New conventions in shale gas exploration can lead to capital return

With government supporting shale gas exploration in the Karoo, shale gas companies are wary of the cost-sensitive impacts of the exploration, but they can employ new conventions for unconventional fracking to improve return on capital, says multinational professional service firm PwC oil and gas director Chris Bredenhann.

It is estimated that South Africa has shale gas resources of about 390-trillion cubic feet, which can result in up to 700 000 jobs being created, while it is estimated that 20-trillion cubic feet of shale gas can contribute R2.2-trillion to government resources.

Although shale gas exploration could further drive economic growth, challenges such as the cost of exploring shale gas, have led to a debate on whether exploration makes business sense for companies.

Bredenhann highlights that shale gas companies could work smarter to improve return on capital through the advancement of performance in exploration.

“Once a company has invested [in shale gas exploration] and implemented operational planning, it can focus on improving financial and operational performance. The ultimate goal is to increase return on capital employed. That goal is driven primarily by capital costs, the completion schedule and asset revenue,” he states.

PwC indicates that companies should implement key strategies for operational improvement – such as reducing the drag, optimising the play, investing in innovation, collaboration and partnerships – to ensure capital return.

‘Reducing the drag’ refers to companies’ employing management tools that will ensure that end-to-end processes of exploration are more efficient and less labour intensive. Companies have to evaluate what can be done by an individual in a project, as opposed to what can be done by the entire team working on a project.

“This creates a clear line of sight on the demand of work on the project, which will provide the company with information on how much capacity it will need to drive positive results on the project. By so doing, cycle times can be reduced by 30% to 40% and yearly cost reductions could be about 15% to 25%,” Bredenhann points out.

Optimising the play’ refers to improving delivery processes by applying new technologies, increased design standardisation and parallel process flows. It also refers to streamlining operations using lean principles to prioritise value-added work, outsourcing noncore operations and collaborating with strategic suppliers to develop equipment and services tailored to drive productivity improvement.

“A focus on lean principles will improve procurement and logistics processes, including the deeper integration of sourcing and supply chain and logistics teams into the business, and increased automation,” he indicates.

Bredenhann explains that 39% of oil and gas executives regard investing in innovation as a competitive necessity, while 69% believe that having a well-defined innovation process is important to establish an innovative culture. Innovation focus areas for shale gas companies include business models, operations and supply chain, horizontal drilling and three-dimensional seismic technology.

“Moreover, collaboration and partnerships are essential for operational success. If more oil and shale gas companies move away from short-term transactional relationships to long-term strategic relationships, these will deliver innovative products and services.”

Should shale gas companies use these strategies, it will a yield capital return for companies while ensuring that South Africa’s economic growth targets are reached, he says.

Bredenhann highlighted these key focus strategies during the Amabhubesi Shale Gas Conference, held in Randburg, Johannesburg, last month.

Edited by: Martin Zhuwakinyu

via New conventions in shale gas exploration can lead to capital return.