Clay Williams: Steeper decline curves and growing demand make this downturn different from the 1980s
By Kelli Ainsworth, Editorial Coordinator
A common refrain that is starting to echo through the industry in this downturn is that this feels like the deep and protracted industry downturn of the 1980s. “So far, this does look like the 1980s,” Clay Williams, Chairman, President and CEO of National Oilwell Varco, said during an address at the 2015 IADC Annual General Meeting in San Antonio, Texas, on 6 November. However, there are key differences, he noted. Among these differences are the steeper decline curves associated with today’s wells, lower OPEC spare capacity and greater energy demand. “Our view is that recovery is going to happen sooner rather than later. I’m not here to predict when, but I know it’s out there. Every week that goes by, we’re a week closer to it,” Mr Williams said.
The industry has made tremendous strides in developing challenging reservoirs, such as unconventionals and deepwater, he continued. “We have turned the US, which was widely regarded by me and everyone else as a sunset producer, into the world’s fastest-growing producer using fantastic technology, and doing it in a profitable way.”
However, these basins also have steeper decline curves than traditional formations. While base conventional wells have a 5-10% decline rate per year, deepwater wells decline approximately 20% in the first year, while production from an unconventional well can decline by 50-70% in the first year. “This requires more rigs and more wells to sustain production,” Mr Williams said. Even in the Middle East, where production has been relatively steady since the 1980s, rig and well counts are rising due to the need to do more work to maximize recovery from challenging reservoirs. “There’s three or four times more effort going into maintaining that production out of Saudi Arabia and other countries in the Middle East.”
Another difference between this downturn and the 1980s is that OPEC’s spare capacity is much lower. In 1985, OPEC held more than 10 million BPD off the market, which constituted about 18% of global oil consumption at the time, Mr Williams said. Today, OPEC has only 2 million BPD spare capacity. “We’re in a much better position today. There’s very little slack capacity out there across OPEC,” he said. “That’s a much smaller bridge to cross to get supply and demand back into balance.”
Demand is also a different story today than it was in the 1980s. Mr Williams noted that during the early 1980s, the shift toward more energy-efficient vehicles began, “and that led to a declining demand in the 1980s, down 8%, so at the time you had an oversupply in oil, you also had a falling demand as the result of conservation efforts,” he said. Additionally, the world entered a global recession around the same time, further weakening demand.
Looking at current worldwide population and growth trends, energy demand is expected to increase. Mr Williams pointed to an ExxonMobil report analyzing global growth through 2040. The study anticipates the world’s population growing from 7 billion to 9 billion over the next 25 years, which translates into 130% more economic activity. “That takes a lot of oil and gas to make happen,” he said.