Schlumberger is navigating through the current downturn by balancing its margin and market share, stated Patrick Schorn, President Operations, Schlumberger while speaking in the 5th Annual Ultimate Energy Conference, New York, held in December 2015. Excerpts from his presentation:

It is clear that the current downturn is driven by supply, due to high levels of marketed supply from Middle Eastern OPEC together with a dramatic increase in production from unconventional resources in North America. This combination has outstripped growth in demand and raised stocks to record levels, driving prices significantly lower and cutting industry investment to unsustainable levels that are already leading to flattening production. Once a second year of falling investment takes hold, we expect flattening production to become falling production as decline rates dominate.

There is however one major difference between the crash of 1986, and that of today. Thirty years ago, the rapid development of new sources of conventional oil production in the North Sea, Mexico and Alaska led to OPEC spare capacity of more than 10 million bbl/d. Today, spare capacity is about 3 million bbl/d as marketed supply reduces available spare capacity.

In spite of a very different crude oil supply mix with the world’s largest consumer now capable of meeting its needs to a much greater extent than at any time in the past 30 years, we believe that two consecutive years of reducing investment will lay the foundations for a faster recovery than some observers are suggesting. Service companies have typically assigned technical assets to individual operating locations whose activity levels can vary considerably. Asset utilization has varied as activity rises and falls, and projects accelerate and decelerate. This has often resulted in asset underutilization that is reflected in higher than necessary capital investment and in higher depreciation.

By increasing asset utilization, we can improve capital efficiency. As part of the transformation programme, we have reassigned equipment from locations to Areas to give flexibility to move equipment more easily to meet changing activity, and to idle equipment when necessary.

This translates to lower capital investment as a percentage of revenue without slowing delivery of new technologies into the marketplace. It takes time for such actions to show up in the numbers, but our 2015 estimates already point to lowering capex, with lower depreciation to follow.

Improving capital efficiency also permits us to manage idle assets centrally. This is the case for our pressure pumping fleet, which is tracked and idled accordingly to keep only the right number in the field to match activity. We have also expanded idle asset programmes to other business lines, including Drilling & Measurements, Coiled Tubing and Wireline.

As part of the transformation programme and the continued decline of market conditions, we have initiated a restructuring of our global manufacturing and distribution network. This will result in a charge in the fourth quarter. Additionally, we will be conducting an asset impairment test in the fourth quarter.

A second transformation initiative is reliability, where we are already halfway to our tenfold reduction goal. Approximately 25 per cent of our issues stem from product reliability. Here, we have reduced our non-productive time rate by 80 per cent, but the next challenge is to reduce process reliability.

Last year we focused on the importance of procedures to improve the consistency of our performance. This initiative uses standard work instructions, or checklists, to improve reliability regardless of operating environment. Within our Wireline product line we have already introduced standard instructions covering 135 distinct services.

Looking now at workforce productivity, we have already made considerable progress through multiskilling where field crews can perform services from multiple product lines in addition to making greater use of remote operations centers.

In Mexico, the combination of multiskilled crews and remote centers enabled well site supervisors to run directional drilling tools on location, allowing the directional drillers to move from the rig site to a remote command center where they can oversee multiple rigs simultaneously. Since the start of this initiative, more than 180 wells have been drilled in this way and rig crews have been reduced by an average of 35 per cent.

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