In this episode of The Drill Down, Marty Stetzer sits down with John Farina.
John Farina is a true upstream oil and gas expert with almost 50 years of experience.
His experience with oil majors, independents and as a consultant gives him a well rounded view of the industry and how current trends are affecting each segment differently.
John is an amazing instructor and an influential part of the SPE New Hire Orientation.
We hope you enjoy this episode, be sure to drop any questions or comments in the comment section below.
Listen to The Drill Down with Marty Stetzer below:
SPE New Hire Orientation (Previous)
Hi everyone and welcome to The Drill Down with Marty Stetzer. This oil and gas podcast is part of our EKTI oil and gas learning network and brought to you by Oil 101, our free introduction to oil and gas.
Today I’ll be speaking with John Farina, a long time friend and industry veteran. This is our first podcast with John, an upstream oil and gas expert. We are really happy to have his help in focusing on this very important part of the business. John, welcome.
Thanks, Marty. It’s really good to be here.
John, can you give our listeners your background?
Well Marty, I started in the industry about forty-eight years ago when I first came out of college with a bachelor of science and petroleum engineering. I went to work for Shell Oil Company. Worked there about eight years. After about eight years, I realized I was learning a great deal about evaluating and designing drilling programs for oil and gas wells, but I didn’t really understand the overview or the microeconomics on how oil companies made money, so I started looking around to learn more about the economic side to the business.
Got an opportunity to go to work as a production manager for Schneider and Meckle Associates. That was a small oil and gas exploration company that had two exploration geologists as the owners, a well log analyst, a land man, and me. As the only engineer, I got to be the production manager.
It was a wonderful learning opportunity. I worked for them for about six or seven years. As the production manager in a small company like this, I got a chance to see exploration at the root, how it got started. How the geologists decided where to drill.
Got an opportunity to supervise the drilling and evaluation of the wells. Also, design the completion programs for the wells and tied the wells into the pipeline and started selling gas in the pipeline, so I got a really good view of how exploration companies make money. That was a very good learning experience for me. After about six or seven years I left Schneider and Meckle Associates and become a consultant and I’ve been consulting since bout 1986.
I think the only thing about my consulting that I’d like to share with you is that, from my standpoint, I spend about twenty percent to twenty-five percent of my time doing seminars. Technical seminars or overview seminars for the industry.
I spend the remaining seventy-five percent as an active consultant, so that the training that I do I feel is more informed because I’m consulting actively today, not talking about what I did ten or fifteen years ago. I think it can be very helpful in my training, and the training helps me in my consulting.
John, thanks very much for being part of EKTI. We originally met through the Society of Petroleum Engineers New Hire orientation, I think in 2007. Can you tell our listeners who are interested in the industry, what they can get from attending the upcoming session on May 17th in Houston?
The oil patch orientation, Marty, is for those people who want to get a quick overview of the upstream portion of the industry. As you’re aware of, the oil and gas industry is separated into the upstream, midstream, and downstream. The downstream is refining and processing. Midstream is transportation and pipelines. The upstream is for those companies that are involved in exploring for, drilling, and producing oil and gas. Our seminar on May the 17th is involved strictly in the upstream part of the business for exploration and production. For people who are not familiar with that, this is a high level overview of the oil and gas industry where we can talk about everything from why we are drilling the well, a little bit of the geology behind it. Then, how will we go about drilling wells, evaluating them, stimulating them, even going into the facilities involved in handling the fluids that are produced and how it’s done offshore. It’s a real quick overview of the oil and gas industry.
I have participated with John in probably seven or eight sessions since 2007. My role is to usually add the industry perspective. Everybody always keeps asking me my forecast to crude price at the end of those sessions, but I guess I’m just going to have to wait and figure out what that is. If I could forecast crude price I’d be doing something else besides teaching at the SPE seminars. John, you bring an interesting perspective to your training and your consulting because you’ve worked for big oil companies like Shell and also independents, like the company that you described.
Is there any way that you could kind of characterize some of the challenges that the independents are facing right now with the collapse in crude price?
I think, Marty, for a lot of the independents, the shale offered an extremely unusual opportunity on onshore. A lot of the smaller companies took advantage of that, and they jumped in both feet into the shale and started a contest of how quickly they could lease up control as much lease operations or leases as they could.
As they began drilling the wells, one of the characteristics of these unconventional tight shale reservoirs is that the wells come on in extremely high rate, but they drop off very, very rapidly.
The problem with that is that quite often you’re faced with drilling the next well, making a capital expenditure before you’ve entirely paid out the previous well.
As a result, a lot of the independents were forced to borrow a lot of money to continue the operations and maintain their position. When oil prices dropped rapidly as suddenly as they did, unfortunately, that left these loans at risk. It’s put a lot of these smaller independent companies at risk financially because of their debt.
John, thanks very much for that.
You can start to see our listeners would be very interested in some of the technology developments that are helping both the independents and the majors, but on the training side, you told me you did a really interesting seminar recently that I think our listeners would find of interest.
Marty, yes. Brian Muso and I did a couple hour seminar for the Houston division of order analysts on April 20th.
The title of my little talk was The Keys to Unlocking a Shale Bonanza: Horizontal Drilling and Fracking. The hottest thing in the industry over the last ten years has been this shale.
It’s been a fascinating opportunity for me. In my forty-eight years in the industry, this has been the most interesting time that I’ve had in my whole career, to watch this shale bonanza develop.
That the combination of technology influencing and driving that development has been fascinating for me to watch. With the shales, we’ve known about those for forty years. The fact that this is new to the industry is not really new to old timers who have been around awhile. We’d always new there were hydrocarbons in those shales.
The problem is, we had no way to figure out, or we had not figured out how to develop them economically. We’ve taken some technologies and a lot of the media calls it new technology.
It’s not really new.
The horizontal drilling we’ve been doing since the middle seventies. Hydraulic fracture treating since the late forties, early fifties, so these are really two old technologies.
What’s new that developed and became the keys to unlocking these noncommercial shell plays was the fact that we combined those two technologies in a new way.
We drilled the horizontal wells, which allowed us now to do multi stage fracking. As many as ten to thirty stages in these horizontal wells that allowed us now to contact enough of the oil and gas charged reservoir connected to the well bore through these fracture treatments to now be able to produce the hydrocarbons out of these shales at economic rates and recover enough hydrocarbons to make it profitable at $100 oil.
At $40 oil, this becomes more questionable and that’s the dilemma we’re in now.
Some of the shale plays I’ve read, John, are profitable at forty, like the Permian Basin, but others have just not been profitable, so this is one of the reasons the rig count has just collapsed as the crude price is coming down, is that correct?
Yeah that’s right, Marty. The big problem with the shale plays are these multi-stage frack jobs that I mentioned. The frack stages are very expensive. When you do ten to twenty of those, that drives the well costs up significantly. We still can make some of them profit with forty dollars.
The key there is that they’re shallow enough that the well costs are not extremely high. With the improved technology, as we learn more and more about how to drill and fracture these wells, that’s helped a lot too because we’ve been able to bring down the costs by reducing the time required to drill the wells.
Then, the third thing is the cost benefits or the discounts that we’re getting from the service companies have now allowed us to drill the wells and stimulate them probably for fifty to, forty to fifty percent less than we were doing this four or five years ago, which now has made it economic at the lower oil prices.
A lot of our listeners have seen the devastation that’s had an impact on the oil field service and supply companies with massive reductions in staff at the Schlumberger’s, the Halliburton’s, the Baker Hughes’, but actually that drop in prices has been good news for the operators and their ability to try to stay alive until the crude price comes back.
The drop of the oil prices has not been good news, but certainly the discounts that we’re getting from the service companies have allowed us to stay in business. Although, as you’ve said, it’s been devastating for the service companies.
John, thank you very much.
We’re really happy to have John Farina as an EKTI Associate. Watch for for John’s upcoming EKTI oil and gas podcast and YouTube videos presenting more detail on upstream technologies.