Recommendation 4

Process 4: Vertical Integration of Services

Vertical integration of services is obviously not applicable in every circumstance for every producer whether they be small cap or large. As discussed in the report it is a significant strategy that takes a huge concerted effort and long term planning to gain overall success operationally as well as economically. It is recommended that an application of integrated services that can encompass aspects of vertical integration be examined when companies are looking for long term exploration and development projects. Certainly the scale and duration of operations will dictate as to whether vertical integration makes economic sense. A critical variable of the vertical integration models is the sensitivity of material supply to transport and delivery disruption. Vertical

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60 Technical Study for Productivity Alberta

integration between producers and their suppliers can be achieved by partnering with peers in industry where each has established ability and resources for the drilling and completion process. Drilling contractors may own construction companies; others have maintenance, repair and overhaul (MRO) capabilities which can include materials management. The process itself may become complex when dealing with wholly owned but independently operated entities, but from the case study of Southwestern Energy in Arkansas, the assurance of equipment and materials was of more importance than perhaps the intercompany dynamics. If companies are looking for large scale operations, the process of vertical integration should be considered as part of the overall analysis of optimization of productivity and economic return on investment.

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Improved Productivity in the Development 61

of Unconventional Gas

9.0. Conclusions

As companies look to improve the productivity of any oil and gas operation, particularly when multiple wells and facilities are planned, the processes described in this report should be considered as an integral part of the project plan. Alberta will continue to face challenges relating to competitive gas pricing in the North American market and in order for the industry to achieve some level of sustainability, continued improvements in productivity are needed. Productivity improvements can come in the form of wellbore production, hydrocarbon recovery and lowered operational costs.

Difficult times in regards to all time low natural gas prices, a land locked basin with resources not easily connected to main delivery systems calls for decisions difficult to conceive and possibly even more difficult to attain.

Alberta's resources are abundant and can be produced and delivered efficiently through improved productivity. Productivity initiatives that go beyond the status quo, ones that embrace out of the box thinking through new and unique collaborative agreements between producers, service and supply providers, provincial and local governments will ultimately bode well for the exploration and production sector in part because improved productivity in tight economic times by rights should equate to even better margins when natural gas prices return to rates provide an improved return on investment.

The results of this study have been disseminated to industry through a seminar/ workshop. Information submitted by industry participants will be analyzed and summarized into a brief addendum to the report. Information to be reviewed will address industry thoughts and ideas about the recommendations as well as challenges that implementation of the recommendations may arise. The completed addendum will be posted to the websites of the supporting organizations for this study.

May 2012

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