CERAWeek 2014 - Tight Oil New Frontiers: North America and Beyond

Stephen Trammel, Director, Energy Unconventionals, IHS, chaired the Tuesday morning Strategy Dialogue "Tight Oil New Frontiers: North America and Beyond." The session focused on whether tight oil (or, more generally, unconventionals) is a sustainable source and whether the US phenomenon could be replicated outside of North America. The panelists agreed that it could be replicated, even though other countries have a different mineral ownership model than the United States. Panelists emphasized that conventional exploration and production has been going on for over 100 years and that we are just 10 years into the exploration and production of unconventionals.

Pete Stark, Vice President and Advisor, IHS, started with an overview and provided the context for taking tight oil global. He listed factors that are key to the long-term sustainability of tight oil and to tight oil production outside North America, including continuous improvement in speed of drilling and optimization of completions, expanding the application of unconventional techniques to the "not so tight" reservoirs in existing fields and plays, and addressing aboveground risks such as fiscal terms and anti-hydraulic fracturing sentiments in some areas. Dr. Stark showed a map of 148 tight oil plays that IHS has identified around the world and the level of unconventional activity in different countries. Argentina, China, Colombia, and Russia are among the most active. Guardie Banister, President and CEO, Aera Energy LLC, spoke about his company's success in the Monterrey Formation in California's San Joaquin Basin. The Monterrey has produced from diatomite reservoirs for over 80 years, and Aera is now exploring the shale source rocks of that formation. It is two years into its light tight oil exploration program. When asked about the challenge of doing business in California, which has much stricter regulations than other oil-producing states, he indicated that the governor supports oil and gas development. He also emphasized that good stewardship is important and that he would "rather have regulations than a moratorium."

Robert Ryan, Vice-President of Global Exploration, Chevron Upstream, described Chevron's six critical success factors in its exploration for tight oil outside of North America. One is the geology below ground. The other five aboveground factors are infrastructure, the presence of a service industry, favorable fiscal regimes, local support, and incentives. Although all of these factors are favorable in the United States, most opportunities that Chevron-an IHS CERAWeek Strategic Partner-is considering outside the United States lack at least one of these success factors. He also emphasized how frontier exploration previously focused on the application of science and technology alone in geology, geophysics, and engineering. But the new frontier for unconventionals focuses on technology and the environment and policy. In responding to a question about regulatory systems outside the United States, he indicated that operators needed to be prepared for delays.

Tim Probert, President, Strategy and Corporate Development, Halliburton, provided the service industry perspective on the sustainability of oil from unconventional sources. He focused on the need for speed to make these plays work, which he compared to a lean manufacturing process. But that speed is not just in the drilling and completion; it includes how all the different people and parts of the process work together, so that everything is just-in-time to maximize efficiency. He emphasized that although independents drove the early success of unconventional development, now any company can be successful. However, it must be willing to change its mindset about exploration and development.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.