Journally Speaking: Innovation, ESG take back seat

June 5, 2023
We are not in an age of great Permian basin innovation. You can point to the digital revolution to argue the opposite, but digital technology mostly increases efficiency in existing operations or data processing.

We are not in an age of great Permian basin innovation. You can point to the digital revolution to argue the opposite, but digital technology mostly increases efficiency in existing operations or data processing. In the field, among real rather than virtual equipment, things are quiet. There are still healthy debates over limited entry perforating designs, refracturing versus infill drilling, production decline curves, saltwater disposal injection-induced seismicity, etc., but these are arguments over interpretation and implementation of long-established practices, not new applications.

One relatively recent innovation is electric fracturing (e-fracing), where pumps are driven by electric motors powered by the grid or onsite natural gas turbines rather than by reciprocating diesel engines. It offers low emissions (a checkmark for environmental, social, and corporate governance (ESG)) and, more interestingly, can run nearly autonomously with real-time fracture geometry adjustments based on downhole fiber optic or microseismic feedback.

Getting even a basic paper on e-fracing, however, had been like pulling teeth. And then came a lawsuit. In 2021, US Well Services filed against Halliburton over e-frac patent infringement, and other companies with e-frac fleets either got caught in the crossfire or ducked the shrapnel. All information and activity regarding e-fracing suddenly came to a halt.

The suit was resolved earlier this year in Halliburton’s favor, but e-frac spreads will not displace conventional frac spreads anytime soon. Rystad reported only 8% e-frac adoption across all frac fleets, and besides the lawsuit, e-frac demand has been tempered by high upfront costs and declining ESG importance to corporate governance as profits in oil and gas have made a comeback.

Frankly, the reason investment firms adopted ESG was because they could. Returns in fossil fuels were either nonexistent or negative, and they needed to attract a different type of investor with greener aspirations. Offending oil and gas operators and their attendant politicians cost nothing. But a recent report from The Hill claims oil and gas companies are teaming with Republicans to fight against “sustainable finance.”1

They hardly need to; oil and gas profits are back and with them has come a more casual attitude towards ESG. Shell, for example, invested $3.5 billion last year in renewable energy, but this year the renewable powers unit has been told by Steve Hill, executive vice-president of Shell Energy, to become profitable lest it face deep cuts.2 The division can’t look to the $40 billion Shell made overall in profits to fill gaps in renewable tech; that is for other investments, including “shareholder dividends and buybacks” according to Ingrid Button, Shell’s finance chief for renewables. Climate protestors at Shell’s recent annual shareholder meeting in London were enraged. Investors, not so much.

And yet geothermal is currently one of the hottest topics in the industry; talk about ESG! There are now geothermal sections in most oil and gas conferences. I first learned about “enhanced” geothermal—using multiple fractures to access hot reservoirs in tight granite—at a Society of Petroleum Engineers hydraulic fracturing technology conference. Since then, venues as diverse as CERAWeek and the Offshore Technology Conference have had multiple sessions on geothermal.

But oil and gas operators are showing little interest in investing in this long-term, high-risk application. Positive returns currently come from oil and gas. Going back to the Permian basin, this focus appears to be mostly on finding and using the most commoditized and lowest cost technology available. New applications, therefore, work to upload vast databases to the cloud and teach artificial intelligence what we already know. This is understandable from a business perspective, but it isn’t making oilfield technology much fun to cover anymore.

References

  1. Elbein, S., “Documents reveal how fossil fuel industry created, pushed anti-ESG campaign,” The Hill, May 18, 2023.
  2. Mathis, W., “Shell bosses demanding clean energy unit churn out big gains,” Houston Chronicle, May 23, 2023.