It isn’t often you get a baseball analogy –and a particularly prescient one – from a world-class geologist.
But Bob Fryklund, chief upstream strategist for S&P Global Energy in Texas, called on his more than 40 years in the business and did just that when asked about shale energy being at the crossroads – specifically, where it’s been, where it’s going, and, mostly, where is it now?
“Shale,” he said, “is in the seventh inning.”
In baseball parlance, such a time encompasses the part of the game that offers players and fans a break, as well as the point at which decisions are magnified, often resulting in victory or defeat.
A Mature Game, Not the End Game
Considering that global energy demand is surging, being driven by modernizing economies that have to overcome both energy poverty and the exponential, untamed appetite of artificial intelligence (data centers, for instance, and the massive amounts of energy needed to power them), it is an apt description of where the “game” of shale energy is these days.
On the AI front, specifically, Fryklund said, “It is a broad topic which has already been heavily adopted for operations and preventive maintenance and growing in its role for exploration.”
And we’re just at the beginning of that game.
“We look for it to begin to permeate many parts, from basic research to replacing the way companies approach building maps. Eventually, it will help out with basin selection and well placement and prediction,” he elaborated.
That, however, is in the future – one rapidly approaching – but a dynamic, he said, that shouldn’t cloud the more immediate problem: namely, that tight oil and shale gas are at the forefront of energy security, economic growth, and global progress.
That’s the landscape right in front of us.
Price, obviously, is a prime variable, as it’s always been.
But it’s not the entire story.
“Commodity price cycles certainly are part of the risk we need to manage our businesses, but if we take a step back, risks can be divided into controllable and uncontrollable ones,” said Fryklund.
Two Kinds of Risk
He said the controllable risks, which are much clearer for the industry to detect, include dynamics such as basin selection and prospect challenges. Such obstacles have always presented themselves and have always been addressed by the industry, sometimes successfully, sometimes not.
Fryklund is optimistic on that front. He’s been through this before.
“We have solutions we just need to execute,” he said.
It is the uncontrollable risks – those outside industry purview, those that deal with energy security, public policy, and government changes – that are the wild cards.
The notion of shale, its PR, he believes – considering the public-relations sinkhole it’s been in the last two decades – has improved, mostly out of necessity.
“I think the paradigm has shifted and regulators and the public in North America and in many countries have come to realize the huge benefits of shale. Additionally, we are seeing a resurgence overseas in shale development with active areas in Australia, North Africa, the Middle East, China and Azerbaijan,” Fryklund said.
There is talk, as well, about reinstating hydraulic fracturing as an option in Colombia, Mexico and Indonesia.
The current war with Iran, however, is a different matter, a different uncontrollable risk – the mother of uncontrollable risks, actually.
“Upstream companies are used to surprises and have a playbook for dealing with them, but (the current war) is the biggest one in modern times,” said Fryklund.
Strategic Positioning
Fortunately, U.S. companies are in the best financial position ever, with low debt and strong cash flow and flexible capital expenditures.
“That said, most are not going to increase their capex until at least the end of the year. They don’t trust what they perceive as short-term market spikes. Overall, U.S. operators are reviewing their portfolios and checking their vulnerabilities to market disruptions,” he explained.
There are some exceptions. He mentioned a few private companies that are picking up some rigs to drill wells that were marginal below $70 dollars a barrel; nevertheless, he doesn’t anticipate a big surge of supply in the United States, but rather a modest 200,000 barrel-per-day increase this year.
“That is still better than our forecasted drop with $60-per-barrel prices,” he said.
At S&P Global, Fryklund focuses on helping companies prepare for such times. Even without the current conflict in Iran and residual public relations battles, figuring out the future of shale would be challenging enough.
According to the International Energy Agency’s “Electricity 2026” report, global power demand is set to grow by more than 3.5 percent per year on average over the rest of this decade, with electricity generation from renewables, natural gas and nuclear all needing to expand to keep pace. As for shale, which accounts for 75 percent of U.S. gas supplies, so it’s going to be – continuing with the baseball analogy – a player that will have to be dealt with regardless of the score, the other players, and the conditions of the field.
“Shale in North America is not done yet,” Fryklund noted.
One reason for that is because there are, he said, a lot of resources still in the ground. There are also, in many places, what he believes are decades of drill-site inventory.
“But companies will have to position themselves better in the market,” he said.
Unpacking all this will be among the topics of discussion at this year’s Unconventional Resources Technology Conference. Fryklund, along with Bob Brackett, managing director and senior research analyst for Alliance Bernstein, and Khaled Abdul Monem Al Kindi, senior vice president of drilling and wells services for Abu Dhabi National Oil Company, will host “Shale at the Crossroads: Technology, Strategy, and the Next Chapter for Unconventionals.”
Fryklund said he imagines the questions, as they should, will all revolve around the following: “What are the remaining opportunities and options for U.S. shale players?”
A simple question with hundreds of moving parts.
In the coming decades, he said, industry needs to constantly reevaluate its approach to the new world of energy, find and recruit the kind of geoscientists who can lead the path, and mostly “remind itself of the benefits of plain old thinking differently.”
The seventh inning is when your best managers start making their best moves.