SLB Schlumberger Ltd

With energy producers expected to spend a record amount of money this year looking for and extracting oil and natural gas, oil-field-service companies are being stretched thin.

Heightened demand, along with a desire to lower costs and lift profit margins, have companies including Halliburton Co. (HAL) and Schlumberger Ltd. (SLB) racing to become more efficient.

Weatherford International Ltd. (WFT), for example, is introducing rubber and metal packing materials to replace traditional cement well casings, which cause delays as crews wait for them to cure. Halliburton, meanwhile, is tipping sand-filled tractor trailers on end to save space at well sites and to allow gravity, rather than diesel engines, to empty them of the material used to prop open shale fractures.

"This is the time to invest in cutting our costs," Halliburton Chief Financial Officer Mark McCollum told investors during a recent conference. The efforts are focused particularly on reducing the time and money needed to unlock unconventional fuel reservoirs through horizontal drilling and hydraulic fracturing, or fracking. These recently developed techniques require a lot of manpower and resources, and they play an increasing role in supplying the world's energy needs.

What are known as the Big Four oil-field-services companies--Halliburton, Schlumberger, Baker Hughes Inc. (BHI) and Weatherford--have boosted their capital spending by 40% to keep pace with producers and to develop resource-saving technology, said James West, an analyst with Barclays Capital.

Still, West said, spare oil-field-service capacity "will mostly be erased by the end of this year," as exploration and production spending tops $500 billion.

Oil and natural-gas producers are already feeling the strain. In some cases, they are waiting months between initial drilling into shale formations and the arrival of hydraulic-fracturing equipment needed to complete wells and start production. This has placed a premium on how quickly service providers can perform fracking services.

Schlumberger, for instance, touts new automated fracturing technology that allows it to perform several tasks deep inside wells with one tool instead of the several it used to take. By not having to snake separate tools in and out of the miles-long well bores, Schlumberger is able to complete fracking jobs that once took 20 hours in half that time.

"We can save a full day of the [fracking] crew on the location just because we can do things faster than they've been done before," said Valerie Jochen, technical director for Schlumberger's Unconventional Resources unit.

Weatherford is investing heavily in technology to study shale formations before drilling begins so that only the most productive areas are fractured, said Nicholas Gee, who heads the company's reservoir and formation evaluation unit.

"Up to now, people have just generally drilled a well and then fracked everything," Gee said.

Halliburton late last year launched an initiative to reduce well-site personnel by 35% and to trim well-completion time by 25% by 2013, measures aimed at cutting costs.

Some of the Houston company's efforts have involved developing new technology, such as portable ultraviolet-light units designed to eliminate pipe-corroding bacteria from fracking fluids. That eliminates the need to using hundreds of thousands of gallons of bacteria-killing chemicals. Other efforts have involved simply rethinking the relatively mundane, such as turning the sand-filled tractors on end, said David Adams, who heads Halliburton's production-enhancement division.

"It's funny, but it was a novel concept," Adams said.

Delivering faster, more efficient fracturing not only helps Halliburton meet surging demand for such services now but it ensures that "we can still maintain margins as we go through downturns," Adams said.

So far, Halliburton has been able to pass along to its customers the cost increases that come when demand outstrips supply, he said. But producers will probably be less accepting of price increases if oil prices fall.

Producers can make money if oil drops as low as $60 a barrel, but oil at $80 a barrel would affect cash flows enough that many producers might reduce drilling, said Dahlman Rose & Co. analyst James Crandell.

Oil has slid more than 20% from the $114-per-barrel highs seen in April. On Monday, light, sweet crude oil for August delivery recently traded 34 cents lower at $90.82 per barrel on the New York Mercantile Exchange.

-By Ryan Dezember, Dow Jones Newswires; 713-547-9208; ryan.dezember@dowjones.com

--Angel Gonzalez contributed to this article.

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