By Carter Haydu, Daily Oil Bulletin
Perspective is key when considering current commodity prices, as every industry downturn over the past 30 years was followed by a rebound and also provided the right conditions for the sort of development and implementation of new methods and technologies that allowed for further growth in the energy sector.
“The good thing is that our industry has survived every [downturn] and has come out stronger through optimization and innovation,” Tony Cadrin, president of the Canadian Society for Petroleum Geologists, told Wednesday’s Williston Basin Petroleum Conference.
“We are going to utilize what we currently have — that is our current production — to prepare ourselves for the next investment opportunity.”
According to Cadrin, the oil embargo of the 1970s and its resulting high price for oil in North America motivated industry to explore and develop its resources in new ways (i.e., more offshore drilling in the Gulf of Mexico), which in turn added production into the market.
In 1986, Saudi Arabia saw it was losing sales in the post-embargo environment, and started selling oil at a lower price, which led to a price collapse reminiscent of the current downturn in the market. A year later, though, the collapsed market had rebounded and worked its way out to a higher-price environment, thanks in part to domestic industry innovations.
“They started improving their technology,” Cadrin said. “What they developed and what they perfected was a much more reliable method of directional drilling. Suddenly, you didn’t just have to have your well right on top, and you could actually go and look for deep structures in the ground and reliably get there.”
In 1988, he noted, the North American energy sector enjoyed higher oil prices, which dropped off when all the innovation from two years prior itself caused an oversupply — necessitating a market correction. Again, he added, prices returned about one year after hitting their lowest point in the cycle, and again the downturn brought with it new game-changing advancements to the industry.
“This new idea came about with this enhancement in directional drilling and getting to very-near horizontal well paths as the start of the horizontal drilling. It was being done offshore and then it started to come onshore.”
In 1991, the First Gulf War brought “all sorts of uncertainty” into the market, Cadrin said, and once the war ended and oil from that region was again secured, commodity prices dropped, followed by the typical price recovery. That industry downturn also happened in tune with the typical innovation trend, he added — this time with three-dimensional seismic.
“Every time we have a pause to think and we are not running crazy to pull more stuff out of the ground to sell it, we come up with some better ideas,” Cadrin said, adding that following the Asian financial crisis of 1998, the price of oil again fell as Asian consumption fell, and before the price recovered the industry had made strides in thin-bed resolution.
In 2001, according to Cadrin, a global recession saw oil prices dip and then return at higher prices than ever before. Further, he said, during the downturn horizontal drilling “really started to come into its own,” and operators were able to place wellbores reliably and accurately within desired zones.
“This started to open up zones where the permeability did not lend itself to the vertical [wellbore].”
The current industry downturn, if the perspective gained from recent history is any indication, should see oil prices return to prices that make many wells once again economical to produce at about US$65 per bbl in early 2016, Cadrin told the conference.
In the meantime, he added, industry has been busy innovating its way through the downturn with such things as enhancements in waterflooding horizontally, multistage-fractured fields, which improves permeability and increases drainage.
Cadrin added: “The important thing is what we do with our time during the low time. We can’t control commodity prices and we can’t control supply and demand — particularly each and every one of us. What we can control is what we do with our time to prepare ourselves for the inevitable upswing in the market.”
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