SLB announced its plan to acquire ChampionX in April last year. A key driver for this deal was ChampionX’s artificial lift technologies (along with its production chemicals business), which will help SLB better position itself to serve growing production optimization needs from declining oil and gas assets globally. This will be especially critical in the U.S. as top-tier acreage in basins such as the Permian becomes scarce, making artificial lift essential for sustained production and profitability.
Why is artificial lift important?
Oil and gas production from a well early in its life (“primary production”) relies on the pressure differential between the surface and subsurface, which naturally lifts hydrocarbons to the surface through wells. Over time, as oil and gas are produced, the reservoir is gradually depleted, causing a reduction in subsurface pressure. Sometimes, a natural aquifer or an underground body of water helps maintain subsurface pressure and supports continued production. However, this can eventually lead to unwanted water production before the pressure ultimately drops, leaving behind millions of dollars’ worth of hydrocarbons trapped underground. This is precisely when artificial lift becomes essential.
Artificial lift services are crucial for several key reasons including maximizing hydrocarbon recovery, optimizing production rates, improving cost efficiency, reducing downtime, extending well life, and enabling production from challenging reservoirs. Artificial lift adoption has grown rapidly in the U.S. due to declining resource quality, slowing reliance on new well drilling, and growing emphasis on production from existing wells, operational excellence, and cost optimization. Today many shale operators are finding that their new wells have primary production that starts petering out in fewer than 12 month. So operators are sufficiently incentivized to deploy artificial lift systems without waiting to first operate wells based on its natural formation pressures.
What is artificial lift?
Artificial lift employs mechanical means to enhance the flow of hydrocarbons once natural pressure depletes. It provides an extra “push” or “pull” to overcome the hydrostatic pressure of the fluid column in the wellbore, bringing hydrocarbons to the surface. The vast majority of oil & gas wells globally will require some form of artificial lift at some point in their operational life.
There are various types of artificial lift with preference for a particular technology depending on well conditions, fluid properties, and production goals. These include:
- Sucker rod pumps (SRPs): These pumps use a reciprocating motion to drive a string of rods down to a pump at the bottom of the well, lifting fluids to the surface. SRPs are relatively low-cost, easy to maintain, and widely used for onshore wells with moderate depths and lower production rates.
- Gas lift: This method involves injecting high-pressure gas into the wellbore. The gas mixes with the produced fluids, lightening the fluid column, reducing hydrostatic pressure, and allowing hydrocarbons to flow more easily to the surface. Gas lift is often used in wells with high gas-to-oil ratios (GORs) or offshore where a gas supply is readily available. According to ADI’s prior work for an oilfield services company, anywhere from 40% to 60% of new wells drilled in the Permian were being outfitted with gas lift equipment in the Permian.
- Electric submersible pumps (ESPs): These pumps consist of a multi-stage centrifugal pump powered by an electric motor, both installed downhole. ESPs are ideal for high-volume wells and deep applications, capable of handling large fluid rates. Historically, they are considered not ideal for wells with high GORs.
As ADI has reported in the past, the adoption of EPS has grown exponentially in the recent past and ESPs accounted for nearly half of all wells opting for artificial lift in the Permian. Digging deeper into the drivers for growing ESP adoption in the U.S., operators mention three key factors such as increased well deliverability and reduced upfront costs of artificial lift, well-defined standard operating procedures (SOP) that include artificial lift installation right off the bat, and growing product innovation. Exhibit 1 below summarizes their drivers.
Exhibit 1. Key drivers for growing ESP adoption based on ADI’s primary research
- Other artificial lift methods include progressing cavity pumps (PCPs) for viscous fluids and heavy oils, hydraulic pumps suitable for various depths and production rates (including wells with high GOR), and plunger lift, primarily used in gas wells.
Strategic implications
The oil & gas industry is undergoing a structural shift where slowing demand growth and increasing supply are driving down capital and operational spending throughout the value chain. Given these dynamics, artificial lift services will continue to play a vital role with the following strategic implications for upstream oil & gas:
- Prioritization of existing assets and artificial lift: With a slowdown in new drilling activity due to the structural shift we discuss above, operators are increasingly prioritizing squeezing more value out of their existing wells. This means artificial lift technologies and services will become even more critical for maximizing hydrocarbon recovery, optimizing production rates, and extending the life of mature fields. We anticipate a larger share of capital spending being allocated to artificial lift solutions, a trend we at ADI Analytics have observed in our market sizing studies for various OFSE clients.
- Focus on production optimization and efficiency: The emphasis on operational excellence and cost optimization will intensify. OFSEs and artificial lift vendors will need to continue innovating to differentiate themselves through improved reliability, efficiency, and real-time monitoring capabilities. This includes developing advanced tools for cable protection and sand control, and integrating smart sensors and AI for remote surveillance and predictive maintenance to minimize downtime and enhance overall well performance. Our work with clients often involves assessing these technological advancements and their market impact.
- Demand for tailored retrofit solutions: Oil & gas producers are actively investing in artificial lift retrofits and enhancements, such as ESP upgrades and gas lift expansions, to optimize output from aging wells and manage increasing water and gas production. This trend, as seen from ONGC’s recent upgrades in India, creates a strong demand for tailored lift solutions and integrated service offerings. OFSEs that offer greater technical support and form long-standing partnerships with operators will be better positioned for success, a factor we emphasize in our competitive benchmarking and partnership assessments.
- Consolidation and digital transformation: The evolving landscape will likely drive further consolidation within the oilfield services sector as companies seek economies of scale and broader service portfolios. Additionally, the industry’s digital transformation will accelerate, with a greater adoption of data analytics, automation, and remote operations across all service segments to improve decision-making and operational efficiency. ADI Analytics has advised private equity firms on M&A due diligence in this space, recognizing these consolidation drivers.
Collectively, we at ADI Analytics believe the oilfield services sector is at a crucial inflection point given these evolving dynamics. This is why we are actively exploring and writing about these important trends. Our recent blog on wireline services delves into another critical service area, and you can expect more insights on related topics in the coming months. Contact us to learn more about how we can support your business objectives.
– Panuswee Dwivedi
About ADI Analytics
ADI is a prestigious, boutique consulting firm specializing in oil and gas, energy, and chemicals since 2009. We bring deep expertise in a broad range of markets where we support Fortune 500, mid-sized and early-stage companies, and investors with consulting services, research reports, and data and analytics, with the goal of delivering actionable outcomes to help our clients achieve tangible results.
We also host the ADI Forum that brings c-suite executives together for meaningful dialogue and strategic insights across the oil & gas, energy transition, and chemicals value chains. Learn more about the ADI Forum.
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