Feedback From A Reader On Recent Posts

I can't recall if I replied to the reader who sent me a very, very long note regarding a recent post. He brought up a lot of great points which I will summarize here:

Bakken completions: You have fairly recently said Hess has realized significant improvement in their recoveries over the last 8 - 10 months, or whatever time period, and I believe you have indicated Continental needs to improve their completions.  At Continental's Q3 2013 earnings call, the one where Harold Hamm laid out his "ears pinned back" program, I am sure you know they acknowledged this need and indicated they have already begun trying new approaches, and will employ and measure varying completion techniques in 20% of their 2014 wells.

Global competition for resources to develop oil fields: a recent WSJ article which noted the concerns big oil companies expressed at an IHS conference regarding the high costs of their global projects -- $5 billion plus. Germaine to your piece was a comment that these 35 or so large companies are "competing for the same service contractors, engineers and equipment...."

Cost inflation: On another note the WSJ article indicated one place where cost inflation wasn't at the forefront of discussions was the U.S. shale energy development.  In line with the conclusion of one of your recent posts, an adviser to Halliburton's CEO said "the industry has successfully driven down costs in the U.S.  Now it needs to 'make better wells' that produce more oil and gas."

Better completions: The greatest contributor to future Bakken production is improved recovery, and I believe it will happen.  My understanding is that service companies lead the way with their technology R&D in this area, and that among them Schlumberger makes the largest R&D commitment.  This will be interesting to watch.

Triple-A Supply Chains:

Of course, other aspects E&P's should bear in mind in their quest for production growth are Hau Lee's observations in his "The Triple-A Supply Chain".  In studies from the inside of more than 60 leading companies he observes, "All those companies and initiatives persistently aimed at greater speed and cost-effectiveness -- the popular grails of supply chain management."

He states, "... companies whose supply chains became more efficient and cost-effective didn't gain a sustainable advantage over their rivals.  In fact, the performance of those supply chains steadily deteriorated."

Lee says, "Only supply chains that are agile, adaptable, and aligned provide companies with sustainable competitive advantage....  Most companies continue to focus on the speed and costs of their supply chains without realizing that they pay a big price for disregarding agility, adaptability and alignment."

Finally: The adviser to Halliburton's CEO is correct; efficiency and cost-effectiveness alone will not drive greater Bakken production -- in this case improved recovery is essential.

That was from the reader. I enjoy the feedback. (The fact that there were no spelling errors or grammatical errors was remarkable for such a long, long reply. I can only assume the reader was a) not using an iPhone to write the comments; and, b) graduated from the North Dakota or Iowa public school system. And had a very, very strict 5th grade teacher.) I apologize if I did not reply with a "thank you" to the e-mail. I believe this note maintain anonymity but if the reader wants it removed, I will remove it. [A very smart reader noted I was wrong -- there may be one spelling error; "germaine" is considered obsolete. "Germane" is the appropriate word.]