Shell Expects Continued Benefit from Capital Efficiency Strategy

Royal Dutch Shell expects to see continued benefits from its strategy to enhance capital efficiency, even after oil prices and unit costs rise.

The company’s shale resources present a significant future growth opportunity beyond the year 2020, company leaders said recently.  Shell’s North America shale plays offer potential resources of approximately 12 billion barrels of oil equivalent (boe) and approximately 270,000 barrels of oil equivalent per day (boepd) across five basins, including the Permian, Haynesville, Marcellus, and the Montney and Duvernay plays in western Canada.

From 2013 to first quarter 2016, Shell has boosted its shale production by 39 percent to its current production level, and total resource potential by seven percent, company leaders said. At the same time, Shell has reduced its capital investment by 58 percent from more than $4 billion to under $2 billion, reduced drilling and completion costs from more than $10 million to around $5 million, or 50 percent, and direct overhead costs by 76 percent, they said.

At the same time, it has de-risked the percent of its big wells – or wells with production potential of more than 1,000 boepd – by 400 percent, they said.

“If you don’t have wells with this production capacity, you don’t have a chance of an economic well,” Greg Guidry, EVP of unconventionals – Americas at Shell, told reporters during a media event Monday in Houston.

Due to the current oil price environment, Shell does not want to activate this resource as an active growth opportunity, Guidry stated. While unit rates are expected to rise once oil prices do, Guidry doesn’t expect to see a return to pre-price drop costs, given that two-thirds of the efficiency improve stem from improvements in drilling, not supply chain costs, which account for one-third of costs.

The company has boosted the efficiency of its wells by drilling smaller holes, slimming wells, and using managed pressure and underbalanced drilling, Christian George, general manager of drilling and completions on the unconventionals – Americas team, told reporters. Alternative drilling fluids also have enhanced efficiency.

“I think we’re probably the most consistent operators across the basin in using these techniques,” said George, adding that this consistency has allowed for much faster ROP [rate of penetration] and controllability on hydrostatitic pressure.

The company also has boosted efficiency by applying drilling lessons learned in one play to another. For example, lessons learned in Shell’s Canadian holdings have been carried over into Argentina with real success, George stated.

Additionally, Shell has taken advantage of the cheapness and ability to transfer data between the field and the office. This allows its experts at its Drilling Automation & Remote Technology (DART) Center to provide advice on a real-time basis to field staff on optimizing drilling performance. Working through the DART Center allows Shell to predict or even get ahead of potential problems, George said.

Bruce Palfreyman, general manager for Shell’s Permian assets, said one underappreciated cost improvement is avoiding geological or mechanical sidetracks. Such as sidetrack can easily cost as much as $1 million per well.

Guidry attributes the improvement to Shell’s focus on rationalizing its portfolio, establishing a fit-for-purpose capability approach, and creating a culture more akin to nimble independents. Shell’s shale assets are half the size they were in 2013, Guidry commented, but the size of Shell’s unconventional resources is larger today.

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com

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