Earlier this week we came across an interesting article on OilPro written by Tony Scott at BTU Analytics entitled 'The Limits of High Grading'.
Tony explains that producers are promising investors gains in efficiency through high grading to compensate for planned cuts to capital budgets. High grading means "they are going to focus on drilling their most productive and profitable acreage, thereby boosting their production numbers while at the same time reducing the number of new wells and expenditures."
Tony goes on to make clever use of historical well production data and BTU Analytics economic models to show that the impact of high grading is largely dependent on the quality of acerage owned by the producer, and that while this may be a lever available to certain producers, it is by no means the 'silver bullet' solution that some have indicated it to be.
This analysis continues to reinforce Cost Insight's point of view that while many E&P companies continue to seek a silver bullet approach to driving costs down and boosting operational efficiency, those who will ultimately be most successful must think beyond the traditional 'easy answers'. They must focus on the 70+% of their spend that resides with suppliers, and they must make intelligent use of spend and market data to drive down these costs and eliminate waste.
For more specifics on where to begin, check out the first piece in our Smart Savings Series.
To see Tony's full analysis on OilPro, click here.