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Schlumberger CEO: Mindset change, investment needed to maintain market balance

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Essential Energy Insights September 2020

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Schlumberger CEO: Mindset change, investment needed to maintain market balance

Four years of record low activity in the international production base and headwinds in U.S. land-based production signal a need for a significant mindset changes and industry investment, Schlumberger Ltd. Chairman and CEO Paal Kibsgaard said Sept. 4 during the Barclays CEO Energy-Power Conference.

Current Permian off-take constraints should be resolved by the end of 2019, but a decline in Permian Basin well productivity as implied by a reduction in unit well productivity at the Eagle Ford, suggests that the Permian growth potential could be lower than the 1.5 million barrels per day of annual production growth expected, Kibsgaard said.

Unit well performance, normalized for lateral length and pounds of proppant pumped, has been dropping in the Eagle Ford since the percentage of child wells has reached 50%, a level recently reached in the Midland Wolfcamp basin of the Permian.

Deploying technologies to improve subsurface understanding and better control fracture propagation conformity could potentially improve the observed trends. However, it will require a significant mindset change throughout the industry, and a willingness to increase investments to overcome the growing reservoir challenges, Kibsgaard said.

The North American production base, initially supported by the Eagle Ford and Bakken and, more recently by the Permian basin, makes up 20% of global supply and has absorbed close to 70% of the demand growth since 2010. The international production base makes up 80% of global supply.

Kibsgaard said that after four years of record low activity, the international production base needs double-digit growth in investments for the foreseeable future simply to keep production flat at current levels.

At the same time, despite trade war worries and market concerns that the current issues in Turkey combined with the strong dollar will translate into broader economic weakness in the emerging markets, the broader picture for oil demand remains positive, further supporting the need for higher exploration and production investments to maintain the global supply-demand balance, he said.

Kibsgaard said a positive signal is that after first-half international exploration and production spend growth increased only a few percent year over year, the growth rate in the second half of the year is strengthening, fueled by stable oil prices and significantly improved cash flow for its customers.

Although activity is currently focused on the existing production base, investments into new full investment decisions for larger developments and eventually more exploration activity to address the record low reserves replacement is still to come, he said.