The oil industry continues to thrive, notwithstanding the global shift in energy sources.
Barry Biggs, Vice President of Onshore for Hess, expressed optimism about the future of North American shale and onshore production for the next two decades. He highlighted the ongoing exports from the Bakken formation in western North Dakota to Asian and European markets.
In an exclusive interview with Western Wire, Biggs discussed the promising prospects for oil fields like the Bakken, emphasizing the local investments, job creation, and contributions to the state’s revenue.
Additionally, he acknowledged the industry’s formidable challenges, including regulatory and investment obstacles, anticipated to persist until 2040.
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Growth and Optimism
Speaking at the DUG Rockies conference in Denver on Wednesday, Biggs provided a preview of his remarks, emphasizing the substantial surge in demand for various energy sources in the coming decades. He highlighted projections from the International Energy Agency, which anticipate a 25 percent increase in demand, even when factoring in improvements in energy efficiency.
“To put this energy demand growth in perspective, it will be like adding the equivalent of the total energy used in both North America and Latin America before 2040,” Biggs said.
To fulfill the anticipated growth in energy demand from both onshore and offshore investments, the International Energy Agency (IEA) estimates that an annual investment of around $580 billion, totaling more than $12 trillion, would be necessary.
Meeting that challenge in the face of a curtailment in investments since 2014 at almost 40 percent, Biggs said, begins with addressing key issues he argues will not only promote additional investments moving forward, but also delivering critical economic benefits in areas that see additional production to meet future demands.
“My key messages here are that really there is optimism, optimism from the standpoint of oil as a growth industry going forward, inclusive of a lot of changes in the energy mix. Oil is still a growth industry and the Bakken is a key basin to supply energy needs,” Biggs said.
“Adding the equivalent of a North America or Latin America is quite significant. Even with the decline of coal and the increase in natural gas and renewables, oil itself will still have about a 14 percent increase in demand over that time frame,” Biggs added. How the industry meets that demand, from shale basin plays to export capabilities, he said, would be the focus of his talk.
“What is going to be the response required to meet that demand?” Biggs asked.
According to his argument, the decrease in investment since 2014 has resulted in annual investments dropping to around the $400 billion mark. This falls significantly short of the targeted investment levels deemed essential by both the IEA and Biggs to meet the future energy demands.
Some offshore sectors have experienced declines in investment nearing 70 percent. Biggs provided an overview of the current status of investments in the upstream sector, laying the groundwork for addressing the substantial increase in energy demand.
“We see today a rough parity between offshore conventional, onshore conventional, and shale in terms of the investment that the upstream industry is pouring in at 30 to 40 percent each to get to the 100 percent number,” Biggs said.
“How are we going to meet that 14 percent oil demand moving forward? Hess’s hypothesis is it’s going to take both—the short-cycle shale work and it’s going to take long-cycle deepwater to meet that demand,” Biggs argued.
To that end Hess, he said, has positioned itself by shedding some assets in the Utica and Permian basins, while focusing on the Bakken formation and overseas in Guyana.
“It’s all about investing where the best rocks are,” Biggs said, both onshore and offshore.
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One Company’s Position
According to Biggs, for Hess, the key involves implementing “lean capabilities” and having the capacity to increase production from 130,000 barrels per day to potentially 200,000 bpd. This expansion would necessitate additional infrastructure by the year 2021.
“The Bakken is our crown jewel in the near term,” he added. An internal study commissioned by Hess’s board pointed to value delivery that Biggs said placed his operations in the top-tier of the basin, saw cost reductions and asset optimizations was adding value, called for additional technological investments, and put the company in a robust position regarding remaining inventory.
“To do that we have to have an infrastructure in place that can get the crude, natural gas, and liquids out of the basin,” Biggs continued. He pointed to projects like the recently completed Dakota Access Pipeline (DAPL) that allows the company to be well-positioned for near term expansion.
“If we dig into that, from a top-tier operator standpoint, we really think about safety, quality, and delivering in cost at Hess,” Biggs said, pointing to the company’s record on spill safety, uptime in the “digital oilfield,” a 60 percent reduction in development costs, and higher productivity overall.
“Using technology to continue to drive that development cost down,” Biggs said, like rig automation and the right completion design for the reservoir, “not a one-size-fits-all” approach, and machine learning, allows the company to take advantage of its Bakken plays.
Biggs remains optimistic due to substantial “running room” in upstream inventory.
This optimism is further fueled by the enhancement of gas compression and processing capacity in the midstream sector.
Additionally, the availability of export options, such as the Dakota Access Pipeline (DAPL) and other interstate pipelines, contributes to his positive outlook.
“So you take that growth in the gas gathering side, you add that with the export pieces like DAPL and interstate pipelines that are expanding, we really feel we’ve got the ability to get our product to market with a lot of optionality to the higher priced markets,” Biggs said.
“We’re very, very excited,” he added.
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Up For Change
And while an energy mix change is inevitable, that’s not a reason for the oil and gas industry to be less optimistic, he argued.
“It’s not a matter of one fuel source or the other, but rather all energy sources, including oil and natural gas, will be needed even as the world transitions to a lower intensity, lower-emissions future, he said.
The question is how do we ensure our that the necessary investments are made to meet the energy the world demands?
Creating an Attractive Investment Environment
In the oil and gas industry, the focus is on developing and investing in crucial resource plays, both offshore and onshore, throughout the entire business cycle.
Nevertheless, establishing a conducive environment for industry investment necessitates collaboration between governments, policymakers, and the industry.
It is crucial for these stakeholders to work together to comprehend the challenges and potential obstacles to investment.
“Probably the overriding message I would have for policy makers is to remind them of the importance of maintaining a long-term perspective because nothing in our sector happens overnight,” said Biggs.
“When our industry considers investment decisions of the scale I outlined earlier, we look beyond current market conditions to evaluate what energy supplies the world will need down the road. We do it this way because we know that sustained investment and innovation are critical to meeting the world’s future demands,” he added.
“As we make those decisions we ask governments and policy makers to develop transparent and simple regulatory frameworks that are cognizant of the long-term nature of developing energy supplies,” Biggs continued.
“This is not only in the interest of my industry but serves the interests of the communities where we operate, and in this regard there can be no better example of partnership than in North Dakota – where the industry and the state are delivering tremendous benefits to the local economy,” he said.
Private Investment Delivers State Benefits
Biggs argues that it may be overlooked by many, but it’s essential not to take for granted the direct benefits that the oil and gas industry can provide, even in a low-price environment.
“Just take a look at North Dakota, it’s eye-opening,” Biggs said.
Biggs referenced data from North Dakota State University, which estimated that since 2014, the oil and gas industry has generated $3.5 billion in oil and gas royalties and $2.9 billion in private mineral royalties.
The economic impact also includes around 56,000 jobs in both direct and secondary employment, constituting 14 percent of the state’s total workforce and 17 percent of jobs in the private sector.
Breaking it down, on a per rig basis, the industry creates $64 million in in-state expenditures and $1.47 million in tax revenues. On a per well basis, each contributes $1.8 million in gross business volume, $118,000 in tax revenues, and the generation of $148,000 in wages and salaries, as per the NDSU study.
“It is incredibly important for policy makers to recognize the benefits that come with the creation of a long-term attractive investment environment. And it is so important for us in industry not to take this for granted either and understand that our ability to promote prosperity is critical to maintaining our license to operate where we live and work,” he said.
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