* Oil game turns from wildcatting to cost cutting
* Greasing rig skids with Ivory Soap
* Statoil borrows from Japanese lean manufacturing
By Anna Driver and Terry Wade
HOUSTON, Dec 19 On a wall inside an old hunting
lodge in west Texas that Apache Corp uses as a field
office, a board lists the winners of $10,000 prizes given to
workers with big ideas to cut costs - the new way to get ahead
in North America's shale oil industry.
The shale boom that over the last five years has revived old
Texas oil fields has largely made the unpredictable world of
wildcatting, or looking for oil in new fields, a thing of the
Instead, the widespread use of hydraulic fracturing and
horizontal drilling have turned oil production into something
closer to a very expensive manufacturing process - where
companies with the lowest well costs and fastest drilling times
win. That's especially the case as domestic oil prices fall and
North American supplies swell to the highest level in 25 years.
Apache's workers in Texas have come up with many ideas that
have a common sense, low-tech appeal.
Building earthen bases, or pads, to hold multiple drilling
rigs, using rocks and dirt taken from nearby hills to build
roads, and cutting out the oil service company middleman by
sourcing train cars of sand and chemicals have all saved money.
When companies perform hydraulic fracturing, water,
chemicals and sand are blasted into a well at very high pressure
to crack the rock and then collect oil and gas. Sections of the
horizontal well are "fracked" in stages.
"If we are going to pump 40 frack stages, if I can save
$3,000 a stage, that's $120,000. That's big money," said John
Christmann, a petroleum engineer who has more than two decades
of experience in the Permian and was recently named to head up
all of Apache's North American operations.
West Texas Intermediate oil has fallen almost 11 percent
since its peak this year of about $110 a barrel in August as
producers pump more crude, so companies are trying to bring down
costs to maintain profitability.
Apache's costs on its Barnhart project in the Permian Basin
- where it plans to drill about 70 wells into the Wolfcamp shale
out of a Permian total of more than 800 wells - have fallen $1
million per well, or about 13 percent, to about $6.8 million in
the last year and a half.
Although well costs vary widely depending on how deep and
how far drilling reaches, rival Devon Energy Corp said
its average cost for a Wolfcamp well in the third quarter was
Laredo Petroleum Holdings Inc, a much smaller
company that drills near Apache's properties, said it is
targeting a reduction to $6.8 million per well next year from
$7.8 million now.
At Apache's Ketchum Mountain field office in Irion County in
the Permian Basin, the company's 450,000 acres atop the Wolfcamp
serve as a laboratory where workers are free to experiment.
"We are not a one-trick pony," Apache's Christmann told
Reuters. "There are always things that we are testing."
The biggest drop has been on the fracking cost. Apache is
self-sourcing its own sand and chemicals. Experimenting with
different drill bits - which can cost $50,000 or more - has also
yielded faster drilling times, the executive said.
Pad drilling, or drilling multiple wells close together,
helps Apache cut costs and work faster. At a Barnhart pad site,
moving a rig to another drilling location - sometimes on skids
slicked with Ivory Soap - takes only several hours. If the rig
were moved to an entirely different pad, it would take days.
IMPORTING IDEAS FROM JAPAN
Companies expect to be in the Permian for decades to come.
Though the historic basin was in decline a decade ago, new
recovery techniques have given it new life. Experts say it holds
more recoverable oil and gas than everything it produced over
the last 90 years, according to the Texas Railroad Commission.
The basin is now the most productive onshore field in the
country, pumping more than 1.3 million barrels per day. It has
helped doubled output over the last few years in Texas, which is
pumping 35 percent of the nation's oil as the United States
becomes the world's top crude producer, according to the Energy
The Permian is different from other oil producing rock
formations like the Bakken in North Dakota because it is made up
of many different layers of rock, most of which are oil bearing.
That allows oil and gas companies the opportunity to drill
into multiple formations on the same acreage if they hold the
mineral rights. For example companies are targeting a 3,000-foot
to 5,000-foot column of rock that contains many layers of oil
and natural gas. That means small leases can bring big payoffs
but also have higher associated costs.
"You can have what may seem like a smaller acreage position
in the Permian," said Jeff Sheets, the Chief Financial Officer
of ConocoPhillips. "But just because there are lots of
different opportunities within that same acreage position it can
make a pretty interesting prospect for you."
Companies in other shale formations, like the Eagle Ford of
Texas, are also pouring over ways to speed up drilling
operations that can cost $100,000 a day.
Norway's Statoil has borrowed "lean production" techniques
from Japan to whittle away at the time it takes to drill a well
in the Eagle Ford. A couple years ago it took 60 days. Now it is
"The perfect well initiative is based on an old Japanese
manufacturing process," of reducing the number of steps needed
to complete a critical task, said Kevin O'Donnell, who oversees
U.S. onshore drilling for Statoil. "Our line of sight is some
day to get to 17 days. That's the carrot we are chasing."