Efficiency gains in the oil patch could be short lived, consultants say

HOUSTON — If industry stakeholders see one silver lining in all the ruin of the oil bust, it’s that it’s getting cheaper for U.S. shale producers to get barrels of crude out of the ground.

But today’s efficiency gains, especially those driven by 20 to 30 percent discounts off the cost of oil field tools and services, could be short lived if drilling rigs ride high again after the end of the downturn, which will come sooner or later.

That’s because oil field service companies have been quick to lop off hundreds of thousands of jobs, but haven’t done enough to fix fundamental efficiency problems across their vast networks of branches across the United States, which have little internal cohesion, consultants say.

“There’s a lack of basic process discipline with a lot of these companies out in the field,” said Robert Sullivan, a consultant and managing director at AlixPartners in New York.

Mass layoffs are temping in hard times: they deliver measurable financial results, don’t take too long and calm shareholders. But when the bust ends, oil field service companies will need to rehire many of their workers to meet demand.

The workers will return and fundamental efficiency issues will not have gone anywhere, so costs will go back up again, consultants say. That means many of the efficiency gains oil producers are seeing today may be as cyclical as the industry itself.

That’s not true of all of the gains producers have made. Some new technologies and techniques in boosting well productivity will stick around after the oil crash, though analysts say those breakthroughs probably account for a third of the industry’s efficiency gains.

Read the full story at HoustonChronicle.com.