Schlumberger: Patrick Schorn Speaks at Cowen & Company Energy & Natural Resources Conference
Ladies and gentlemen good morning. My thanks to Marc Bianchi and Cowen & Company for the opportunity to be here once again.
The dramatic downturn that we have seen during the last three years has meant that our industry has had to change. And while the pressure on service pricing has been severe, new technologies, integrated service offerings, and digital enablement have played an increasing part in lowering cost per barrel. The downturn has of course led to cost cutting, headcount reduction, and weaker financial performance, but it has also presented opportunities for transformation, reorganization, and new ways of working.
With signs of recovery now emerging as producers either work within available cash flow, or limit production more closely, I’m going to use my time today to show what this means for Schlumberger.
I have three topics to present before commenting on how we see the fourth quarter.
The first is technology, where I’ll show how transformation of our engineering and manufacturing processes has led to new generations of more reliable and more efficient field equipment to increase production and lower cost per barrel.
Second, I’ll discuss how scale and vertical integration are streamlining operational processes and workflows in the completions and production market to improve technical and financial performance.
And third, I’ll describe how technology systems are becoming increasingly digitally enabled to introduce new ways of working across E&P workflows to deliver a step change in behavior.
But before I begin with our view on the industry macro, let’s get the formalities out of the way.
Some of the statements I will be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. I therefore refer you to our latest 10-K filing and our other SEC filings.
When we look at the change in market fundamentals since the end of 2014, we see a number of things. Most importantly, global E&P capital spending has fallen from a high of about $700 billion in 2014 to less than $400 billion in 2016, driven by the precipitous fall in the price of oil. Brent, for example, has plummeted from $120 per barrel in 2013 to levels that demonstrated stability around $50 per barrel before rising above $60 level today. Upstream job losses have reached 440,000 or more, and the number of bankruptcies in the industry has topped 300. But in spite of this, production of crude oil and associated petroleum liquids has grown from 92 to 98 million barrels per day since 2013 showing little reflection of the dramatic drop in E&P investment.
But more importantly, the demand for oil continues to be strong with upward growth revisions in many areas, including the OECD. Growth in 2018 is expected to exceed 1.4 million barrels per day, supported by global GDP figures that clearly suggest that the demand for oil is solid. The 2018 IEA World Energy New Policies baseline scenario supports this view with forecasted annual demand of 105 million barrels of oil per day by 2040. An increasing percentage of this will have to come from new developments to replace production lost to decline.
One of the major factors driving the dramatic change of the past three years has been the rapid growth in production of light tight oil from unconventional reservoirs on land in the US. This has revolutionized supply, but signs of its limitations are beginning to emerge.