Shell puts revamped shale arm for long-term future growth

Having turned round its North American shale business, Royal Dutch Shell is putting so-called unconventional energy at the heart of its long-term growth plans, and believes lessons from the revamp can be applied across the company.

Greg Guidry, head of the Anglo-Dutch group’s unconventionals business, told Reuters a drive to slash costs and streamline decision-making had put his division largely on a par with leading rivals in terms of productivity and efficiency. And now the rest of Shell could reap the benefits too.

“The executive committee charged us to be a catalyst for change within the broader Shell,” Guidry said in an interview.

He also said Shell planned to make small acquisitions near its existing North American shale areas, notably from producers struggling in the current industry downturn and hoped to launch an early production well this year in Argentina’s Vaca Muerta, considered the world’s No.2 shale resource after North America.

As recently as late last year, Shell Chief Executive Ben van Beurden was considering jettisoning the unconventionals business over concerns it would drag down group profitability after the group’s $54 billion (£36.7 billion) acquisition of BG Group in February.

Shell and rivals including Chevron and Exxon Mobil were late to the shale revolution at the end of the last decade and struggled to match the success of smaller independent producers that increased U.S. output by around 4 million barrels per day between 2008 and 2015.

Oil majors’ often cautious pace in complex, high-risk projects was ill-suited to the nimble needs of shale, which requires drilling hundreds of wells and injecting water at high pressure to break the rock that holds oil and gas..

In recent years, it has shed half of its North American unconventional assets for around $4 billion (2.73 billion pound) to focus on four areas in the United States and Canada.

It has cut its technical check-list for drilling shale wells from 20,000 requirements to less than 200 and given managers “end-to-end” control of the production process from well exploration through to well abandonment, Guidry said.

The division’s efficiency has risen by 50 percent over the past three years, production has grown by 35 percent and capital spending is down by 60 percent to around $2.0-$2.5 billion.

Today, Shell makes a profit from shale oil production in “sweet spots” in the Permian, where Shell has a joint venture with Anadarko , or Duvernay in Canada with crude prices of $40 a barrel, Guidry said. After dipping below $30 in January, Brent crude is currently trading around $48.

“In terms of execution, we are completely competitive and have aspirations to be leading,” Guidry said, adding the business could now compete with leading shale producers such as Pioneer Natural Resources and EOG Resources , though costs still could be reduced.

Advances in technology meant there was scope to increase oil recovery from shale rock from today’s 7-9 percent by another 1-3 percent over the coming years, Guidry added.

“That is billions of barrels. We absolutely can reach that,” the 55-year-old American said. And unlike multi-billion deepwater projects, shale can be turned on “with the drop of a hat,” Guidry said.