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The exploration and production industry innovates its way toward profitability

RFP
Future of Growth and EnergyA few thoughts on new trends in the E&P industry, by Kevin Schroeder, Energy National Managing Partner

Decades of experience with volatility have given U.S. producers the resilience to weather the blow of depressed oil prices during the past several years. As energy markets have achieved some stability at around $50 per barrel, the industry is trying to recover, while producers relentlessly work toward achieving more efficiency and reducing costs. In the recent, more favorable environment, the industry has been able to attract billions of dollars in new investment — most notably for shale oil plays in lower-cost areas such as the Permian. The oil majors are now important players, even though they avoided shale in the past.

The future, however, remains dependent on the ability of the industry to innovate, because it looks like oil prices will remain relatively low, in a continued environment of uncertainty. In the near-term, global supply and demand should continue to stay in balance; OPEC members and U.S. producers will continue to play major roles in determining this balance. In this scenario, producers that invest in applying big data and shale technologies to their operations will be better able to respond effectively as industry conditions change. Nevertheless, this increased reliance on data also means heightened vulnerabilities from cyberthreats that producers must factor into their future plans.

A friendlier political environment can only accelerate innovation. Declaring that it aims for U.S. energy dominance — as opposed to mere independence — the Trump administration seeks to lift bans on offshore production, reduce environmental regulation and encourage infrastructure development. In opposition, however, local anti-fracking forces will continue to work to limit shale oil extraction in their communities.

While expansion is clearly expected in the future, the industry does face palpable challenges as it seeks to maintain its workforce. Baby boomers are retiring, and the deep cuts in headcount during the depths of the downturn have made workers wary of committing to the industry. Part of the staffing solution will come in outsourcing traditional functions such as tax compliance. Operational efficiencies could also be achieved by consolidating field services like water handling, recycling and disposal.

Ultimately, however, the industry’s fortunes will continue to be determined by commodity prices. While individual producers can do little about oil prices, they will continue to use innovation to drive breakeven lower. They will also seek to collaborate with other industry participants when feasible to provide for the country’s future energy needs.

To see how the sector’s leaders are driving change at their companies, please view our report on the future of growth in the E&P industry, and sign up for our webcast.