Unconventional Oil & Gas: the quiet revolution
that changed the world of energy
In just under ten years, unconventional development has revolutionized the world of energy, shaking the rules, the balance of power, and shifting the established dependencies in worldwide markets.
In the early days of the new millennium, a grim perspective loomed of rapidly diminishing hydro-carbon reserves; visions of quickly vanishing supplies had the world alarmed. Commercial development of shale gas started to take off in North America around 2005-2007, with the combined application of horizontal drilling and hydraulic fracturing to release gas trapped in tight sediment rock (shale formations), previously considered to be un-exploitable… The prospect of new Oil & Gas resources and high dollars per barrel prices encouraged technical improvements and investment. The reserves discovered were beyond “conventional” imagination: the extent and massiveness of available shale reserves, boosted estimates of world supplies and diminished the levels of import dependence of North America, altering economic and strategic balance in the world of energy. The first boom was in 2011-2014, mainly in the United States, and created a sudden surge in Oil & Gas supply in the market that contributed to bringing prices down sharply. The market reactions, while rendering energy more affordable, ironically destabilized the whole industry, stalling more expensive projects, rendering complex offshore and even some onshore projects unviable. The shale players were challenged, with low $/barrel prices making the production model in some areas un-economic. The challenges became technical and financial: how to recover reserves and render them exploitable at lower costs; how to better extract Oil & Gas where the first inefficient shale techniques only recovered about 20% of the reservoir potential.
Nicolas de Coignac, Senior Vice President, North America, explains: “The crisis had a global impact on costs and in order to survive, the break-even point of Oil & Gas operators needed to go down, drilling had to be more efficient, extraction had to be more productive.”
An age of maturity, performance and safety
Today, unconventional development is in a new age, more mature, and refined: it’s a time of optimization, of technical improvements, of better-adapted equipment, with improved productivity and increased safety. Drilling is more efficient and supply is more flexible, allowing rapid adaption to markets with a greater sensitivity to supply and demand. With a barrel stabilized at about 50$ and increased competitiveness, unconventional development is a real player in the world of industry. Nicolas de Coignac continues: “We are in an age of efficiency, pragmatism and improvement. In Canada, for example, the number of days to drill a well in one field has gone down from 40 days to 10! With great efforts and lightning speed progress, the costs of unconventional development were reduced, with a breakeven point as low as 20-40$ a barrel in some places.” This dramatic improvement allows unconventional development to be viable, and highly competitive. In this new game, shale basins such as those in North America and Argentina become winners. North America, with significant reserves that are viable at a low cost, a large and mature service infrastructure, that supports and enables enhanced production levels, has become one of the world’s biggest swing producers, with considerable influence on price and supply in the whole energy market. Because there are specific risks linked to the very nature of fracturing techniques, Vallourec believes in being a leader for high quality solutions for Oil & Gas extraction. By delivering increased performance and higher safety assurance in the well construction process, Vallourec works alongside all the major players in the US, developing products and services better adapted to the challenges of unconventional development. The main difficulty is that you don’t just pump out the hydrocarbon from a reservoir. You have to extract it from hard sediment rock strata, in less accessible, often slim horizontal layers. At first, performance was weak, with a low portion of the oil or gas content actually being extracted due to minimal reservoir contact in the well bore. In time, thanks to a better understanding of the reservoirs, operators began to increase the horizontal reach of the wells. This came at a cost: horizontal drilling created new challenges for the well tubulars. Pipe and connections were quickly pushed beyond their original specification. All OCTG supplies had to be dramatically improved.
Improved and optimized solutions
Vallourec supports the booming market with a full range of products, including API, semi-premium, to premium pipe grades, and an enhanced range of VAM® connections. Jason D’Souza, Executive Vice President of OCTG Sales, North America, states: “Vallourec engineers and R&D teams went back to the drawing board and further optimized steel, threading practices, and developed new couplings, and flush connections. Thanks to the experience of our teams, in our research centers, plants, and in the field, our solutions were quickly operational, allowing longer laterals, optimized non-standard diameters of casing (often outside API standards), tubing, connections, and accessories, with much higher torque capabilities. Trials and field tests soon confirmed Vallourec’s solutions had better reach, higher torque and allowed more reservoir area to be stimulated. Initial production rates are climbing, and the total production of each well is higher, considerably improving return on investment and TCO. And there’s room for progress! Today’s numbers, while a huge gain, are still below 50% of the recoverable hydrocarbons in the reservoir. With increased knowledge and understanding of specific underground geometry, Vallourec research teams bring much to the table to further increase the performance of each well in the future.” Within the unconventional market itself, it’s important to note that all wells and rigs don’t have the same potential and profitability levels. They can differ vastly from one another, from one region to another, in terms of geology, extraction potential, technical challenges and economic breakeven point. In contrast to offshore projects, which have a long planning and production horizon, unconventional wells can be drilled, completed and produced within several months. It’s a fast-moving market, defined by reactivity and adaptability. Furthermore, the activity level of rigs drilling can be quite volatile: new rigs are very versatile and operations can be rapidly moved from one place to another. Drilling activity is ramped up and down depending on macro supply and demand. More than ever, customers need a full solution model that is very reactive to provide tubular products, accessories and services.
The Permian basin : mammoth reserves in the United States
The Permian Basin is a massive onshore production area, approximately 250 miles wide and 300 miles long, in West Texas and Southeast New Mexico. It is the largest, and one of the oldest petroleum-producing basin in the United States. Since the first pioneers in 1921, the area has produced a cumulative 28.9 billion barrels of oil and 2,5 trillion m3 of gas. Currently, nearly 2 million barrels of oil aday are being pumped from the basin. New surveys suggest there is an estimated remaining reserve of 43 billion barrels of oil and 509 billion m3 of gas; however, some experts claim reserves may be far beyond those figures.
The Permian Basin has two primary petroleum producing regions, the Midland Basin and the Delaware Basin, both highly profitable, with extraordinary oil and natural gas reserves. There are about 200 Oil & Gas operators in the Permian Basin, with considerable variations in size and scope – very large players like Chevron, to large independents like Pioneer, and local operators like Clide’s Oil Corporation, illustrate the variety of customer and needs. With recent improvements, drilling in the Permian is expected to rise and was already 58% higher in 2017 than in 2016. With vertically stacked plays in the Permian, operators can drill one well and reach reserves in each of the stacked layers, like a tiramisu, with interconnecting layers. This geologic bonanza gives operators a strong incentive to drill in the Permian since reserve replacement is a key determinant of the operator’s profitability and future value.
Enhanced products and outstanding service
Because the exploration and production of unconventional hydrocarbons has grown beyond expectation, there is a significant increase in the need for OCTG and connections with enhanced specifications and performance levels. The greater technical challenges and large number of wells, as well as the use of horizontal drilling techniques, have increased the demand for non-standard diameter tubes and a wider range of optimized premium connections. These demands stimulated the development of an extended range of VAM® connections. VAM TOP® HT, VAM® 21 HT, VAM® HTTC, and VAM® EDGE SF, were all developed and used in response to this need. All new connections are typically threaded by VAM® USA or Vallourec Star facilities. Vallourec works with licensee companies for repair and maintenance, for optimized quality and lead-time. (More in the tech files section of this issue).
Fully integrated facility in the US delivers full range of solutions
Vallourec’s new FQM mill, located in Youngstown, Ohio, within the existing Vallourec Star facility, further expands the range of Vallourec products manufactured in North America. Youngstown now offers a vast range of products and services necessary for hydrocarbon production, particularly for unconventional development markets. Youngstown is unique in the United States; the integrated site includes a steel mill, a mill specializing in medium diameter tubes (from 5 to 10 3/4 inches) and the new FQM mill, which specializes in the manufacture of small diameter tubes (2 3/8 to 7 inches). It also incorporates heat-treating to final grade, final inspection, and threading to specification. Once pipe leaves the mill, we assist in the installation on the rig floor with our VAM® Field Service, and coordinate returns, maintenance and repairs.
Jason D’Souza details: “It’s a fantastic market! I must say our investment in Youngstown was most opportune. Vallourec’s advantage is being present across the full supply chain with the right combination of connections. Our mill in Youngstown delivers the right range of products for the North American market, with API standard pipe, non-standard pipe as well as proprietary VAM® connections. As an example of our adaptability, we now provide specially developed 6-inch casing that are outside API standards, but are optimal for unconventional development and help our customers considerably increase production levels. Wells need just the right diameter sized tube: if it’s too small, there’s not enough flow, and if it’s too big, it’s too expensive.”
“Vallourec has fortified its position in the US. We have always believed in unconventional development. There’s a significant change in the way we work with customers. Operations are quick, continuous and lower cost. Our customers need us to be reactive and consistent: the number of rigs and their locations change quickly because they follow the market. This means we’ve become disciplined to new levels of flexibility and adaptability.
Thanks to our complete solution model and distribution partners, we can provide everything in short lead times. This is how we strengthened our position, with a full supply chain with greater proximity to the customer, and a perfect combination of pipe and connections for their rigs and wells. Our flexibility is key to this success and we are proud to be the leaders in providing the most advanced solutions in North America!”
Services are provided by VAM® USA, with our renowned VAM® Field Service teams, in Louisiana, Oklahoma, Pennsylvania and three locations in Texas. The offices support the growing number of VAM® customers in the Permian Basin, where VAM® SG, VAM® TOP HT, and DWC/C™-IS-PLUS tubular connections are being used. VAM® USA’s local presence benefits companies by providing timely response for local running support to its customers. The 1,600sq-ft facility warehouses complete sets of VAM® Field Service running tools and provides a base of operations for the field expertise required in the expanding Permian Market.
The market has shifted from a single well project basis to a regular and continuous supply and flow of products for continuous drilling operations, much like a manufacturing environment. Customers look for robust solutions and long term reliability. With short lead times, Vallourec is working through distributors to ensure a smooth, continuous flow of products sourced to rigs.
Digital solutions with advanced data analytics
The future of unconventional development is linked to overcoming new horizon technical barriers and remaining cost inefficiencies. Jason D’Souza confirms: “When you look at the recent improvements, you feel you’re nearing perfection, but there’s still so much room for improvement, with amazing progress yet to come. There are still large amounts of undiscovered hydrocarbons underground and one day, we’ll get it. As we move into the future, we’ll see an increase of digital solutions, with advanced data analytics. We will learn how to optimize drilling beyond today’s levels. One of the projects we’re working on at Vallourec is digital data systems, placed directly on the pipe and connections, with key information accessible for providers and users. Better identification means better business management, in the field and in decision making groups! Digital improvements will involve information on the pipe and products: length, status, depth, etc. as well as important customer information, like reject rate, running speed, reservoir information, sand production and placement, and the spacing of wells. Much of this information has the potential to considerably increase the efficiency of every well.”
Nicolas de Coignac concludes: “Unconventional players have become swing producers in a very short time. This means more investment will go into unconventional development. In a more mature market, production will be narrowly linked to demand and barrel price: if demand declines, operators will take their foot off the pedal almost overnight. It’s of the utmost importance for Vallourec, beyond products and services, to be responsive and flexible. Everyone in our organization needs to be fully dedicated to the customer: reactivity and efficiency are of the essence! The development of unconventional reservoirs is a great opportunity for all: it has changed the way we work together and do business. It has reinforced cooperation with our customers, licensees and distributors. It has enhanced our product development and accelerated our time-to-market. We will work relentlessly to reduce costs and improve Vallourec’s commitment to its customers and partners, because it’s the best way to support the market. Together, we can build a safer and more productive future for Oil & Gas.”