Innovation for savings

March 21, 2015

As crude prices have fallen below $50 a barrel, a number of Permian Basin oil and gas producers have announced plans to defer completion of the wells they just drilled.

Producers are pressing service companies to reduce costs 20 percent or more to keep projects economically viable. Dan Themig, president and chief executive officer of Packers Plus, said service companies have some flexibility in those costs. “But once you get those costs down, where can an operator go to cut well costs?” he asked. He answered by listing two areas: hydraulic fracturing and well construction.

Themig visited Midland from the company’s corporate headquarters in Calgary, Alberta, to participate in an executive roundtable session Wednesday hosted by the University of Tulsa. The discussion, which took place at Midland Country Club, focused on new completion technologies and how they can help in the current low oil price environment. On Thursday, he also addressed the Society of Petroleum Engineers.

While in the Tall City, he reported that the company is planning a facility in Midland. “The Permian Basin is a long-term basin that will be here a long time,” he explained. Packers Plus has also acquired land in Houston for a manufacturing and state-of-the-art systems engineering facility.

Themig sat down to discuss the industry and his outlook for the market with the Reporter-Telegram.

MRT: What is your take on the marketplace right now?

Themig: Our view of the marketplace is that it’s full of uncertainty. People are uncertain of what direction prices will take and how long it will last. The other thing we see is a lot of investment dollars have changed hands. Look at the acquisitions in the Permian Basin. Look at Encana buying Athlon for $7 billion. When you look at those investments, they’re predicated on certain oil prices, probably not $100 a barrel and probably not $50 a barrel. There will be some readjustment in expectations. Another thing I see is we’ve had artificially high oil prices for several years that’s encouraged operators to perhaps not be as efficient as they could be. Now they can take a fresh look at how efficient they can be, at their water use.

MRT: Where do you see the industry headed?

Themig: The last five years have seen the industry develop a “factory” mentality: Start the factory up, and get out of the way. The next five years will see the industry take a different look at efficiency and effectiveness. I’ve seen companies emphatically say they’ll shut down all their rigs with prices at $75. But then some restart drilling at $60, some at $70, some at $80. Realistically, I think the future looks like it will bring lower drilling activity for the next couple of years. It will be tough on a lot of companies and particularly those companies that expanded rapidly and took on a lot of debt. It doesn’t matter what the oil price is, the companies that are efficient and the best at extracting hydrocarbons will succeed.

MRT: How has Packers Plus fared in the slowdown?

Themig: Our company has always taken a contrarian approach. We don’t drill wells so we don’t adjust activity to oil prices. In 2009, the industry had layoffs and shutting in of operations. But in 2009 we opened an engineering center in Texas. We were the first company in the world to invest in robotics and automation to build equipment. We invested $6 million in robotics and automation and have kept them core in our business., We invest heavily in engineering innovation and tend to do that even in downturns.

MRT: Your visit was to discuss how completion technologies can help in a low-price environment. How so?

Themig: We’re driving innovation to producers operating in a low cost environment. We were the originators of open hole ball fracturing systems. Our first job was here in Midland in 2001. What started us on the track of horizontal well fracturing was at the time no one knew how to fracture horizontal gas wells. We began the horizontal multistage fracturing and that transformed the geopolitical situation worldwide — Russia, the Middle East, South America, North America. We’ve gone from a fear of running out of hydrocarbons to wanting to export them.

MRT: What innovations are next?

Themig: Recent years have brought multilateral wells — our companies have done over 1,000 multilateral wells. I think in the future companies will downspace for new wells or adding laterals. We’ve developing a new cementing stage tool that will allow operators to convert to mono-bore cementing. They can run casing strings in one trip. If you look at the trends in the industry on well completions today and what’s driving activity, service companies and particularly fracturing companies are using what I call the “sledgehammer approach”: More stages, more water, more sand, basically pounding the rock into submission.

One of our goals is to make sure being cost effective and efficient is more effective than the sledgehammer approach. We’ve taken a well from producing 5 billion cubic feet of gas to 13.5 billion cubic feet without spending additional money. In today’s environment, I think it’s possible to reduce water use, well construction costs and hydraulic fracturing costs and increase ultimate recovery. In the whole scheme of things, do you want to try the sledgehammer approach and get 5 Bcf of 100,000 barrels of oil or use innovation and get 13.5 Bcf or 250,000 barrels of oil?

Because of relatively high prices the last eight years and the factory approach, it’s been difficult to get operators to take a close look at our applications. In this environment, I hope operators will take a fresh approach to their work and look at new possibilities and ensure they’re using the right technology.