeline were adequate. The groups still have the option to
petition the Supreme Court of Canada, but in the meantime,
construction that is underway may continue. Meanwhile, the
Canadian Energy Regulator resumed hearings to review de-
tailed routing on contested portions of the pipeline’s route from
Alberta to the west coast.
And, of course, Quebec continues its opposition to any pipe-
line projects that would cross its borders, despite its heavy, if
indirect, reliance on oil and gas revenues from Alberta. Since
the federal government first implemented its revenue sharing
formula, or “equalization,” in 1957, Quebec has received more
than $200 billion, most of which came from Alberta. In oil-poor
Quebec, the politicians are seemingly willfully blind to their
startling hypocrisy.
The one other positive sign on the horizon is the Trump ad-
ministration’s approval in January of a right-of-way allowing the
Keystone XL oil sands pipeline to be built across the U.S., nudg-
ing the controversial $8-billion project that much closer to com-
pletion.
Alberta’s perspective. In Alberta, the provincial government
has done what it can to try and stimulate moribund price mar-
kets, but with mixed success. Production cuts have had some
success, intervention in the crude-by-rail markets was ultimate-
ly rejected by the new provincial government, and incentives,
like tax cuts, are simply not enough to overcome the stark mar-
ket realities facing the Canadian industry.
World Oil®/FEBRUARY 202045
2020 FORECAST – CANADIAN E&P
Canadian producers still often sell their oil at a discount be-
tween the Western Canada Select benchmark price and West
Texas Intermediate, due primarily to ongoing market access
constraints. Efforts to establish a made-in-Alberta carbon tax
have failed to date. The province faces the implementation of
two separate carbon taxes: one provincial; one federal.
Alberta’s provincial government also has established the
Canadian Energy Centre, known as the energy “war room,” to
counter the overwhelming tide of false rhetoric propagated by
ideological special interest groups and foreign activists, and de-
signed to cripple the Canadian industry. The damage done by
this misinformation has caused incalculable damage to Alberta,
and by extension Canada, and Alberta Premier Jason Kenney’s
government hopes that this initiative may at least provide a
counter in this war of words.
Despite these efforts, industry continues to delay or cancel
projects, reducing spending, and limiting its exposure to the
current negative market conditions. As a result, land sale rev-
enues and drilling numbers are once again trending downward,
and early results in 2020 are not encouraging for the year ahead.
The poor performance of the Canadian dollar, which con-
tinues to hover around the U.S. 75-cent mark, provides a buffer,
benefitting the export-driven oil and gas industry, which still
ships substantial volumes of oil and gas south to U.S. customers.
Alberta’s vast oil sands continue to be both a driver of the pro-
vincial economy and a flashpoint for pro- and anti-oil forces. Cur-
rently, Teck Resources Limited’s proposed C$20-billion Frontier
Oil Sands Project, designed to produce 260,000 bpd, is awaiting
a decision by the federal government on whether it will receive
approval to proceed. The project was already subject to a joint Al-
berta/Canada hearing, after which the joint review panel recom-
mended approval. The company has said that even if it clears this
final hurdle, it will still have to make a determination whether it will
proceed. Much of that will hinge on whether pipeline constraints.
Ultimately, access to markets—or lack thereof—will be the
clearest signal of a return to profitability and, perhaps, stability
for the Canadian industry. With global demand on the increase,
there is some long-range hope that Canadian oil may, indeed,
fetch a fair market price.
Typically, uncertainty and poor industry performance make
conditions ripe for companies looking to expand via mergers
and acquisitions. But in 2019, much like many other factors,
M&A bucked that trend, with only C$8 billion worth of deals,
compared to C$12.1 billion in 2018, according to Calgary-
based Sayer Energy Advisors. Most pundits are less bullish for
2020, and most, including Sayer, are forecasting a modest in-
crease from 2019 levels in the year ahead.
Drilling levels ended up lower than forecast in 2019, and the
bearish outlook remains in place for 2020. According to Daily
Oil Bulletin records, there were just 5,545 wells drilled in 2019,
a 25% drop from the 7,424 wells drilled in 2018. Of the total
drilled last year, 68.1% were oil wells, and 94% were categorized
as development drilling.
In Alberta, drilling fell 33.5%, to 2,410 wells drilled, com-
pared to 3,626 the year before. In Saskatchewan, drilling was
down 26.1%, with 1,890 wells drilled, versus 2,557 in 2018. In
 2020 FORECAST – CANADIAN E&P

Fig. 2. Canadian drilling remains stuck in a range far below the

higher plateau experienced in the years from 2010 through 2014.
Chart data: CAPP.
26,000
24,000
22,000
20,000
18,000
16,000
14,000
12,000 Other
10,000
8,000
6,000 Gas
4,000
2,000 Oil
0
‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18E ‘19E ‘20F

British Columbia, operators drilled 364 wells in 2019, down

17.1% from 439 in the previous year. And in Manitoba, drilling
fell 19.6%, to 222 wells in 2019, compared to 276 in 2018.
For the year ahead, the Canadian Association of Oilwell Drill-
ing Contractors is predicting that drilling will remain virtually
flat, with 4,905 wells drilled, citing the Liberal election victory
(and implementation of punitive legislation) as the main contrib-
uting factor. Meanwhile, the Petroleum Services Association of
Canada is far more bearish, calling for a total of 4,800 which is
actually an increase from its projection last fall, with some hope
for LNG projects prompting a recovery in natural gas prices.
World Oil survey results, from provincial agencies and the
Canadian Association of Petroleum Producers, are a bit of a
mixed bag, with CAPP forecasting that drilling will fall by an-
other 8.4% in 2020. Alberta is less bearish, projecting a 2.6%
increase in drilling for the province this year.
Land sales continued their freefall in 2019, with industry
spending just C$172.25 million in western Canada, down more
than 67% from the C$527.1 million collected in 2018. The
downward trend clearly indicates industry’s continued misgiv-
ings about its overall fiscal health. It was just 11 years ago that
industry set the record high of $5 billion in 2008.
In Alberta, spending was $131.5 million, a drop of 68% from
last year’s total of $411.4 million. Three years ago, Alberta col-
lected just $148.6 million, which at that time made 2016 the
lowest total recorded in Alberta in more than 20 years. That du-
bious distinction now goes to 2019.
British Columbia’s anti-oil government seems to be achiev-
ing some results in their home province, where industry spent
just $14.7 million, down 77% from the $64.1 million in bonus
bids collected in 2018. This also eclipses the province’s all-time
low in land sale revenues, also set in 2016, when it took in just
$15.2 million.
Saskatchewan experienced the lowest decline, at just under
50%, to $25.4 million, from $50.7 million in 2018. And Mani-
toba took in $102,032 last year, compared to $828,580 in 2018.
Given that the acquisition of land inventories is one of the
most consistent indicators of future drilling activity; it appears
that industry is looking to spend as little as possible until stron-
ger signals emerge that more stability, and profitability, is ahead.
Early returns in 2020 suggest that spending could drop even
further in the year ahead.

MR. CURRAN is a Calgary-based freelance writer.

World Oil®/FEBRUARY 202047

 DRILLING TECHNOLOGY

Gyro-while-drilling technology improves

drilling efficiency and well placement
In today’s environment, the need to expedite
wellbore construction has been supplanted
by the requirement to drill boreholes more
intelligently. A real-time wellbore guidance
technology offers operators and service
companies a means of improving precision
and accuracy in wellbore placement.
be used in a vertical, low-inclination, high-angle, or horizontal
application. The drilling plan, well type, and additional tech-
nologies included in the well plan should be also considered.
Regardless of the tool chosen, it can be run with most com-
monly available MWD systems. The most advanced system, the
GWD90, uses CAP data processing to correct g-sensitive errors
in real time and provides transparent quality control of gravity,
full earth rate, and latitude. The system also has memory multi-
shot capability, as the BHA is tripped out of hole.

 ADRIÁN LEDROZ, CHRIS HARTLEY and STEPHEN FORRESTER, CASE HISTORIES

Gyrodata In Poland, an operator was drilling a challenging ring of 40
wells at an operational coal mine, Fig. 1. The objective of the
campaign was to sink a new shaft while avoiding a cave-in from
While the earliest forms of surveys using a gyro date back the drilling activities. This would be difficult, due to the com-
almost a century, it wasn’t until the mid-1980s that gyroscopic plicated nature of the plan and fragile geological conditions in
surveys, as the energy industry now knows them, were broadly the area. The operator needed to conduct this drilling campaign
adopted. Work with operators on years of field trials, which
culminated in sensor ruggedization and accuracy improve-
ments, saw the release of the first system by Gyrodata in the Fig. 1. The close proximity of each well in the ringed sequence
early 1980s. Subsequent advances over the next decade saw the necessitated precise borehole placement to avoid magnetic
interference.
company develop and release a gyroscopic steering tool and the
industry’s first drop gyroscopic surveying system. As wellbore
construction requirements were changing, the need to pioneer
a new type of drilling service became apparent. With the de-
velopment and release of the GyroGuide gyro-while-drilling
(GWD) system in the early 2000s, a step-change came in the
form of real-time gyro steering and surveying-while-drilling.

DEVELOPMENT
The GyroGuide GWD system has evolved to collect real-
time survey data at all inclinations and in any direction, which
enables safer operations and more accurate wellbore position-
ing. The modular gyro tool is combined with a host measure-
ment-while-drilling (MWD) and telemetry system, allowing
gyroscopic surveys in various applications. Gyro accuracy en-
sures precise wellbore guidance for collision avoidance, with
the GWD tool providing continuous inclination and toolface
from vertical while sliding and full surveys on demand. While
traditional systems struggle with magnetic interference, in this
setup, the sensors can be run closer to the bit in the bottomhole
assembly (BHA). This eliminates the need for non-magnetic
spacing collars for the gyro sensor.
Using a GWD service also eliminates the need to use wireline
gyros to orient or steer the drilling assemblies, which increases
safety and decreases rig time. The highest planned inclination
of the survey is used to choose the tool, with Gyrodata offer-
ing three options where maximum inclination capability corre-
sponds with the tool name: GWD40, GWD70, and GWD90.
Selecting the proper tool is done by determining whether it will
World Oil®/FEBRUARY 202049
DRILLING TECHNOLOGY
with pinpoint accuracy and precision, so as not to risk the in-
tegrity of the existing mine. The operation required drilling 40
wells in a circular pattern, each to a TD of approximately 490
m, and freezing them, which would allow the shaft to be dug
within the circle. This “freeze ring” of vertical wells would have
a minimum spacing between each well of 1.5 m from neighbor-
ing wells at TD. Because traditional MWD solutions would ex-
perience magnetic interference due to the extreme proximity of
the wells, the operator elected to utilize the GWD40 for every
second well in the circle.
As this was a price-sensitive project, the operator needed a
solution that would allow them to achieve their objectives in the
most cost-efficient manner. The GWD40 procedures required
50% fewer people on-site versus a single-shot wireline gyro run,
and the two rigs drilling the wells were able to work concurrent-
ly. Because there were five GWD tools onsite, the operator was
able to establish a pattern of testing tools from previous runs
while other tools were drilling subsequent wells. This reduced
the time necessary to run and service multiple tools and kept
everything on-schedule, per the operator’s request to keep rig
time to a minimum. Using the GWD40 system saved substan-
tial time versus a standard wireline-conveyed single-shot. The
Fig. 2. GWD technology, with memory gyro multi-shot mode,
enabled an 88% reduction in EOU compared to conventional
MWD systems, significantly improving confidence in wellbore
placement.
Fig. 3. Drilling a long tangent section at high inclination required
a downhole tool solution that could mitigate the risk of borehole
collision in an area of high well density.
50FEBRUARY 2020/WorldOil.com
wells were surveyed at 6-m intervals on the first rig and 10-m
intervals on the second one, with 73 surveys per well, on aver-
age, in the former and 52 in the latter. There were total of 22
wells drilled without nonproductive time (NPT). The GWD40
system saved the operator approximately $665,000, based on
reducing rig time and wireline crew costs.
Brazil. A major operator was carrying out a development
drilling campaign in a deepwater application offshore Brazil.
The challenges of deepwater operations were exacerbated by
a 2,000-m salt zone, which added considerable complexity to
the drilling process. In the event of a blowout, the traditional
method of using an active ranging technology to detect metal
from the last casing shoe or drill pipe would not be effective due
to the high resistivity of the salt. The operator required a com-
prehensive contingency relief well plan with a stringent survey
management component. This combination was necessary to
achieve the dual objectives of minimizing risk while drilling the
pre-salt wells and placing them with extreme accuracy to reduce
the probability of survey errors as much as possible.
Gyrodata recommended running a GWD70 system, in con-
junction with the existing directional company’s MWD sys-
tem. The dual set-up, which included magnetic and gyroscopic
survey sensors, would achieve all safety and contingency relief
well requirements when running at the same time, while simul-
taneously enabling the detection of any gross errors. First, a
single-depth gross error test was run to compare the difference
between the two survey methods to ascertain the uncertainty
specified by the tools’ error models. Second, a relative instru-
ment performance (RIP) test was conducted with multiple
surveys. The RIP test assessed the validity of the two direc-
tional surveys run in the same hole section in real time and al-
lowed visual identification of discrepancies versus tolerances.
Finally, the overlap error ellipses method was implemented,
which provided additional evaluation of survey quality. Error
ellipses were plotted around the well positions, as determined
by the two surveys. The degree of ellipse overlap measured the
surveys’ agreement.
Using GWD technology, the well was placed successfully,
with improved reliability of its final position and a reduction
in overall uncertainty. In this application, the GWD70 system
reduced the ellipse of uncertainty (EOU) by 75%, and with the
addition of a memory gyro multishot mode, up to 88% versus
conventional MWD error models, Fig. 2. This provided the
operator with a high level of confidence that the wellbore was
placed correctly, which was crucial in mitigating risk and mini-
mizing response time to deal with an incident.
Thailand. An international E&P company was planning to
drill a 10,000-ft, 8½-in. hole section in a field offshore Thai-
land. The lithology of the field, which included Oligocene to
Miocene lacustrine and fluvial sandstones, meant the operator
had to explore for oil deposits that were embedded in thinly
stacked sand layers. As a multitude of other wells had already
been drilled in the area and wellbore conditions were fragile, the
well plan required an S-shaped well profile with a tangent sec-
tion covering more than 3,700 ft at an inclination of 78°, Fig. 3.
The complexity of the well plan meant special consideration
was required to keep magnetic interference from corrupting
the magnetic survey readings, as well as to mitigate the risk of
wellbore collision during drilling operations. The operator re-
quired a highly accurate, real-time survey solution that could be
 DRILLING TECHNOLOGY

integrated with an advanced rotary steerable system (RSS) in adoption to meet increasingly difficult wellbore placement re-
the BHA to increase confidence in precise wellbore placement. quirements in a multitude of worldwide applications.
The operator chose a GWD90 system to be run in combi-
nation with a third-party RSS. The GWD90 system uses two ADRIÁN LEDROZ is vice president and chief scientist of wellbore
gyro sensors to survey when wellbore inclination exceeds 70°, placement at Gyrodata, where he serves as the primary technical
while simultaneously running with an MWD magnetic sensor. expert on downhole surveying and inertial sensors. Mr. Ledroz oversees
the company’s survey systems development group for all downhole
This set-up improves survey accuracy and gross error detection directional tools. He also serves as the program chair for the Industry
while allowing more reliable, real-time measurement. Gyrodata Steering Committee on Wellbore Survey Accuracy (ISCWSA). Previously,
he worked as a research and development engineer, technical services
and the RSS provider worked together to source a unique GWD manager for gyro surveying, and project manager for new technologies.
collar for the GWD and RSS combination in a tight timeframe He holds a BS degree in biomedical engineering from Universidad de
of only two weeks. Entre Ríos in Argentina and an MS degree in electrical engineering from
the University of Calgary.
After assembling the BHA, the system was run for the length
of the section, providing real-time surveys to a TD of 8,945 ft CHRIS HARTLEY is wellbore placement adviser,
and a measured depth of 10,076 ft in one run. The GWD90 sys- measurements, at Gyrodata, where he provides technical
expertise to support the continued growth and
tem surveyed to a maximum inclination of 78° in the 3,780-ft innovation of the company’s product lines. He has 35
tangent section. The combined GWD and RSS system elimi- years of experience in the oilfield services sector
nated the need for wireline gyro surveys and related delays from specializing in technical management, product
development, and client interface roles. His expertise
on-surface interruptions, which resulted in substantial improve- includes drilling and measurement applications, survey management,
ments to well delivery time and reductions in drilling costs. The LWD, RSS, MWD and training. He previously worked for Weatherford,
Precision Drilling and Halliburton. Mr. Hartley holds a BS degree in
project was the first drilling application in Thailand combining petroleum engineering from Marietta College.
the GWD90 with an RSS, highlighting the potential for addi-
tional work in the area. STEPHEN FORRESTER is content development manager
at Gyrodata, where he oversees technical writing and
strategic communications initiatives for the company’s
EVOLUTION gyroscopic surveying, drilling services, and wireline
While traditional GWD will continue to be relevant, the product lines. Previously, he worked at National Oilwell
Varco in several technical writing roles, covering rig
future of this technology is in solid-state GWD. Solid-state equipment, completion tools, BHA design and downhole
GWD was developed in response to the energy industry’s drilling dynamics. Prior to that, he worked in the oil and gas division of
demand for even greater wellbore placement accuracy, with Lloyd’s Register, where he was a technical editor for reports on
inspections and certifications of subsea blowout preventors.
complex 3D well plans and hydraulic fracturing necessitating
a more advanced, more rugged system for today’s wells. Gy-
rodata recently introduced the Quest GWD system powered
by SPEAR, a solid-state gyroscopic tool with a sensor package
that precisely determines the earth’s rotational rate, inclina-
tion, azimuth, and well orientation. Using this new technology
reduces EOU in real time significantly when compared to tra-
ditional systems. Additionally, because the system has no mov-
ing parts, it does not require the time typically necessary to
spin-up the gyro and achieve temperature stability. This means
the system can be deployed sooner, and the time to survey is
significantly reduced.
The value of using these advanced GWD systems can be dis-
tilled effectively into several major points.
• Running solid-state GWD technology directly reduces
the amount of rig time necessary for drilling and survey-
ing over traditional solutions.
• The improvements made to the new GWD systems have
made avoiding wellbore collision via accurate well place-
ment simpler than ever before. With an increase in issues
such as frac hits and complicated parent/child well inter-
actions, avoiding drilling into adjacent wells is critical to
operational efficiency and safety.
• The new systems enable the operator to place the
wellbore precisely into the hydrocarbon-rich production
zone, potentially improving hydrocarbon recovery. This
is critical from an economic standpoint, especially in ap-
plications where high initial production rates can quickly
give way to reduced expected ultimate recovery.
As the market continues to evolve, adapting to changes and
continuing to innovate will be a defining KPI for companies in
the OFS sector. Moving forward, gyros will see even greater
World Oil®/FEBRUARY 202051
 DRILLING TECHNOLOGY

Adjustable smart-bit increases durability and ROP

during drilling operations
As wellbores and drilling operations become
more complex, drill bit development must
keep pace to meet increasingly difficult
performance requirements.
 BRAD IVIE, National Oilwell Varco
Polycrystalline diamond compact (PDC) drill bits have seen
consistent improvements in durability and efficiency to sup-
port enhanced operating parameters, as well as BHA designs
that include powerful motors and sophisticated rotary steerable
systems. These performance gains are largely the result of im-
provements in the toughness and durability of the PDC cutters
themselves, but design features and relentless iterative product
development have also played a part.
While R&D resources are being applied to PDC bit develop-
ment, the key performance indicators for drill bit applications
are becoming somewhat restrained. It’s difficult to reduce the
number of bits per section when most hole sections are already
drilled with one bit. It is equally challenging to significantly in-
crease ROP when hydraulic configurations cannot efficiently
evacuate drill cuttings up the annulus. Additionally, wellbore
quality and directional requirements sometimes override the
desire to drill faster.
As a result, one innovation that can drive further perfor-
mance gains is broadly categorized under the label of “smart
bits.” At National Oilwell Varco, the ReedHycalog business
unit has moved to the forefront of the smart bit market, devel-
oping technologies that measure various aspects of the drilling
environment, communicate those measurements, and modify
themselves downhole, based on that information.
Once processed, the data can provide significant insights into
downhole dynamics and efficiency, as well as less-obvious top-
ics, such as wellbore quality and formation characteristics. By
taking these measurements at the bit rather than several feet
above within the BHA, the data provide an immediate look at
many aspects of the drilling process, as well as information on
the formations bring drilled.
One intriguing application for these downhole measure-
ments is the potential to use the data in neural network or big-
data analyses. If we can capture downhole data across the entire
depth of many wells within a field, we can draw new conclu-
sions about drill bit selection and BHA design, parameter opti-
mization, and geological trends. Many of these statistical analy-
ses can be automated—the limiting factor is the availability of a
high volume of quality data.
The relative high costs associated with many types of mea-
surement tools have limited their deployment, and, as a result,
typically less than 10% of wells in a given application will in-
clude tools that capture high-frequency data. ReedHycalog is
working to improve these statistics.
To improve the accessibility of near-bit, downhole data ac-
quisition, the service provider is currently deploying a small,
low-cost data recorder that records and stores data on all Reed-
Hycalog PDC bits in specific applications. The @bit recording
device is a 1.6-in. diameter plug that fits securely in the shank
of any bit using a 4½-in. API pin or larger, Fig. 1. The recorder
has a 15,000-psi maximum pressure and a 257°F maximum op-
erating temperature. Even with its tiny size, the @bit device is
Fig. 1. The @bit device, installed in the bit shank, gathers
downhole data for performance and dynamics analysis.

KNOWLEDGE IS POWER
High-frequency measurement of downhole parameters and
vibrations became part of the ReedHycalog portfolio in the late
1990s. Since then, the company has continued to develop and
deploy new measurement technologies for internal research,
product development, and drilling optimization projects. Near-
bit and at-bit measurements are a significant advancement that
provided NOV product engineers with crucial information,
as they worked to improve the drilling efficiency of PDC bits.
Engineers also discovered that near-bit and/or at-bit measure-
ments could be combined with measurements farther from the
bit to improve BHA models, overall directional control, and the
stability of the drilling system.
Drilling parameter and vibration measurement tools are now
incredibly accurate and gather data at an impressive frequency.
World Oil®/FEBRUARY 202053
DRILLING TECHNOLOGY
capable of a 100-Hz sampling rate and 200 hr of operation in
the downhole environment while recording three-axis vibra-
tion, downhole temperature, and RPM.
Throughout the development of this tool, the emphasis has
been on ease of use. The @bit device does not affect the BHA
design, and the carrier takes minutes to install or complete its
data download. By making the @bit device affordable, both in
terms of hardware and manpower for implementation, it can be
broadly deployed across a target field.
Due to its extremely small size, the device cannot store large
amounts of data. However, it automatically processes data while
downhole and stores that statistical information for when it is
needed to support decisions about the dynamic performance
of the bit.
The @bit data are collected, post-run, in an almost complete-
ly automated system, further reducing the expense of analysis.
A simple, one-page report is automatically generated, providing
vibration statistics for the run that are broken down by day. The
data are indexed and uploaded to a database, where drilling ex-
perts can work with operators to analyze performance trends
via a map interface.
Applying smart adaptation to reduce bit trips. As previ-
ously mentioned, many hole size sections around the world are
now drilled with a single bit, which is a result of advances in drill
bit durability, as well as improvements in other parts of the drill-
ing system such as motors, rotary steerable tools, and MWD
components. Considering the costs of tripping in and out of
hole, which are particularly high in offshore applications, this is
a significant development from the viewpoint of operator costs.
The downside to this reduction in bit changes during the
drilling process is that once the drill bit has been selected and
run downhole, that same bit will often be used to drill many dif-
ferent formation types under different pressure and hydraulic
regimes. The same bit can potentially be tasked with varied di-
rectional objectives, as well—all while drilling at a high ROP.
In most cases, the driller typically has limited control over
the drilling performance optimization that has been committed
to the well plan, with input mainly based on operating param-
eters. This emphasizes the importance of good parameter plan-
ning, bit selection, and BHA design. However, compromises
must be made in most plans, due to the changing downhole
conditions throughout the run.
To address this challenge, ReedHycalog is developing a
new technology that allows the bit to adapt and change while
downhole, thereby eliminating a trip to surface. The new tech-
nology offers the potential for bits to adapt to changing dy-
namic environments, formation characteristics, directional re-
quirements, and more. In this way, the bit can drill at the highest
possible efficiency for the entirety of its downhole lifecycle—
improving ROP, wellbore quality, and directional profile while
reducing the likelihood of catastrophic failure for the bit or
BHA components.
Current testing of these “smart-adapting” bit concepts will
allow the driller to deploy additional cutting structure or depth-
of-cut limitation elements during the drilling process. In the
 DRILLING TECHNOLOGY

first prototype of this technology, the adaptation is triggered via In addition to these operational benefits, other scenarios
changes in hydraulic parameters, but future versions will utilize include the ability to significantly change the cutting structure,
other deployment methods. The technology can be deployed in gauge configuration, and/or hydraulic design while downhole
several valuable ways. to further optimize performance.
In one such example, a driller selects a bit that drills very
aggressively through the first half of an application, where the Fig. 2. When activated by the driller at the surface, the smart-
formations are relatively soft. To accomplish this, a relatively adapting bit extends blades with new cutting structures to
light-set bit with six blades would be used. As the drilling opera- increase durability and reduce costly bit trips.
tion encounters extremely abrasive sands, the six-blade bit that
worked so well in the top of the hole will not survive this sec-
tion, as noted in offset wells, requiring a costly trip for a new,
application-specific bit. With ReedHycalog’s smart-adapting bit
technology, a driller can deploy additional blades with fresh cut-
ters, providing enhanced durability, so the BHA can finish the
section without pulling out-of-hole to replace the dull bit, Fig. 2.
The smart-adapting drill bit also can benefit directional ap-
plications, in which the curve and horizontal sections are drilled
with a single hole size. For the curve, depth-of-cut control is re-
quired on the bit in combination with a bent-housing motor,
to ensure a smooth torque response. To accomplish this, the
smart-adapting bit deploys depth-of-cut control elements that
reduce torsional fluctuations and tool face control issues. How-
ever, after completing the curve, offsets show the lateral can be
drilled at an ROP three or four times faster than what is achieved
in the curve. In this case, the smart-adapting bit can retract the
depth-of-cut control elements to allow greater penetration of
the cutting structure, allowing the bit to drill the horizontal as
quickly as possible, Fig. 3.
DRILLING TECHNOLOGY
New synergies going forward. As technology and material
science advance, new at-bit measurement products will be de-
veloped by the industry, leading to information provided in real
Fig. 3. By retracting the adjustable blades once the curve is
finished, the driller can rapidly increase ROP in the lateral section
to reduce rig-time usage.
time for drilling optimization, as well as in memory for post-
well analysis. Drill bit suppliers and operating companies must
work together to identify what information from the bottom of
the well provides the greatest value and how quickly those data
are needed to maximize value.
Smart-adaptive bit control can be exerted from the surface
via various downlink methods that are already in use around the
industry. Ultimately, these methods may be too time-consum-
ing and not provide the reactive control needed.
Smart-adaptive bit development should be working toward
systems that require no direct interaction with surface per-
sonnel. As these smart bits acquire measurements, those data
should be combined with measurements from other tools in
the BHA, as needed. When the required information is in place,
the bit (and other portions of the BHA) should then react and
adapt to the changing conditions without interference from the
surface. These closed-loop capabilities have the potential to
dramatically improve drilling efficiency and improve processes,
such as geo-steering and at-balance drilling, as smart bit designs
progress in the coming years.
BRAD IVIE is the V.P. of research and software
development at ReedHycalog, a division of National
Oilwell Varco. In this role, he drives the development of
new drill bit technology as well as leading efforts in
numerical modeling, data analysis, and technical
software development. Mr. Ivie has a BS degree in
mechanical engineering from Montana State University
and more than 30 years of experience in the design, development, and
performance optimization of drill bits used in the oil and gas industry.

OFS technology:
The driver of energy transition
 LESLIE S. BEYER, President, Petroleum
Equipment & Services Association
Energy Transition—the challenge for
our global community to deliver cleaner,
safer energy in a dynamic mix that will
sustain a growing population and provide
critical progress in the developing world.
What could be a greater challenge and
opportunity for new entrants to the work-
force? If you want to make an impact on the
betterment of society, it’s here in energy.
That’s what the next year and decade
will be all about—how the oil and gas in-
dustry, specifically the energy technology
companies of the OFS sector, will meet the
challenges and opportunities of a carbon-
neutral future while still producing afford-
able, reliable energy in a more efficient,
environmentally-responsible manner than
ever before. And we will need to attract a
specialized workforce to get there.
Further technology development.
The OFS culture of developing technol-
ogy to solve problems will create opportu-
nity, as we tackle water recycling programs,
volatile organic compounds and flaring, as
well as addressing methane and CO2 emis-
sions. And, most importantly, automation,
EDITORIAL ADVISORS’ PERSPECTIVE
innovations around AI, additive manu-
facturing and digitalization of the entire
supply chain will make the sector more
accessible to a broader workforce. These
changes in our culture and identity will
bring more opportunities for millennials,
women and other diverse groups.
A recent study from the University of
Houston, in partnership with the Envi-
ronmental Defense Fund, cited a major-
ity of those polled as concerned about
environmental stewardship and say that
ESG (Environmental, Social & Gover-
nance) practices play an important role in
their decision to accept an offer from an
oil and gas company. Students in STEM
roles also view corporate responsibility as
important to their employment decisions.
In a lower-carbon future, oil and gas
will remain an important part of the en-
ergy mix, and investing in technology and
innovation as a solution will lead us toward
the energy transition. Many companies are
investing in carbon capture sequestration.
OFS firms and operators are also collabo-
rating on renewable technologies.
And our sector is now embracing a
more proactive approach to highlighting
the countless improvements in efficiency,
safety and environmental impact that
only technology can deliver.
Working on emissions and renew-
ables. Early last year, Baker Hughes an-
nounced a net zero global carbon emis-
sions commitment by 2050, with many
other companies beginning to track and
report total energy consumption, CO2
emissions, and water consumption and
recycling. Companies now share positive
metrics around environmental goals, in-
corporating ESG practices that address
sustainability goals. This may be high-
lighting safety track records and employ-
ee training hours, environmental impact,
diversity within Boards and management
teams, and community engagement. By
aligning customer needs with their ESG
objectives, the sector demonstrates to
shareholders the importance placed on
environmental and social stewardship.
The offshore equipment sector is par-
ticularly adept at addressing the issues that
offshore wind turbines face. Oceaneering
is now using their ROV technology that
monitors offshore oil and gas facilities to
monitor offshore wind facilities and have
recently purchased a renewable company
providing lane clearance for offshore wind.
Similarly, NOV’s significant expertise in
the offshore sector earned the company an
equipment package and design order for
one of the largest offshore wind turbine
installation vessels by Japan’s Shimizu Cor-
poration. TechnipFMC’s “Deep Purple”
project is converting power from offshore
wind to hydrogen that is stored on the sea-
bed. This hydrogen could then be re-elec-
trified by fuel cells that could provide clean
power for offshore oil and gas platforms
and future potential markets.
Reducing carbon footprints. Many
major OFS companies are also working
to lower their overall carbon footprint. In
December, Schlumberger announced that
it is setting a science-based target to reduce
its greenhouse gas (GHG) emissions. The
commitment has been submitted to the
Science Based Targets initiative (SBTi)
and, in line with the defined criteria, the
company will define its reduction target
by 2021. Companies are also exploring
new partnerships to achieve these goals.
Halliburton is collaborating with research
organizations and educational institutions
to further the development of sustainable
solutions for the energy industry.
The OFS sector has more than 100
years of experience in bringing energy to
the world. We will continue to innovate
and diversify in the coming years, as we
find smarter ways to take energy forward
and create the industry of the future.
LESLIE BEYER is President of the Petroleum
Equipment & Services Association. She serves
on the World Affairs Council of Greater Houston
Board, the IPAA/PESA Education Advisory
Board and the World Petroleum Congress 2020
Committee.
World Oil®/FEBRUARY 202057
MARCELLUS-UTICA SHALES
CAPITAL DISCIPLINE
REINING IN RIGS, PRODUCTION
 JIM REDDEN, Contributing Editor
Fists have tightened throughout the Appalachia
basin, as gas producers finally come to grips with
market realities.
With the U.S. Energy Information Administra-
tion (EIA) forecasting gas prices to average no more
than $2.33/MMBtu this year, capital constraint out-
ranks production growth across the dry and wet gas
Marcellus-Utica play of Pennsylvania, West Virginia
and Ohio. While production remains at historical
highs, the rate of growth has begun to decline, with
the EIA estimating February production to rise just
under 6%, to 33,346 MMcfd (Fig. 1), from 31,292
MMcfd produced in February 2019.
The combined Marcellus-Utica rig count, like-
wise, has gone from relatively steady to steadily de-
clining, with operators laying down some 33 rigs
since the 2019 high of 83 active rigs in early April,
according to Baker Hughes, which reported an av-
erage 50 rigs active in January.
“We believe the basin needs around 50 rigs
to hold production flat,” said EQT Corp. interim
58FEBRUARY 2020/WorldOil.com
CFO Kyle Derham. “Given a recent commentary
from most Appalachia producers regarding capital
discipline, we would anticipate rigs falling below
maintenance levels in the coming months. We ex-
pect these rig count reductions to begin showing
up in supply in the back half of 2020 and could lead
to exit-to-exit production declines.”
Any drop would be welcomed, as even the height
of the winter heating season has failed to significant-
ly draw down bloated storage levels. “I think what’s
happening in Appalachia is a little bit of a micro-
cosm of what’s happening more nationally, where
storage is getting full. We’re getting up towards the
upper end of what the storage levels are. We’re get-
ting past the five-year average storage levels,” said
Nick DeIuliis, CEO of CNX Resources Corp.
BEYOND 2020
With little price relief expected this year, op-
erators are confident that supply and demand will
begin to balance next year, with an associated up-
Marcellus-Utica operators have idled 33 of the
83 rigs that were active in the early Spring of
2019. Image: Ole Jørgen Bratland, Equinor ASA.

World Oil®/MONTH 201659

SHALETECH / MARCELLUS-UTICA SHALES
tick in prices. Budding non-weather-related in-basin power and
petrochemical demand will get a 1.6-Mtpa boost later this year
or in early 2021, with the start-up of Shell’s polyethane cracker
in Beaver County, Pa.
Producers also scored a victory of sorts in early September,
when the Federal Energy Regulatory Commission (FERC) ruled
that New York did not have the right to block the stalled Con-
stitution pipeline, designed to transport Appalachia gas to the
consumer-rich upper Northeast. New York naturally appealed
the decision, denying it the authority to withhold the necessary
water quality certification for the in-state segment of the 124-mi
network. “It’s a small win, but there’s still a lot of work to be done,”
said Jeffrey Hutton, senior V.P. of marketing for Cabot Oil & Gas
Corp., which holds an equity stake in the project.
Cabot remains committed to a modest 5% production growth
target this year and will cut capital expenditures by more than
$100 million. Cabot closed out 2019 expecting to spend between
$800 million and $820 million to drill and complete around 90
wells in a 179,000-net-acre position concentrated in Susque-
hanna County, Pa. Preliminary 2020 guidance estimates capital
expenditures of no more than $700 million to $725 million.
President and CEO Dan Dinges said Cabot is continuing to
“try to squeeze what we can in [lowering] cycle times” and ra-
tionalize the rig and frac fleet in a largely maintenance program
in 2020. “For the maintenance program, we don’t need three
full rigs throughout the year, and we don’t need two full frac
crews for the year,” he said.
Fig. 1. January-to-February gas production is expected to drop by 56
MMcfd. Source: U.S. Energy Information Administration (EIA).
36,000
Gas -56 MMcfgd,
30,000
Appalachia Region natural
gas production, MMcfgd
month-over-month
24,000
18,000
12,000
6,000
0 Antero tentatively plans to reduce this year’s drilling and
2011 2012 2013 2014 2015 2016
Year
Fig. 2. The Evolution all-electric frac spread made its Marcellus debut in
second-quarter 2019. Image: CNX Resources Corp.
60FEBRUARY 2020/WorldOil.com
Cabot is not alone, as operators in the mature play, which
features some of the longest laterals in the unconventional com-
munity, are slashing budgets and seeking all opportunities to
lower expenses, from bromidic service cost re-negotiations to
more avant-garde measures like water-sharing, combo develop-
ment and electric frac spreads, Fig. 2.
PULLING BACK
In updated guidance, premier leaseholder CNX Resources
expects 2020 production to drop by 17.5 Bcfe, as it reduces
combined 2019-2020 capital spend by around $80 million. For
now, CNX plans to run two rigs and one frac crew this year, after
operating a trio of rigs and three frac spreads in the third quarter
to drill 15 and complete 20 wells. Over the first nine months
of the year, CNX drilled 54 wells, with 43 completions and 46
wells put online.
Seven of the new producing wells were on two dry Utica pads
that went online in the third quarter as part of CNX’s distinctive
wet Marcellus blending strategy in the stacked pay, Southwest
Pennsylvania asset. By avoiding processing costs, CNX says
mixing damp Marcellus gas with dry Utica gas can generate up
to a 30% uplift in asset value. One dry Utica well can blend three
to four damp Marcellus wells, according to CNX.
CNX also credits the first-ever use of gas-powered electric
frac spreads as saving around $250,000/well on diesel costs.
Evolution Well Services introduced the all-electric pressure
pumping technology to the Appalachia basin in second-quarter
2019 after signing a long-term agreement with CNX.
CNX controls nearly 1.2 million net acres across Pennsylva-
nia, West Virginia and Ohio, with most activity focused on the
core Southwest Pennsylvania properties.
Despite the lowest quarterly spend since going public in
2013, Antero Resources Corp. averaged third-quarter produc-
tion of 3,367 MMcfed, a 24% year-over-year increase. Antero
spent $290 million to drill 23 Marcellus wells at average lateral
lengths of 11,500 ft and put 33 wells on production. Antero ex-
pected to exit 2019 with a cumulative 120–130 wells drilled and
110-120 completions.
2017 2018 2019 2020
completion budget from a high of $1.3 billion in 2019 to $1.15
billion-$1.20 billion. Nevertheless, annual production is target-
ed to grow 8% to 10% in 2020.
The pure-play operator holds more than 612,000 net Mar-
cellus and Utica acres in West Virginia and Ohio, respectively,
where it was averaging four rigs and three to four completion
crews at year-end.
EQT will maintain flat production in 2020, while cutting
year-over-year capital spending by around $525 million, to $1.3
billion to $1.4 billion. With 720,000 net acres traversing the tri-
state area, EQT’s 2020 guidance estimates total year-end pro-
duction of 1.45 Bcfe to 1.5 Bcfe.
After averaging five to seven rigs and three to five frac spreads
last year, EQT will run three to four rigs in 2020 (Fig. 3), along
with three to four frac crews. EQT drilled 20 Marcellus and
eight Utica wells in the third quarter, with an additional 23 Mar-
cellus wells on tap for the fourth quarter.
This year, 80% of the wells drilled and 50% of those put into
production will adhere to EQT’s combo development scheme
which, according to CEO Toby Rice, consists of “properly
spaced, large-scale projects to develop 10 to 25 wells for mul-
SHALETECH / MARCELLUS-UTICA SHALES
Fig. 3. EQT plans to run no more than four rigs this year. Image: EQT
Corp.
tiple pads simultaneously.”
EQT claims combo development has thus far increased daily
footage drilled by 50% and reduced per-foot costs some 40%.
Holding around 210,000 net acres in Ohio, Utica-centered
Gulfport Energy Corp. averaged production of 1.2 Bcfed in
the third quarter, up 9% year-over-year. Running a single rig,
the company closed out 2019 with an aggregate 15.3 net wells
drilled with average lateral lengths of approximately 12,200 ft
and 44.3 wells put online. During the third quarter, Gulfport
drilled its longest Utica well to date, with a lateral length exceed-
ing 16,000 ft at a measured depth of nearly 27,000 ft.
Pure-play Southwestern Energy Co. drilled 14 and com-
pleted 16 wells in the third quarter, with cumulative produc-
tion dropping to 202 Bcfe from 252 Bcfe in the same year-
ago quarter. After idling two rigs early in the fourth quarter,
Southwestern was running a single rig and two frac crews in
late 2019.
Southwestern holds 184,024 net acres in the dry gas-domi-
nant portion of Pennsylvania, where aggregate production for
the first nine months of 2019 came in at 343 Bcf, up from 341
Bcf produced in the first three quarters of 2018. During the
third quarter, the operator beat its company horizontal length
record by nearly 2,400 ft with two wells drilled in Pennsylvania
and West Virginia, with average lateral reaches of 18,300 ft.
Chesapeake Energy Corp. wrapped up 2019, averaging two
rigs and one frac spread with an aggregate 44 wells expected to
be put online. Third-quarter Marcellus production from the
roughly 540,000 net acres that Chesapeake controls in Pennsyl-
vania jumped to 928 MMcfd, compared to 812 MMcfd in the
same year-ago quarter.
62FEBRUARY 2020/WorldOil.com
While planned 2020 activity levels had not been finalized as
of Nov. 5, Chesapeake says it will limit investment in the Mar-
cellus asset, with most capital re-directed to higher-margin oil
properties. The company, nevertheless, will average between
two to three rigs this year.
Nascent Montage Resources Corp. delivered higher-than-
expected production of 621.7 MMcfed in the third quarter, but
in keeping with a priority of free cash flow over growth, will
continue to run a single gross rig in the early going of 2020.
Montage drilled four gross wells in the third quarter, while
completing four Utica dry gas and three Marcellus wells. The
Marcellus wells were drilled on existing Utica pads, “which fur-
ther improves our cost structure and rates of returns,” said Presi-
dent and CEO John Reinhart.
Created with the all-stock merger of Eclipse Resources Corp.
and Blue Ridge Mountain Resources, Inc., Montage is celebrat-
ing its one-year anniversary this month. The company holds
218,000 net acres in southeastern Ohio, West Virginia and
North Central Pennsylvania.
Equinor ASA, which holds 247,000 net acres, increased
cumulative third-quarter production to 208,400 boe from
168,700 boe produced in the same prior-year quarter. No addi-
tional information was made available, pending an operational
update in February.
WATER UPLIFT
Meanwhile, with injection wells few and far between outside
of Ohio, managing flowback and produced water is a critical
operational component in the environmentally sensitive Appa-
lachia basin. Getting it right can add appreciably to asset value.
Antero, for one, credits the wholesale blending of flowback
and produced water as largely responsible for reducing lease
operating expenses (LOE)/Mcfe by 21% in the third quarter,
compared to the first half of the year, with a further 15% de-
cline expected this year. Consequently, the fate of the shuttered
Clearwater water treatment facility in West Virginia remains in
doubt. The nearly $300-million, two-year-old facility was shut
down in September for a cost-benefit analysis, and it would ap-
pear Antero has no plans for it to resume operations anytime
soon. “The closure of the Antero Clearwater facility accelerated
well cost-savings, as we increased blending, in order to mini-
mize the high wastewater injection fees and trucking costs asso-
ciated with it,” CEO Paul Rady said on Oct. 29, also citing “drier
completions” as a contributor to lower LOE.
Range Resources Corp. says a water-sharing program with
contiguous operators saved roughly $2 million in aggregate
completion costs in the third quarter, alone. “Utilizing other
producers’ water in the third quarter totaled 750,000 bbl and
represents an over 80% increase, compared to the same time
period a year ago,” said Senior V.P. and COO Dennis Degner.
The savings come just as Range reduces 2020 capital spend-
ing to 29% less than the $728 million shelled out last year, which
was below the original budget. Range operated a reduced two-
rig program in the third quarter, but increased daily footage by
approximately 35%, compared to the first half of 2019.
Range holds around 875,000 net acres in Pennsylvania,
where third-quarter production averaged 2,042 MMcfed, rep-
resenting a 3% increase over the prior-year third quarter. A
cumulative 88 Appalachian wells were expected to be put into
production during 2019.
 DEEPWATER/SUBSEA

Innovative strategy increases profitability

of ultra-deepwater fields
To solve complex issues related to
developing deepwater reserves in the
GOM, a common-sense approach utilizing
appropriate technology enables operators to
profitably capture critical dynamic reservoir
data and increase ultimate recovery.
 ROY SHILLING, CHUCK WHITE, VAMSEE ACHANTA, PAUL HYATT
and HOWARD DAY, Frontier Deepwater Appraisal Solutions LLC
completion performance information to adequately define:
• Faulting and connectivity
• Depletion drive mechanism
• Sand control needs
• Intervention requirements
• Reserve recovery per well.
Without dynamic reservoir information, these questions
remain unanswered, making it difficult for operators to jus-
tify expensive high-risk investments to exploit this deepwater
resource. As a result, despite estimates of 40 Bboe reserves in
place, the Lower Tertiary remains essentially undeveloped.

INNOVATIVE SOLUTION
For nearly two decades, operators working in the Gulf of In response to the hurdles that have stalled development of
Mexico have had little success developing the massive reserves the Lower Tertiary, Frontier Deepwater Appraisal Solutions
of Lower Tertiary projects in ultra-deep waters. They have (FDAS) has conceived a simpler, adaptive and standardized sys-
failed, primarily, because their attempts to adapt subsea systems tem that allows operators to capture critical dynamic reservoir
for exploitation of these complex resources have been thwarted
by technological challenges, lengthy appraisal processes, and Fig. 1. The Lower Tertiary is characterized by very high drilling
high-cost Phase 1 subsea development schemes with unaccept- and completion costs. Wells can reach 40,000 ft, and require
able levels of risk. >250 days to drill.
Lower Tertiary wells are the deepest, most complex and
highest-pressure wells in the GOM, Fig. 1. High-pressure Paleo-
gene reservoirs are in extreme water depths (4,000 to 10,000 ft)
and exhibit mudline pressures that can approach and exceed
15,000 psi. Wells drilled into these formations may reach total
measured depths of up to 40,000 ft. Significant reservoir uncer-
tainties, which stem from a lack of production history and over-
hanging salt canopies, make seismic imaging extremely chal-
lenging and provide further barriers to project sanction.
Historically, operators have drilled numerous, costly ap-
praisal wells to gather static information from electric logs and
cores. But this static information still does not provide the in-
dustry with the critical insights needed to de-risk a project and
determine commerciality. These factors require production and

Fig. 2. The FrPS’s core technology is a moveable wellbay installed in place of a standard subsea MODU. Outboard well positioned under
rotary (a). Wellbay centered and locked for hurricane (b).

World Oil®/FEBRUARY 202063

DEEPWATER/SUBSEA
data with a phased development strategy. The basic concept
involves converting a 6th- or 7th-generation MODU capable
of drilling Paleogene wells from top to bottom. Operators will
have direct access to critical well systems equipment because
the converted unit will maintain full drilling capabilities. The
conversion includes removing the marine drilling riser, subsea
BOP and DP system, which frees up ample space and weight to
install a production module and moveable wellbay, Fig. 2. As a
result, the modified system incorporates a full 2.5 MM lb drill-
ing, completion, intervention, workover and sidetrack rig on a
65,000 bopd production platform.
The deepwater Frontier Production System (FrPS) reduces
risk and costs by building on the precepts that have worked suc-
cessfully for onshore shale fields, including:
• Use reliable completions and technology
• Provide inexpensive drilling, completion, long-term
maintenance and intervention
• Use the pad concept to drill and develop a “cube,”
which in this case is more reservoir acreage than
contained in one OCS block.
The patented, movable wellbay technology provides billions
of dollars in economic advantages over more expensive, less re-
liable 20,000-psi subsea developments. An FrPS incorporating
the movable wellbay can be delivered and installed in about half
the time and cost of a purpose-built subsea “hub” system and,
because it is a phased approach, operators can confidently and
profitably sanction initial field developments with fewer up front
appraisal wells (2 or 3 instead of the 5 or 6 that has been standard
so far). Depending on reservoir performance, the operator can
subsequently add future phases faster (or condemn the asset) at
less cost than is possible with the subsea-hub approach.
Further, the FrPS is a dry tree solution; dry tree completions
have historically delivered much higher reserve recovery com-
pared to wet trees. For a complex 400-MMbbl resource, this ad-
vantage may mean as much as 100 MMbbl of additional lifetime
production, which would add $5 billion in revenue, compared
with a subsea system. Due to the speed at which first and peak
Fig. 3. The FrPS reduces the time from discovery to first oil by eliminating wasteful appraisal wells and reducing time for facilities build,
install, commissioning.
Frontier FrPS 1 2
Appraisal
Industry 20,000 subsea 1 2
Appraisal
0 2
Discovery well 1rst Appraisal well
64FEBRUARY 2020/WorldOil.com
production can be achieved by reducing the number of apprais-
al wells to sanction a five-well development, this revenue “bo-
nus” comes at the front end of the project, doubling the value of
early adoption, Fig. 3. The FrPS provides these benefits using:
• A converted 6th-generation semisubmersible
• A 65,000-bopd production module
• A moveable wellbay supporting five dry tree wells
• A permanent taut-leg mooring system
• Oil and gas export risers with pipeline tie-ins to regional
infrastructure.
Shifting the appraisal paradigm. Let’s review several of the
large industry discoveries. BP discovered Kaskida in 2006, and
yet 13 years later, despite the 3 Bbbl thought to be in-place, it still
has not been developed. BP has drilled a total of nine wellbores
costing several billion dollars and still cannot come up with a
20,000-psi subsea production development plan that is econom-
ic. Anadarko discovered Shenandoah in 2009. After 10 years and
the drilling of 14 appraisal boreholes, Anadarko was unable to
come up with a workable 20,000-psi subsea development plan.
Again, several billion dollars were expended to acquire well logs
and cores. However, no dynamic reservoir performance or com-
pletion information was obtained, which are critical to answering
key commercial questions needed to sanction the development.
The FrPS provides operators with the means to move for-
ward more quickly with fewer appraisal wells while obtaining
the dynamic reservoir information profitably at oil prices of less
than $50/bbl. The total installed cost of the FrPS is less than
half that of a new subsea hub development, and first oil is ac-
celerated by several years while providing the dynamic reser-
voir information required to fully optimize field development,
Fig. 4. A Phase 2 development can include subsea tiebacks or
even another FrPS to maximize resource recovery.
The cost comparison shows that the savings are not coming
from platform costs; those are similar. The increased efficiencies
come from the significant reduction in drilling and completion
costs by using a platform rig versus a dedicated HPHT MODU.
First oil 3 years faster than
full field hub
3
Frontier 20,000 subsea
first oil first oil
4 6 8 10 12
Years
2nd Appraisal well 3rd Appraisal well Frabrication/install Complete 1 - first oil
 DEEPWATER/SUBSEA

The rig is purchased on the FrPS, and the operating dayrate is

the drilling contractor services and crew along with the loaded Fig. 4. Cost comparison of a Phase 1 development of five wells to
a full-field sanction requiring 10 producing wells, or more to justify
dayrate services associated with dry tree operations. Histori- a new facility. (Does not include appraisal well costs).
cally, these dayrates are less than half of a MODU operating on 6
a subsea field (reference Mad Dog, Holstein and Mars). CVX anchor $5.7 billion One 20,000 subsea hub
10 subsea wells
5
CASE STUDY
The FrPS system can help operators save billions of dol- 4 2 – FrPS
10 wells
lars on appraisal wells and effectively de-risk their deepwater

Billion, $
projects. The FrPS system provides operators key information 3
required to get the most recovery from the resource at the low- 1 – FrPS
est possible cost and risk. To highlight the potential benefit of 2 5 wells
the FrPS system, a hypothetical case study is presented, using
1
an initial well production rate of 15,000 bopd, based on exist-
ing BSEE production data from Lower Tertiary production. 0
Figure 5 shows the resulting economics of a five-well FrPS at a Frontier FrPS - 5 20,000 subsea - Frontier FrPS - 5 wells
$45/bbl flat oil price, including royalty and operating cost. The wells phase 1 10 wells phase 1 + 2
Hull and topsides installed Dry tree risers and/ Drilling and completion
system is robust—even at $45/bbl—providing 20% IRR and or 20,000 SURF
$1.2 billion-dollar NPV at a 10% discount rate.
This compares favorably to several other fields developed Fig. 5. Application of FrPS system showing economics at $45/bbl
with a subsea hub concept that have been plagued with poor on one block containing five wells and three sidetracks.
bottom hole locations and complex subsea hardware reliability 6,000
problems. These issues have resulted in expensive downtime 5,000 $46/bbl oil price including royalty and operating cost
and/or maintenance from DP MODU’s operating at more then IRR 21%
4000 NRV with 10% discount rate $1,164
$1 million per day. These fields were developed with existing
Total net revenue, $

15,000-psi technology, and have been an operations challenge. 3,000

Figure 6 shows an example of one of these fields using current 2,000
production history from publicly available BSEE information at
1,000
$55/bbl. With these poor economic results, the commercial vi-
ability of these projects are in serious doubt. 0
Cumulative net revenue
The FrPS is needed to change the game to win in the Lower -1,000 Linear cumlative net revenue
Tertiary. With dynamic reservoir information obtained from -2,000
this initial five-well development, operators may proceed with
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
additional phases in possession of a higher degree of reservoir Year
certainty. Frontier’s phased approach provides operators with
significantly more value than the traditional subsea develop- Fig. 6. Poor financial performance of a Lower Tertiary field
developed with a subsea hub concept.
ment scenario.
0
500,000,000
CONCLUSION
Cumulative revenue, $

1,000,000,000
For decades, as operators moved to deeper water and more 1,500,000,000
complex environments, the E&P industry has repeatedly 2,000,000,000
turned to engineering innovation to meet evolving technologi- 2,500,000,000
cal and economic challenges. To exploit the vast reserves of the 3,000,000,000
Lower Tertiary, the industry must once again turn to engineer- 3,500,000,000
ing innovation rather than attempting to mutate a subsea supply 4,000,000,000
0 10 20 30 40 50 60 70 80
chain solution built for other reservoir types in which drilling, Months since start of project
completion and maintenance are not the cost drivers, as in the
Lower Tertiary. The FrPS is an engineering innovation—a step direct vertical access
change centered on the realization that, unlike times past, it is •
Safer hydraulic controlled equipment
the cost of drilling and completion, as well as access to dynamic •
Permanently moored with fully rated dual barrier risers
reservoir data, and not the production facility that must drive •
Standardized develop scheme
development decisions. •
Can be moved and reused over a wide range of water
The FrPS is a solution for the Lower Tertiary because a depths.
phased approach reduces cost and risk as follows: The moveable wellbay technology is also applicable to new
• Reduces appraisal well requirements construction. For example, TLPs and deep-draft floaters, such
• Reduces spend by 50% compared to a subsea development as spars, benefit, because the rig may be built lower into the plat-
• Delivered in 3 years or less form, eliminating the heavy and expensive rig skidding systems
• Eliminates the need for drillship contract on the top deck. In doing so, the drilling systems and utilities
• Earlier dynamic reservoir information become simpler, and the overall platform size and complexity
• Increases completion access and reserve recovery with can be reduced.
World Oil®/FEBRUARY 202065
REGIONAL REPORT
BRAZIL
Short-term gains; long-term questions
 MIKE SLATON, Contributing Editor
An ambitious array of Brazilian government initiatives aimed
at reversing declines in overall production were expected to pay
off in 2019. Brazilian officials said the turnaround was critical.
In fact, overall production was up—largely from pre-salt
projects coming online. It reached record levels in November
2019, at 3.09 MMbopd, Fig. 1. In the year prior, in spite of pre-
salt growth, November production declined 5.9%, to an annual
average of 2.5 MMbopd, reported the Brazilian National Agen-
cy for Petroleum, Natural Gas and Biofuels (ANP).
However, lease sales, the path to increasing production
outside the pre-salt, did not fulfill expectations. The 2019
rounds saw majors sit out much of the bidding, leaving many
properties untouched and with few exceptions, providing little
competition to state-controlled Petrobras. In contrast, bid-
ding rounds in 2017 and 2018 resulted in the acquisition of 72
blocks by dozens of companies, $7.5 billion in signing bonuses,
and enthusiastic competition, Fig. 2.
The 2019 outcome was unsettling because of what it sug-
gests about improving overall production. While pre-salt pro-
duction growth will likely be sustained by ongoing and planned
installations of FPSOs, perhaps reaching 3.2 MMbopd by 2022,
Wood Mackenzie analysts predict the rest of Brazilian produc-
tion, together, is a net negative.
Drilling (left) onboard the Peregrino Bravo platform. Image: Equinor; Photographer, Ole_Jørgen_Bratland. Peregrino A platform (center), one of three in the field. Image:
Equinor; Photographer, Øyvind Hagen. BW Offshore’s FPSO Polvo (right) on station in Campos basin. Image: BW Offshore.
66FEBRUARY 2020/WorldOil.com
Most of Brazil’s production is from pre-salt assets. While
pre-salt production between 2012 and 2018 rose a remarkable
729%, onshore production fell 38% and post-salt Campos basin
oil production fell 41%. Average pre-salt production per well in
2018 was 17,655 bopd from 85 wells; the conventional offshore
per well average was 1,650 bopd from 628 wells; and onshore
production averaged 16 bopd from 6,683 wells.
Turning around this precipitous fall in conventional offshore
and onshore production is a key focus of government initiatives.
Results of the 2019 lease sales have added more uncertainty to
the equation, and created questions about future rounds.
THE INITIATIVE
Brazil’s efforts to maximize recovery, increase reserves, and
attract investors include more attractive contracts in bidding
rounds; reductions in royalties for incremental production
from mature fields; a new R&D strategy; reserve-based lend-
ing; local content changes; and divestment (see “Changing the
game,” World Oil, May 2019).
Opening the pre-salt to foreign operators, instead of Petro-
bras as sole operator, was a 2016 change to streamline devel-
opment of pre-salt reservoirs and attract more investments. To
make concession contracts more attractive, the country adopt-
ed single-stage exploration; set royalties for new frontiers and
mature basins; reduced the minimum net equity for non-opera-
tors; and created incentives to increase investment.
New E&P policies were issued to optimize recovery; quan-
tify oil potential; intensify exploration; and promote proper
monetization of existing reserves. Government programs were
devised to revive onshore areas, and develop internal markets.
THE BIDDING
With these initiatives in place, and presaged by success in
earlier bidding rounds, the 2019 sales were eagerly anticipated.
The four licensing rounds opened with the first Open Acreage
cycle on Sept. 10, followed by Concession Round 16 on Oct.
10, a Transfer of Rights Round on Nov. 6, and Production Shar-
ing Round 6 on Nov. 7.
Bidding generally failed to meet expectations across a broad
scope of properties. Industry wisdom pointed to a number of
culprits, from large signing bonuses and complex regulations to
a simple lull, as majors digested recent acquisitions.
The start of the Open Acreage cycle awarded 33 exploration
blocks and 12 marginal fields out of 273 production and explo-
ration concessions, Fig. 3. Signature bonuses totaled $5.5 mil-
lion. But three shallow-water blocks in the Campos basin and
five deepwater blocks in the Sergipe-Alagoas basin raised eye-
brows, when they failed to garner any bids. ANP had expected
to receive at least one bid for each of the sectors that were nomi-
nated for the sale. One of the bright spots was the ExxonMobil-
Enauta-Murphy Oil acquisition of three ultra-deepwater con-
cessions in the Sergipe-Alagoas basin for $1.9 million.
Open Acreage is a continuous offering of relinquished mar-
ginal oil fields and exploration blocks offered in past bid rounds
that were not awarded or had been transferred to ANP. In ad-
dition to offshore, it offers onshore concession not included in
bidding rounds. ANP has expected the program to play a key
role in boosting production and recovery rates, especially on-
shore and in mature offshore basins.
Round 16 produced $2.2 billion in signing bonuses. Still,
only 12 of 36 blocks were bid—all in the prolific Campos and
Santos basins. ANP anticipates the sale will ultimately result in
an exploration investment, upwards of $380 million.
Despite the dollars invested, enthusiasm was less than an-
ticipated. After the sale, Wood Mackenzie researcher Juliana
Miguez observed that “The Majors and Petrobras look to be
keeping their powder dry” for the two upcoming rounds.
In Round 16 bidding, Petrobras won one block with BP and
was outbid for Block CM-541 by a group consisting of Total,
Petronas and Brazil QPI, which paid a record $1 billion. Other
company and group winners were: Petrobras and BP Energy
(Block-477); Shell, QPI and Chevron (Blocks CM-659 and
CM-713); ExxonMobil (Block CM-479); Petronas (Blocks
CM-661 and CM-715); Repsol (Block CM-795); Repsol and
Chevron (Block CM-825); and Chevron, Wintershall Brazil
and Repsol (Block CM-845).
In the Santos basin, the Chevron-led group acquired Block
SM-766, and BP Energy won Block SM 1500.
In November, the much-anticipated Transfer of Rights
(TOR) round, promoted as Brazil’s largest oil license auction,
did not deliver as expected. Only two of the four blocks of-
fered in the surplus auction were awarded. They both went to
Petrobras. In the first, a consortium with Chinese companies
CNODC and CNOOC (each with a 5% interest) won Bruzios
field, which is producing about 600,000 boed. Petrobras was
alone in its bid for the Itapu Block. The remaining Sepia and
Atapu areas received no bids.
Energy Analytics Institute called the TOR round a “huge
disappointment,” and said authorities misjudged the market
World Oil® /FEBRUARY 2020 67
REGIONAL REPORT / BRAZIL
and got the terms wrong. The cost of entry was too high and
compensation too complex and uncertain, with government
pricing assets as fully developed and with little risk.
The government said it would reexamine the auction re-
sults and consider alternative sales. “We will analyze why the
big firms did not participate” and study different options for
reoffering the Atapu and Sépia areas, said Energy Minister
Bento Albuquerque.
Petrobras CEO Roberto Castello Branco also noted the
lackluster showing and said the company expected more com-
petition in the bidding. He observed that “Brazil has many com-
plexities in the regulations for the oil industry and I hope they
are eliminated. This country needs to be more simple.”
The TOR was established during the 2010 Petrobras share
offering, when Brazil traded extraction rights in the area, in re-
turn for a controlling number of Petrobras shares. As the fields
became commercial, the two began renegotiating contracts. In
April, they cut a $9-billion deal, but details about how winners
in the TOR bid round would partner with Petrobras remained
unclear, according to a Reuters report.
Held a day later, the 6th pre-salt production-sharing contract
(PSC) round was generally expected to be more positive and
competitive, following on the heels of the weak TOR results.
That optimism was not well-rewarded. The round offered
four Santos basin pre-salt blocks and one in the Campos basin.
Fig. 1. Brazil’s production growth continues. Chart: Knoema Data
Services.
3,250
1,750
2,750
Mbpd
2,500
2,250
2,000
1,750
Dec. June Dec. June Dec. June Dec. June Dec. June Dec. June Dec. June Dec. June Dec. Sept.
2010 2011 2011 2011 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019
Fig. 2. Prior rounds built up expectations for 2019. Source: ANP
2019 APPEX presentation.
68FEBRUARY 2020/WorldOil.com
Of the record 17 companies registered for the auction, only
Petrobras acquired property—in the Aram Block.
The low engagement may be due to several factors, said
Wood Mackenzie researcher Juiliana Miguez. They include a
dry well at the Peroba deepwater block, awarded in PSC Round
3 in 2017. In addition, on the heels of holdings added since the
2017 rounds, majors may not be interested in fresh acreage right
now. Regulatory overhead also may have played a factor in the
lackluster bidding.
Planned for 2020 and 2021 are the 7th and 8th pre-salt
production sharing rounds. Round 7 in 2020 involves the Es-
meralda and Agate areas, located in the Santos basin, and Água
Marinha, located in the Campos basin, Fig 4.
Round 8 in 2021 is for the Tupinambá, Jade and Ametista
areas in the Santos basin, and Turmalina in the Campos basin.
Round 17 concession bids are planned for 2020, and include
blocks in the Pará-Maranhão maritime basins, Pelotas, Potiguar
and Santos. Concessions also are planned for Round 18 in 2021.
OPERATOR HIGHLIGHTS
Petrobras. Activity in the closing months of 2019 and early
2020 shows Petrobras actively divesting properties and inter-
ests. In January, the company announced that it would sell its
entire stake in two sets of deepwater post-salt offshore conces-
sions—the Golfinho and Camarupim Clusters—in the Espíri-
to Santo basin. The Golfinho Cluster is comprised of Golfinho
oil field, Canapu gas field and the BM-ES-23 exploratory block.
Average total production from the fields between 2018 and
2019 was 15,000 bopd and 750,000 cfd.
The Camarupim Cluster is comprised of the unitized Ca-
marupim and Camarupim Norte fields, both producers of non-
associated gas. Operator Petrobras has a 100% stake in the Gol-
finho and Camarupim concessions, with the exception of the
BM-ES-23 exploratory block, in which it holds 65%.
Fig. 3. Open Acreage program offers onshore and offshore
properties. Map: ANP 2019 APPEX presentation.
 BRAZIL / REGIONAL REPORT

Petrobras and Malaysia’s Petronas concluded a $1.293-bil-

lion deal in late December for 50% of E&P rights in Tartaruga Fig. 4. The next pre-salt bidding rounds in the lineup. Map: ANP
2019 APPEX presentation.
Verde field (concession BM-C-36) and Module III of Espadarte
field. Petrobras will keep 50% and operate the fields. Tartaruga
Verde field began operations in 2018, and current production is
about 103,000 bopd and 1.2 MMcmd. The Module III area is
planned for development with Tartaruga Verde field, and Petro-
bras expects first oil in 2021.
Petronas Executive V.P. and Upstream CEO Adif Zulkifli
said, “The completion of the acquisition of Tartaruga Verde
and Module III of Espadarte, as well as the three exploration
blocks won in the recent bid rounds in Brazil, is testament
to Petronas’ steady progress in expanding our oil business in
South America.”
Petrobras and Total announced that they will offer interests
in the deepwater BM-P-2 concession in the Pelotas basin, off-
shore Rio Grande do Sul State. Each has a 50% interest; Petro-
bras won the concession in ANP’s 2004 6th bidding round, and
Total’s acquisition was in 2013. Petrobras said the concession
“presents a reduced exploratory commitment with the poten- Fig. 5. Shell has new production from the BM-S-11-A concession in
the pre-salt Santos basin. Map: Shell.
tial to prove significant volumes and establish a position in a
new exploratory frontier.”
Onshore, Petrobras is preparing to sell its interest in two
concessions in the state of Amazonas. The current binding stage
includes proposal guidelines. The Cupiuba and Carapanauba
Cluster in the Espírito Santo basin averaged production in 2018
of about 81 bopd and 82,000 cmd.
Petrobras sold its entire stake in 34 onshore production
fields located in the Potiguar basin, in the state of Rio Grande
do Norte, to Potiguar E&P S.A., a subsidiary of Petrorecôncavo
S.A. The Dec. 9 transaction was completed with the payment of
$266 million on top of a deposit of $28.8 million. In addition, a
payment of $61.5 million is conditional on extending the con-
cession term for 10 of the 34 concessions.
The fields are onshore in the Potiguar basin, in the state of
Rio Grande do Norte. They produced an average 5,800 bopd in
2019. All concessions are 100%-owned by Petrobras, except for
Cardeal and Colibri fields, where Petrobras holds a 50% stake
with Partex Brasil Ltda. as operator, and Sabiá da Mata and
Sabiá Bico-de-Osso fields, where Petrobras has a 70% stake.
Petrobras also plans to sell its 50% interest in the onshore
fields of Dó-Ré-Mi and Rabo Branco, in the BT-SEAL-13 Con- Murphy Oil (20%), ExxonMobil acquired three ultra-deep-
cession, in the Sergipe-Alagoas basin. water oil and gas concessions during the open acreage auction.
The companies paid $1.9 million for the SEAL-M-505, SEAL-
Shell, an historic player in Brazil, announced in November that M-575 and SEAL-M-637 Blocks in the offshore Sergipe-Ala-
new, deepwater production has come online in the pre-salt San- goas basin. The three blocks are close to areas that the consor-
tos basin. Shell (25%) and consortium partners Petrobras (op- tium won at recent offshore bidding rounds and near Petrobras
erator, 42.5%), Total (22.5%) and Petrogal (10%) started oil discoveries. Exxon Mobil has more than 2.3 million net acres
and natural gas production at the P-68 FPSO in the BM-S-11-A in Brazil.
(Iara) concession in Berbigão, Sururu and West Atapu areas,
Fig 5. The P-68 can process up to 150,000 bopd and 6 MMcmd Equinor. In December, Equinor announced the commer-
from 10 producing wells and seven injection wells. cial viability of two blocks licensed in the pre-salt Santos ba-
Development in Iara opens a new production frontier in the sin, Carcara oil field. Equinor is the operator with partners
pre-salt, said Shell. It is also the first step in developing Sururu. ExxonMobil and Petrogal Brasil in the BM-S-8 and Norte de
The two blocks awarded to Shell in the 16th concession deep- Carcara licensed areas. Four of five exploratory wells drilled
water bid round were the latest additions to a Brazil portfolio of produced oil.
2.6 million net acres with 21 exploration blocks, four develop- In December, the topsides for Equinor’s Perigrino C plat-
ment fields and 11 production fields. form arrived from Ingleside, Texas, for the Campos basin instal-
lation. Peregrino field in the Campos basin has been the com-
ExxonMobil. Leading a consortium with Enauta (30%) and pany’s largest operated international platform.
World Oil®/FEBRUARY 202069
 COMPANIES IN THE NEWS
EMILY.QUERUBIN@WORLDOIL.COM

largest natural gas producer. Net in Kazakhstan. Under terms of the

production from the properties contract, Sparrows will conduct
reportedly averaged 597 MMcfed pre-mobilization and annual
in third-quarter 2019. Its proved inspections for mobile cranes,
reserves reportedly amount to gantry cranes, forklifts and boom
approximately 4 Tcfe. trucks. The company’s
engineering teams also will
manufacture custom-built wire
Forum Energy Technologies rope slings to suit TCO’s
has completed an upgrade to operational and drilling
its hyperbaric testing facility, in requirements. Image: Chevron.
North Yorkshire, UK. The pressure
test tank reportedly is one of the
largest in Europe and provides a
well-located facility for the critical
testing of subsea equipment.
The tank is rated to 241 bar and
measures 2.4 m in diameter and
Neptune Energy says that it will invest $19 million to boost 9.7 m in length. An HMG300
Hydac system was installed to
production from Bramberge field, one of its largest operated
more accurately and efficiently
developments in western Germany. The investment will be used capture data. According to the
to significantly upgrade surface facilities at the main operating company, the upgraded testing
site. Refurbishment of the existing processing plant will be facility will save clients more than
carried out in two phases. The work, scheduled to be complete 35% in operational time.
by early 2023, is expected to enhance both efficiency and Weatherford International has
productivity. Bramberge field, situated in the municipality of emerged from Chapter 11
Geeste, reportedly produced nearly 460,000 bbl in 2019. Image: Gazprom Neft and ICS Holding protection and appointed a new
Neptune Energy. have established a JV for the seven-member board of directors,
development of digital products after reducing approximately $6.2
for the oil and gas industry. billion of outstanding funded
Together, the companies will debt; securing $2.6 billion in exit
Springfield E&P—alongside about 140 mi east of Aberdeen. aim to address the challenge financing facilities; securing a
partners Gharia National The company is operator of the of digitally transforming the $195-million letter of credit
Petroleum Corp. and GNPC Andrew assets, which include industry through the application facility; and securing more than
EXPLORCO—has discovered oil the Andrew platform and the of Industry 4.0 technologies. $900 billion of liquidity. The
offshore Ghana, in the West Cape Andrew (62.75%), Arundel Gazprom Neft will provide company says it has emerged
Three Points Block 2. Afina-1 was (100%), Cyrus (100%), Farragon industry expertise and trial new with a stronger financial
drilled to a TD of about 13,402 (50%) and Kinnoull (77.06%) technologies on industrial assets, foundation. Image: Weatherford.
ft, encountering light oil with a fields, as well as all associated while Nexign, part of ICS Holding,
gross thickness of approximately subsea infrastructure. Premier will ensure comprehensive
213 ft, with 164 ft of net light oil Oil reportedly will purchase the support for new developments Petrofac has been awarded an
pay in good-quality Cenomanian assets for $625 million. and their effective integration. integrated services contract
sandstones. The discovery has from Petrogas NEO UK, a jointly
more than doubled Springfield’s owned company created by
oil-in-place volume to 1.5 Bbbl Chevron has sanctioned the SBM Offshore has signed Petrogas E&P UK and NEO
and added 0.7 Tcf of gas. It has Anchor project, in the U.S. Gulf contracts with Petrobras for the Energy. The two-year deal will see
positioned the company as the of Mexico. The project reportedly 22.5-year lease and operation Petrofac assist in the transition
first independent Ghanaian and is the industry’s first deepwater of FPSO Sepetiba. The FPSO of operations on the Quad 15 and
African Energy Company to drill high-pressure development to will operate at Mero field, in Flyndre area assets, in the North
in deep water (3,379 ft) and find achieve FID. Its new technology, Brazil’s Santos basin, nearly Sea. It also will see the company
hydrocarbons. which can handle pressures of 112 mi offshore Rio de Janeiro. provide ongoing operational,
20,000 psi, enables access to FPSO Sepetiba is being designed maintenance, engineering and
other high-pressure resource and constructed using SBM’s construction support. The contract
ADES International has won opportunities across the Fast4Ward program. Delivery award is valued at approximately
its first onshore deep drilling region. Anchor field is situated of the completed FPSO is $50 million.
contracts under a lump sum approximately 140 mi off the anticipated for 2022.
turnkey project in Kuwait. The coast of Louisiana, in the Green
contract awards—both by Baker Canyon area. Stage 1 of the Wellbore Integrity Solutions
Hughes—are for the ADES 180 development will consist of a (WIS) has acquired several
and ADES 878 rigs. The contracts, seven-well subsea development businesses and associated
which are expected to commence and a semisubmersible FPU. First assets from Schlumberger.
in second-quarter 2020, are under oil is anticipated in 2024. The acquisition of Fishing &
a primary term of two years, Remedial, DRILCO and Thomas
with an option to extend for an Tools reportedly is in line with
additional six months. Devon Energy has agreed to the company’s mission to build
sell its Barnett shale assets to a global company that enables
an affiliate of Kalnin Ventures’ Sparrows Group has been the consolidation of engineering,
BP is selling its interests in the investment firm, BKV Oil & Gas awarded a five-year contract with product development,
Andrew area of the central UK Capital Partners, for $770 million. Tengizchevroil (TCO) (a JV manufacturing, and wellsite
North Sea, approximately 140 The transaction includes over between Chevron, Exxon Mobil, services. The acquisition includes
mi northeast of Aberdeen, as 320,000 gross acres and 4,200 KazMunayGas and LukArco) for assets in 16 countries, with another
well as its non-operating interest producing wells, positioning the delivery of specialist lifting nine jurisdictions expected to
(27.5%) in Shearwater field, BKV as the Barnett shale’s inspection services at Tengiz field, close in the coming months.

World Oil®/FEBRUARY 202071

 ADVERTISERS IN THIS ISSUE

AADE .......................................................... 48 MCEDD ....................................................... 70 Schlumberger Technology

www.aade.org www.MCEDD.com Corporation............................................... 5
Abaco Drilling Technologies ................. 10 NCS Multistage .........................................76 www.slb.com/neosteer-wo
www.abacodrilling.com www.ncsmultistage.com/wellconstruction
AFGlobal Corp ............................................6 Sustainability Conference..................... 44
Nine Energy Services ...............................12
www.afglobalcorp.com/drilling www.SustainabilityinEnergy.com
www.nineenergyservice.com/stinger
Ariel Corporation ......................................61 Tendeka ......................................................47
Nippon Steel...............................................21
www.arielcorp.com/cpvalves
www.NipponSteel.com www.tendeka.com/filtrex
Energy Web Atlas ....................................22
www.EnergyWebAtlas.com Nissan Chemical .......................................28
Vallourec ......................................................18
GeoDynamics ..................................... 54-55 NOV................................................................ 2
www.nov.com/xlsystems Volant .......................................................... 16
www.perf.com
www.volantproducts.ca
Global Offshore Brazil Summit ..............8 Pipeline & Gas Journal ...........................56
www.GlobalOffshoreBrazil.com www.pgjonline.com World Oil ....................................................75
Gyrodata..................................................... 14 Pipeline Opportunities Conference www.WorldOil.com/Subscribe
www.gyrodata.com/QuestGWD Americas..................................................32
World Oil Webcast .............31, 46, 40, 42
Hunting .......................................................35 www.pipeline-opportunities.com
www.WorldOil.com/webcasts
www.huntingplc.com Pipeline Opportunities Conference
Industrial Rubber .......................................4 EMEA ........................................................52 World Petroleum Congress...................33
www.iri-oiltool.com www.POC-EMEA.com www.wpc2020.com

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72FEBRUARY 2020/WorldOil.com

Surface modification treatment increases oil recovery
Gangway system
allows safe,
efficient transfer of
people and cargo
Ampelmann is developing the
E5000, a new system capable of
transferring cargo and person-
nel up to 5,000 kg offshore.
According to the company, the
new E5000 system was built
on the success of Ampelmann’s
E1000. The new design report-
edly will enable safe offshore
access and extend the weather
window of operations. The switch
between people and cargo mode
takes less than a minute, with a
push of a button. According to
the company, this plug-and-play
system turns any vessel into
an all-round offshore tool and,
as a result, clients benefit from
shorter campaign durations,
increased logistical efficiency
and a broader scope of work.
The gangway system, which
is expected to be operational
in third-quarter 2020, will be
accompanied by Ampelmann’s
full-service package, which
includes certified operators, proj-
ect preparation and execution,
maintenance services and 24/7
support from the Operations
Control Center.
ampelmann.nl/systems/e5000
NEW PRODUCTS AND SERVICES
EMILY.QUERUBIN@WORLDOIL.COM
3D model library
helps optimize
Tendeka has introduced a new surface modification
treatment, capable of increasing oil recovery in layout for sensing
unconventional shale plays. ShaleModifier is an oil-based systems
polymer treatment that covalently bonds to the rock surface,
allowing enhanced oil flowback from the nanonetwork. It
can be pumped as part of the initial completion, ahead of
the hydraulic fracture, or as a workover squeezed into the
formation. Performance can be readily evaluated using
reservoir analogues that replicate the inherent geometry
of the shale in combination with formation water and oil.
According to the company, testing of the treatment has
demonstrated that it can increase the volume of oil recovered
during flowback by up to 250%, as well as increase the
average producing flowrate by 194%, compared to a control.
NewTek Sensor Solutions has intro-
www.tendeka.com duced an online 3D model library
of its LVDT Position Sensors. The
3D models, which are offered in
.stp (STEP) and .igs (IGES) formats
New OES analyzer achieves fast, for near-universal acceptance
accurate elemental analysis in CAD programs, help OEMS
and end-users visualize space
requirements for position sensors
to optimize layouts for different
sensing systems. They also help
engineers choose the right LVDT as
a replacement for existing sensors.
The company offers 3D models
for a range of its Position Sensors,
including: miniature AC-operated
LVDTs; high-temperature (200°C)
AC-LVDT; hermetically-sealed
right-angle AC-LVDT; and spring-
loaded AC-operated LVDTs.
Spectro Analytical Instruments has launched the eighth generation www.newteksensors.com/3d-
of its SPECTROMAXx with iCAL 2.0 ARC/SPARK OES analyzer. It has models
been improved with innovative new capabilities and advancements in
performance to achieve fast, accurate elemental analysis precisely tuned New tablet offers
for material control and foundry applications. According to the com-
pany, the newest-generation instrument features outstanding speed; speed, flexibility
quick and simple standardization; reliable and accurate results; minimal for specialists in
gas consumption; and a low cost of ownership for a more intelligent
elemental analysis of incoming source material, for in-process testing the field
and traceability, as well as for final quality inspection. Additionally, its Juniper Systems, Inc., has released
advanced OES technology reportedly enables it to precisely detect and
the Mesa 3 Rugged Tablet.
analyze samples containing free graphite, with results comparable to According to the company, it is the
those achieved by combustion analysis.
next evolution in rugged handheld
www.spectro.com/maxx computing and data collection.
It now features a quad-core Intel
Pentium processor that offers the
Inline corrosion application provides speed and flexibility that special-
real-time interpretation, analysis of data ists running processor-intensive
applications need in the field. It
Emerson has released The Plantweb Insight Inline Corrosion application, also features a major increase in
providing the oil and gas industry with real-time interpretation and system memory (RAM)—going
analysis of critical data to help prioritize maintenance and make from 4 GB in the Mesa 2 to 8
informed integrity decisions. The application delivers field data from GB in the Mesa 3. This enables
the Roxar wireless corrosion transmitters, providing valuable insight more demanding tasks, larger
into instrument health and process corrosivity. It offers alerts on datasheets, and more programs
preset thresholds for severe corrosivity, probe lifespan for electric running simultaneously. The
resistance probes, low battery levels and more, according to the tablet is proven to be waterproof,
company. Additionally, its easy-to-read dashboard displays an intuitive dustproof and shockproof, which
heatmap, with intelligence on corrosivity of fluid levels based on the ensures that data are protected,
NACE standard. The IIoT-based application reportedly integrates into even in the harshest environments.
existing wireless infrastructures and delivers field data as frequently Additionally, it offers an increase
as once every 15 min. Because it allows personnel to make fewer in onboard storage, enabling more
manual inspection in the field, the application minimizes exposure to recordkeeping, programs and data.
hazardous areas.
junipersys.com/products/mesa-
www.emerson.com rugged-tablet
World Oil®/FEBRUARY 202073

Sustainability:
Are we moving too fast?
The 16 sustainable development goals
proposed by the United Nations in 2015
continue to gain traction. The program
is intended to help end extreme poverty,
reduce inequality, and protect the planet.
Adopted by 193 countries, the SDGs
emerged from comprehensive negotia-
tions and are intended to inspire people
and companies to act across sectors,
geographies and cultures to effect posi-
tive change by 2030. The E&P sector is
charged with producing Affordable and
Clean Energy (et.al.). There are a multi-
tude of companies enacting various plans
to meet the UN’s proposal. Of course,
the biggie is to reduce global greenhouse
emissions (Paris Agreement). The oth-
ers are to: 1) increase renewable energy
generation/use; 2) reduce overall energy
consumption; and 3) increase the use of
natural gas to generate power/electricity.
Equinor plans to reduce GHGs from
its operated offshore fields and onshore
plants in Norway by 40% by 2030, 70% by
2040 and to near zero by 2050. By 2030,
annual reductions of 5 MMtons will be
removed from the atmosphere, corre-
sponding to 10% of Norway’s total CO2
emissions. “Equinor has brought CO2
emissions in the production process down
to industry-leading levels. We are now
launching a set of ambitions for forceful
industrial action and substantial emis-
sion reductions in Norway,” says Equinor
CEO Eldar Sætre. The company plans
to invest 50 billion Norwegian kroner by
2030 to cut emissions to strengthen the
company’s long-term competitiveness.
In setting these ambitions goals, Equinor
has assumed stable framework conditions
and necessary investments in the elec-
tricity grid,” Sætre continued. Equinor is
also pursuing and maturing opportuni-
ties within offshore wind, carbon capture
and emissions-free hydrogen, based on
natural gas. Setting these stretch-goals for
emissions reduction in Norway is an im-
portant step in aligning Equinor’s business
with the Paris Agreement. Royal Dutch
Shell has a similar target to Equinor, while
74FEBRUARY 2020/WorldOil.com
THE LAST BARREL
CRAIG FLEMING, TECHNICAL EDITOR
Spain’s Repsol has pledged to eliminate all
emissions by 2050.
Canada’s Cenovus Energy proposed a
goal of reaching net-zero emissions from
its operations to improve the oil sand
industry’s reputation and win over envi-
ronmentally minded investors. Cenovus
is aiming to achieve the net-zero feat by
2050, and also set targets of reducing its
emissions per barrel of oil produced 30%
by 2030 and keeping its absolute emissions
flat in that timeframe. Both of those targets
include direct emissions from its own op-
erations, as well as the indirect emissions
from the generation of energy that it uses at
its facilities. The companies that produce
crude from Canada’s oil sands, the world’s
third-largest petroleum reserve, have been
trying to revamp their public image as eco-
logical offenders, as investors increasingly
focus on firms’ environmental, social and
governance performance. That reputa-
tion has led to fierce opposition and delays
to pipelines that export oil sands crude,
limiting the companies’ ability to boost
production. To accomplish the goals,
new technologies like carbon capture and
sequestration, and the increased used of
solvents—rather than energy-intensive
steam—will be required, said Cenovus
V.P. Al Reid.
Oilfield service sector. In December,
Schlumberger announced its commit-
ment to setting a science-based target to
reduce its GHG emissions. The company
submitted its plan to the Science Based
Targets initiative (SBTi) and will outline
its reduction target by 2021. This com-
mitment is part of the company’s thought
leadership and focus on environmental
and social sustainability through its glob-
al stewardship program. “Schlumberger
seeks to lead positive, measurable changes
in GHG emissions within the industry to
help reduce climate change,” said CEO
Olivier Le Peuch. The application of our
environmentally responsible technologies
will help drive process efficiency and envi-
ronmental footprint reduction.”
Research initiative. Rice Univer-
sity has launched Carbon Hub, a major
research initiative to create a zero-emis-
sions future. Inaugurated by Shell with a
$10-million commitment, Carbon Hub
will partner with companies in an attempt
to fundamentally change how the world
uses hydrocarbons. Instead of burning
them as fuel and releasing carbon dioxide,
the plan is to split hydrocarbons to make
clean-burning hydrogen fuel and solid car-
bon materials.
Are we moving too fast? BP’s outgoing
CEO, Bob Dudley, warned that some ma-
jor oil companies are moving too fast on
investing in new technologies to counter
climate change, because their failure could
lead to financial ruin. “If you go too fast and
don’t get it right, you can drive yourself out
of business,” Dudley said in a Columbia
Energy podcast in January. “Oil companies
must retain a strong financial footing to be
able to invest when game-changing tech-
nologies are developed. But technology
has not yet been developed that will make
a major movement on climate change.” I
cannot imagine how we’re going to achieve
the Paris accord without a price on carbon
and making a major shift to natural gas.”
Also, “we also don’t want to shut down
what we’re doing, or sell our assets and
go all-in on renewables, and think that’s
going to solve the problem. We’ve been
working renewables a long time, and we
are supportive of the industry,” continued
Dudley. But in 2000, BP invested heav-
ily in solar technology, only to write off
much of the spending. “If we understand
where the technologies are going and we
invest, the best thing we can do strategi-
cally is have a strong balance sheet. When
it becomes clear specific technologies are
going to move quickly and be profitable,
then we’ll be able to make that shift,” he
explained. “Remember, the major public
companies produce just 8% of the world’s
oil. If we were all driven out of business,
that oil will be produced by NOCs and
other countries. We want to be leaders in
this initiative, but we are not the epicenter
of these issues.”