Monday April 3 2017
Shale Goes Digital
Productivity describes one’s ability to produce more with the same number of inputs be that humans, machines, or time. Dr. Edward Deming created the concept of Total Quality Management TQM for the express purpose of cincreasging both quality and quantity during WW II. West Texas is now benefitting from an increase in productivity using improved drilling techniques aided by digital technology.
Let’s explain drilling technology back then (gee I am using that phrase more and more….) and now. A rotary drilling rig turns the drill pipe from the floor of the rig. That turns the bit at the end of the pipe string to cut through the earth. The cuttings must be removed to continue deeper. So drilling ‘mud’ is pumped through the center of the hollow pipe. It emerges thought the drill bit, washing the cuttings away. The mud and cuttings then flow along the outside of the drill pipe back to the surface.
When I began visiting drilling rigs with my Father in the early 1960s, I observed the geologist at work. A geologist would extract cuttings from the mud and examine them under a microscope to determine the make up of the formation. A special instrument could be dropped into the hole to determine how far off ‘center’ the hole was. If the drilling strayed too far, one could be another leased property.
Today that scenario looks pretty quaint. Geologists now receive ’real time’ data from an electronic device on top of the drill bit. Depth, direction, and the type of formation are all known. There is no waiting for the cuttings top come to the surface. The presence of gas in the formation can also be detected
But it gets even better. Cutting edge firms like EOG have developed their own computer apps like iSteer. This means a geologist sitting in Houston can steer the bit instantly in the best direction to find the most likely spot for oil.
And remember, firms are drilling horizontally and using hundreds of thousand pounds of sand to ‘crack open’ a formation to allow for faster recovery of the oil
As the information is gathered the depths, temperatures, and exact location form an ever larger database to be used to better perfect exploration techniques. One might compare this process to the use of drones. The operator is removed from the scene and has far more information than just a few years ago.
So how much difference does all this make, productivity wise that is. EOG claims to have produced the same amount of oil in 2016 as it did in 2014, with a budget 67% smaller. That is a significant productivity increase. EOG’s stock price has risen from a low of $60 to the recent high of $110.. It is now rising from $95 level.
And now for some even better news. After correcting from $55 to $47, the oil price moved up the last three days closing Thursday at $50.35 on the continuation chart for West Texas Intermediate.
Unleaded gasoline followed closing at $1.66. Natural gas prices found support at $2.70, a higher low than the $2.60 registered last November. Natural gas closed at $3.19 Thursday.
The best barometer for the Permian Basin economy remains the XES Oil Services ETF. It has also recorded a higher low at $19. With a recent high of $24.50, and oil priced rebounding, and Halliburton tightening its price structure, this might be a good time to go shopping in the service industry.