Week 25: technology

"Schlumberger Technology Corp" is the listed name of my employer on my W-2. Technology? Some days it doesn't seem like there's much technology involved in what we do. Instead it seems decidedly low tech at times, but that's because all the research and design that has gone into the equipment and products isn't easily seen at the district level. That's especially true in the San Juan Basin which is a high volume, but relatively low tier area. The research is happening elsewhere, often not especially close to field districts, but instead close to population and education centers.

On any given day, there are a couple dozen drilling rigs and several times more workover rigs operating is the San Juan Basin. It's no Midland or Rock Springs, but several of the major operators are here and all the major service players like Schlumberger are in the basin along with a few independents. For us, it can seem like a grind it out feeling where jobs begin to feel the same after a while. That only stands to reason since most of the wells are going after the same target zones and are thus drilled and cased and completed the same way. Thus, once a program has been established that works, there is often little reason to deviate from it, especially for cementing operations. The goal of most cementing jobs is to do a good enough job such that the well can be completed. It is not to perform a perfect job. Thus, good enough drives down sophistication and ultimately pricing which is what has to drive any business in the end. That is very different than fracturing operations where the difference between passably and perfectly executed jobs can translate into significant production differences for a well. Thus, fracturing is more easily driven by technological advancements whether it is in equipment design or fluid systems or reservoir modeling.

Getting back to technology, it is a principal area where Schlumberger attempts to differentiate itself from its competitors. Technological advancements will be the only way to discover, reach, and produce new oil and gas finds. Research is expensive, but technological superiority opens new markets where pricing power can be very high, especially if you're the only game in town. In many areas Schlumberger has worked itself into positions of technological superiority, but it can only stay there with a continued focus on R&D. Innovation and reverse engineering from competitors will drive the commoditization of most technological advancement in any field.

The oil and gas industry is no different in that respect. Patents offer some protection from competitors that wish to copy ideas, but that protection is more limited than it may seem. As a result, lots of patents are applied for in the attempt to cover as much ground as possible. Very rarely is a product or process so innovative that a patent on it cannot be easily circumvented by some clever modifications from competitors. That or patent games get played. Say, not so hypothetically that Schlumberger holds certain patents for products that give it exclusive use of some ideas. (How delightfully vague.) However, a competitor has patents that build off of that patent for the base technology that prevents us from using certain developments based off of the original patent. The result, we can do what is in the original patent, but cannot use the developments. They cannot use either the original or the developments because of our holding on the original patent, but once that original patent expires, they can use everything and we cannot until their patent on the developments expires. Is it properly ridiculous and does it expose flaws in the patent process, but yet very serious? Yes. What can be done? Further R&D and hope that something else is around when our patent expires that will enable us to continue to be a technology leader. It's either that are transform into a lowest common denominator company eking out razor thin margins with low tech solutions in browning fields. And that just doesn't seem as exciting.