SAN JOSE, California November 16, 2011- Executives at Smith International must have been on to something when they purchased Neirfor-Weir Ltd., a small oil equipment maker with 2001 revenues of just $17 million. The company was a leading provider of turbodrilling equipment that enabled oil drillers to drill horizontally for up to 8,000 feet, a far cry from the industry’s horizontal drilling capabilities just a decade earlier.
Environmentalists were relatively upbeat about the technology. Though it still resulted in drilling for fossil fuels, it left a much smaller environmental footprint and required much less drilling mud, that toxic, gooey stuff containing lead and arsenic. For oil drillers, drilling longer horizontal wells meant a lower break-even on the cost to drill a horizontal well, which was up to 300 percent higher than a vertical one.
So everybody’s happy, right? Not even. A bumbling public relations program by the oil industry along with a gold-rush mentality has solidified environmental opposition to what the technological advancements in turbodrilling have enabled. It’s called hydraulic fraturing or “fracking” for short. In their quest to drill for oil in shale rock, drillers discovered they could profitably extract what they always knew existed there. It was natural gas and lots of it. As fracking has expanded, however, so have the environmental risks. Current efforts focus on using a lot of high pressure water and chemicals to strip away the guar gum and other ingredients found in the drilling mud, enabling the release and capture of natural gas. These chemicals, such as hydrochloric acid, have the potential to contaminate the water supply, hence the environmental concerns. In response, more oil drillers are turning to non-toxic food additives instead of chemical additives for use in their drilling mud. If the industry can alleviate these environmental concerns and make fracking a safer and an environmentally-friendly alternative to traditional drilling methods, natural gas has the potential to increase America’s energy independence and reduce its carbon footprint in the world. As for Smith International, it was acquired in 2010 by Schlumberger for 11.3 billion dollars at a healthy premium to its pre-announcement trading price.
About the author:
Bill Roeschlein is a financial commentator from San Jose, CA. He was formerly a Chief Financial Officer and financial vice-president for several public companies, including Power Integrations, Selectica and Ultra Clean Technologies. He earned a BA (honors) from UCLA and an MBA in Finance from Cornell University.
