Opportunities Await u.S. Independents willing to Change

Major trends are changing the ways independent oil and gas producers do business. Companies that recognize these major trends and take advantage of them will prosper. The ones that don’t change will wither on the vine. The trends reflect the advanced stage that the U.S. has reached in the production cycle of its petroleum resource. Mature production means that:

• Major oil companies have sold off many of their low-return properties and shifted their financial resources and human resources to core properties.

• Major oil companies are shifting assets from the U.S. to other producing countries at earlier stages of production.

• The operating divisions of major oil companies in the U.S. are becoming more like independents.

• Independents are filling the void left by major oil companies.

• These independents are either exploitationists or depletionists.

These trends are changing not just business practices but the positions independent producers take on long-running political issues.

Three ages

In 1956 M.King Hubbert, an American scientist, made the prediction of oil production in the USA. His predictions were based upon the production life of oil fields and they are still true. Using the Hubbert curve, we have divided the life of the oil industry in the U.S. into three ages. Each age lasts approximately 35 years. The first age, when the oil industry was “young”, lasted from 1918 to 1953. The industry’s “middle age” lasted from 1953 to 1988. The “mature” stage will last from 1988 to 2023.

From ages to stages

The production life of the field can be divided into three stages corresponding to the industry’s ages. The first, exploration, coincides with the industry’s youth. This stage favors the major oil companies, with their vast financial and human resources. The main players are geologists and geophysicists. During this stage, large risks are taken. The stage coinciding with the middle age is exploitation, when the large fields discovered during the exploration stage are waterflooded. Again, it favors the major oil companies because they own the large fields and have the financial and human resources to install and operate large waterfloods. The principal players in this stage are engineers. Large risks are taken during this stage, but not as large as risks of the exploration stage.

The depletion stage occurs during the mature age. At this stage, current fields are worked on by plugging back or deepening wells to new producing zones, and by infill drilling. Fields smaller than the discoveries of the exploration stage are found, and waterfloods begin in fields smaller than those waterflooded in the exploitation stage. Depletion is a stage of innovation, where many ways are found to do things cheaper and more efficiently. During this stage we see the widespread application of new technology such as 3D seismic, horizontal drilling, and СО2 flooding. This is the first stage that does not favor the major oil companies. Their large financial and human resources are better adapted to exploring for and exploiting large fields. Depletion favors independents, with their much lower overhead. And it favors two types of independents: the exploitationist and the depletionist.