Licence to drill

Play extensions, the application of horizontal drilling and strategic acquisitions marked a successful 2008 for Forest Oil. Cecil Colwell, Senior Vice President of Worldwide Drilling, gives an insight to operations in 2009 and reveals the increasing importance of technology at the company.

When Cecil Colwell joined Forest Oil in 1988 the company were predominantly an offshore company. Today it has morphed into more of a resource play on land and Colwell has seen the industry itself change from focussing on wildcat-type drilling, commonly referred to as an exploratory well, to more resource plays. "Where we're harvesting shells and tight gas with the latest completion techniques we are able to extract products that are commercial out of these tighter rocks. So we've seen a really big increase in activity and all the technologies that go with it, including horizontal drilling and fit-for-purpose rigs for example. So the movement has been to deeper and cheaper with more emphasis on the fracturing and the completion technology to get these products out of the rock."

Technology is undoubtedly an important aspect of drilling, exploration and production. So what technologies are key in transforming drilling operations at US-based Forest Oil? "What we have seen of course is the application of top drives as well as the pluses and minuses of directional drilling, we're now able to use horizontal wells and in a lot of the cases today we're able to drill some pretty long laterals. One of the downsides of directional drillers is that they can't keep their tools together - and even though we can send a man to the moon these computers fail at an alarming rate these days. I'm not sure if it's because they're getting old, if the fleet motors are getting some wear and in the downturn they're not building anymore, but we're certainly seeing a lot more down hole failure from the directional drillers and their motors. We definitely need to see some improvement here, particularly in regard to temperature limits - some of the formations in Haynesville and in deep Austin are requiring 350 degrees and the boards just aren't rated for that."

According to Colwell, there has also been a lot of interesting technology opening up on the rig side too, he believes that there has been a huge evolution on the technical side, particularly with regard to completion. While the same main components still exist (mask, floor, pit), the pits themselves have evolved and are now easier to clean, plus the pumps have changed and become bigger. "We've seen the mast change where they lay some of the newer rigs down the back and they don't need as much steel in them. If a person took a snapshot and looked at it 50 years ago, he'd say it's the same piece of iron, but once he starts diving into it, he'd see that it's not. And I guess the biggest technological change has been in the fracing from a production standpoint. Previously we had to move a rig to clean it out, to perforate the wire and then there was a big discrepancy amongst ourselves in the industry on what we needed to frac it with.

"And what we've seen is a genesis all the way back to where we started and that is slick water and perforating instead of a selective entry, but also more generous with the perforations. And we've really seen an explosion in slick water river fracs and we're carrying low concentrations but a lot of liquid. And we're getting fracs in these shells and the tight gas sands that are able to exploit these minerals and they're a lot more efficient and we're able to do them without moving a completion rig in there and without using wire line. We can just pump our tools down, use them selectively and with pump pressure able bring them on."

Hostile locations

Despite technology moving in leaps and bounds there undoubtedly still challenges in the drilling sector, particularly around unconventional oil deposits. Reserves can lie in some of the most remote and inhospitable places in the world, which can make work in these regions difficult for companies like Forest Oil. Conventional plays are more likely to pay out from the initial well, explains Colwell, whereas from a logistical standpoint initial wells in unconventional plays are pretty expensive and extremely unlikely to pay out. In fact, it may not be until the fifth or sixth well that the right techniques and infrastructure is used and money is made.

"Much of the time a lot of money is spent on the first couple of wells and then as we improve our drilling and completion techniques, then we're able to drop our prices," explains Colwell. "When you're not making money until as late as the sixth or seventh well, it really requires a lot of fortitude and a lot of insight into how the play is going to make money for the company. I think a big challenge for the unconventional plays is making it commercial as fast as we can. But of course, we are getting better at it."

However, even in the more remote places, the onus is on improving productivity and reducing costs, while at the same time meeting safety targets and environmental regulations. "Some of the environments we're in are certainly considered hostile and we ensure that we keep our footprint as low as possible, and that means that we use a fit-for-purpose rig that maybe has three or four men rather than a five or six man crew. We also try and keep our interaction with the locals on location to a minimum," explains Colwell. "And then of course from an environmental standpoint we'll usually have a safety environmental guide on location and able to handle accidents or pollution. We'll have that contained on site - not that we're trying to hide anything - to be as proactive and fast as we can without relying on other people who perhaps don't have the knowledge of what we're doing."

Economic impact

There is no doubt that the world economic crisis has had an impact on every industry and the oil and gas industry is no exception. Forest Oil was previously running 50 rigs and that number has since gone down to just 10. Colwell explains that with prices down it has been difficult to get the product price and therefore make a profit, which in turn has affected the number of rigs Forest is operating. "We're in this business to make money and if you can't make money you're going to curtail what you do," says Colwell who goes on to explain how the company work off a plowback. "If we make a certain amount of money, then we'll consider so much of it profit and the rest of it we'll plowback in to future development. And we try to run at 70 percent plowback, so whatever our revenue is, we'll take 70 percent of it and use it for other drilling, exploration and completion projects."

Will Forest go back to working on 50 rigs at a time again? Well, Colwell foresees Forest doubling current rig work to around 18 to 20, but is unsure that the company will reach the 40 to 50 range unless product prices improve again. "We have a lot of places that we could drill and they all held by production so they're not going anyway, so when prices improve we'll probably try to run after those. The issue with tights gas and shells is that you get a flush production out of them, which means a hyperbolic curve is seen on production levels. The flush production is usually what pays for your adventure into that - it pays for the drilling, the completion and the hook up and after that you see the profits, but it makes it really hard to get your revenue stream back out. So we're not eager to give our gas away so it's staying put, under our leases, and we're going to hold for better product prices."

Looking to the future, Colwell explains that although he is yet to see a finalized budget, the company will be continuing doing more of the same. "We're in the Panhandle, Haynesville and South Texas and I think we'll be doing more straight holes as well as using horizontal development for more conventional plays. We have a lot of holdings in West Texas that we want to get back into. Our focus is on anything oily right now, it's got a leg up on anything that's considered more gassy."

The personnel challenge

Technology is not the only challenge facing the industry according to Colwell. He believes that there are several issues around personnel. "It's very transient right now - people in, people out. I've been doing this for 30 years now and you'd think we remember but we don't, and every time we bring in new people, it seems like we have to go through a new learning curve. At Forest we're trying to do some things to avoid that - everybody in the industry is.

"Lessons have been learned and we now think we have a leg up on some people in terms of personnel, although they probably say the same about us. This is a people business and always has been. I can't say it always will be, but as long as we have people in the field we are dependent on them."