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Unconventional Oil and Gas: Unlocking Value Through Collaboration

In North America, unconventional oil and gas* represents the largest energy discontinuity of the past few decades. Gas production from these resources grew from 20.8 to 44.5 Bcf/D between 2006 and 2012 and now represents approximately half of North America’s supply. Oil production is growing and is beginning to affect world oil flows. The scale of this ongoing activity is far reaching: Capital investment in new unconventional oil and gas wells has reached USD 100 billion per year in North America alone. With worldwide reserves largely unexploited, the real growth in the sector may be just beginning.

Such rapid growth, combined with a high level of field development activity over a long period of time, is putting the traditional relationship between producers and service companies under strain, while also creating new opportunities for both sides.

Developing unconventional oil and gas resources presents an opportunity for change for three reasons. First, activities are relatively uniform, with multiple, repeated operations taking place in close proximity during the life of a basin. Second, field development goes on for much longer, with drilling and completion activities continuing for many years. Third, the primary source of value in such operations has shifted from the discovery of plays to their efficient development. These changes provide an opportunity for producers and service companies to reset historical relationships, preserving value and reducing cyclicality for both parties, while also potentially improving safety for those in the field.

Based on our experience in these emerging plays, we have identified a series of opportunities for operators and service companies to bring real innovation to oilfield development in the near term. Central to these opportunities is our belief that operators and service companies should focus on developing closer and longer-term relationships with each other. This will enable the industry to unlock significant value. In particular, companies should focus on three areas: transparent operator-supplier contracting practices, joint supply chain optimization, and lean field operations.

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Unconventional Oil and Gas: Unlocking Value Through Collaboration

Niels Phaf, Thomas Seitz, and Clint Wood, McKinsey & Company

01 November 2013

Volume: 65 | Issue: 11

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