The pioneers of America’s shale gas and oil revolution have done their work. Now it’s time for the factory crews to take over.
After spending $53 billion on a land binge to find hydrocarbons, the petroleum industry is counting on technological innovations -- better imaging data, speedier and longer horizontal drilling, among them -- to ramp up the flow of oil and gas from U.S. shale fields where they’re drilling more than 10,000 wells a year.
The techniques are embraced by the biggest producers from shale such as Chesapeake Energy Corp. and Newfield Exploration Co. to boost shareholder returns by shifting money from exploration, which is winding down, into what’s known in industry parlance as manufacturing. The moves will help producers increase profit at a time shareholders are ousting executives and revamping boards because of poor performance.
“Now that all of the established shale plays are known, companies can start focusing on the economics of these plays,” said Eric Gordon, who helps manage $35 billion at Brown Advisory Inc. in Baltimore. “They are under pressure to reduce drilling time and operating costs.”
In Oklahoma, Chesapeake is blasting cracks into rocks surrounding each well at 10 times the rate of a few years ago. Newfield is using finely tuned mixtures of chemicals and minerals to stabilize wells that slice sideways through crude- soaked rock 10 times farther at half the cost per foot of a decade ago.
Producers that engaged in a land rush yielding vast shale discoveries from Pennsylvania to Wyoming and Texas are now being pressed by shareholders to turn promises into profit, said Brian Gibbons, a debt analyst at CreditSights Inc. in New York. By employing new technology, domestic explorers aspire to catch up with international energy titans such as Exxon Mobil Corp. that generate six times as much profit from each barrel of oil.
Measures to cut per-unit production costs also are key to coping with oil and gas prices that are one-third and two-thirds lower, respectively, than their 2008 peaks. Soaring output from wells in North Dakota, Oklahoma and Texas has driven a 3.2% increase in U.S. crude production this year, adding to the 19% rise in 2012 that was the biggest annual jump in at least three decades, according to Energy Department figures.
Independent U.S. oil and gas companies -- those that focus on production and don’t refine crude into fuels and chemicals -- ended 2012 with an average cash-flow deficit of $1.5 billion, compared with an average surplus of $386 million for the world’s biggest energy producers.