Transforming the Upstream Service Industry To Increase Operator Margins

Topics: R&D
Image courtesy of Schlumberger.
Areas of focus to improve operator margins.

From organizational structures to procurement strategies to engineer staffing and development, the upstream exploration and production (E&P) industry is undergoing a transformation. Operators and service providers alike are not just tweaking, altering, and fine-­tuning in this most recent downturn, they are completely rethinking the way they work. Our business of finding, developing, and producing oil and gas profitably,  dependably, and in an environmentally responsible manner is facing unparalleled challenges.

In conversations with many chief executive officers during my term as president of SPE, the most common concern I heard expressed was cost control. And that was before the downturn. In fact, it has been a concern for management for most of the past decade.

The combination of escalating finding and development costs, relatively flat global oil production, and a steep decline in commodity prices has put significant pressure on profitability and free cash flow throughout the entire E&P value chain. Part of the reason for this is an extended period of underinvestment in the previous 3 decades. More importantly, the aging production base requires more investment to fight decline, and the newer resources such as pre-salt and unconventionals are more complex and expensive in terms of cost per barrel. Eighty percent of the global upstream research and development (R&D) spend is devoted to maintaining existing production—arresting decline.

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Transforming the Upstream Service Industry To Increase Operator Margins

Jeff Spath, Texas Oil and Gas Institute, University of Texas System

29 April 2016

Volume: 68 | Issue: 5