For art, I recommend Blowout Texas Oil Boom dated October 11 2018 on Merlin


Pumping units operate northeast of Kermit in this 2018 file photo.

A new transformation appears to be underway in the nation’s energy industry.

“There’s something happening right now I think is a really big deal,” said Chuck Yates, former managing partner at Kayne Anderson during the weekly Oilfield Strong webinar presented by OTA Compression, OTA Environmental, Kimark and the Permian Basin Petroleum Association.

“We are transitioning from the age of the driller, where we were providing marginal barrels of oil to the world from U.S. shale and, boom, COVID-19 took 15 million barrels offline. I don’t know if oil demand is growing right now (but) it will be gross domestic product-driven given the fact OPEC can turn on 10 million barrels tomorrow of they want. Even if we grow oil demand 1 (million) to 1.5 million barrels a day going forward, there’s a lot of time (when) we don’t need to supply more oil. We’re transitioning to a world where the U.S. will produce oil and literally the most important person in each oil and gas company will be the production engineer.”

In an era of waning production, Yates said pennies will matter and oil companies will become low margin. And while he said he hated to say it, that means eliminating jobs and turning to automation.

“If you look at the history of our industry, whenever we spend money on technology, we do it better than anyone on the planet. Drill a three-mile horizontal well with a 98-stage frac, I’d put that technology up against anything in Silicon Valley. That’s high-tech. At the same time, we’re still keeping books in general ledgers with pencil and paper, we’re still sending a pumper to the storage tank to stick a broom handle down the tank and measure the oil. There’s no ability to look well-by-well and understand the true cost. All that will be dealt with and that, I think, will be the transformation we’ll see,” he said.

“Every penny matters. Companies will use artificial intelligence to monitor pump speeds — have a production engineer in Houston or Tulsa follow it on the computer. That’s the future. You have to do that sort of stuff if you want to be profitable as an industry. At the end of the day, that’s the only access to capital.”

The industry has not done a good job of tallying statistics and getting data in front of the public in terms of its performance on the environment, social and governance, Yates said. One example was companies initially keeping secret the ingredients in their frac fluids when the ingredients were really just sand, water, the same chemicals found in Diet Coke and guar, the same thickener found in ice cream.

The future of private equity is the same as when it began, Yates said. Private equity firms seeking investors for their oil and gas ventures now have to compete with every other asset class out there rather than just with other private funds.

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