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Innovation Behind Drilling Efficiency & Well Productivity Fueling America’s Energy Boom
hardassetsinvestor ^ | December 27, 2013 | Tom Vulcan

Posted on 12/29/2013 7:33:46 PM PST by ckilmer

Written by Tom Vulcan  |
December 27, 2013

Innovation Behind Drilling Efficiency & Well Productivity Fueling America’s Energy Boom

Fewer rigs but more wells per rig proving powerful combination, among other new tricks of the trade.

 

In the world of fracking, the last few months have been significant on a number of counts. Two, in particular, were indicative of just how important fracking really has become in the U.S.

First, at the end of October, the U.S. government’s Energy Information Administration commenced publication of its new “Drilling Productivity Report” (DPR). Initially covering six production basins (which, in 2011-2012, accounted for nearly all production growth of domestic natural gas and 90 percent of the domestic production growth of oil)—Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara and Permian—the monthly DPR will analyze, on a regional basis, drilling rig efficiency, well productivity and decline rates, together with consolidated production trends.

 

Key Tight Oil and Shale Gas Regions

US Fracking Regions

Source: U.S. Energy Information Administration

 

The first DPR came up with some interesting findings. First, vis-a-vis natural gas, while production increased in four out of the six regions over the past year, the Marcellus region accounted for some 75 percent of growth across all six regions. Second, vis-a-vis oil, the Bakken and Eagle Ford regions accounted for around 75 percent of monthly oil production growth. Third, and perhaps most interestingly, it appears that, rather than an increase in the active rig count, the “main drivers of the increases in domestic natural gas and oil production have been improvements in drilling efficiency and new well productivity.”

The effect of these improvements was no more obvious than it was in the figures for oil production alone in the U.S. in October. During the month, for the first time since February 1995, the country produced more crude oil (7.7 million bpd) than it imported (7.6 million bpd). And in fact, according to Businessweek, “[i]mports have been falling dramatically,” with the “biggest declines … from countries that have traditionally been among America’s biggest crude oil suppliers. Monthly imports from Nigeria, for example, have fallen almost 90 percent since 2007.”

 

Efficiency And Productivity

Increased efficiency and productivity can derive from a number of different sources.

According to figures from Baker Hughes, in its Nov. 15 count of rotary rigs (something it has been doing since 1944), while the number of rigs in the U.S. had fallen by 47 to 1,762 over the previous year (in Canada the number actually rose by 17 to 401, and, internationally, by 56 to 1,315), over the last year and three quarters, the actual number of wells per rig has risen steadily each quarter.

 

US Land Wells/Rigs

Date Total US Land
Q1 - 2012 4.71
Q2 - 2012 4.98
Q3 - 2012 5.07
Q4 - 2012 4.92
Q1 - 2013 5.00
Q2 - 2013 5.27
Q3 - 2013* 5.37

Source: Baker Hughes
* Preliminary figures

 

So, fewer rigs do not necessarily mean fewer wells.

As increased rig mobility has enabled pad drilling, where multiple wells are drilled from a single site, fewer rigs are needed to drill the same number of wells. Cabot, a major player in the Marcellus region, has achieved a figure now of 10 wells off a single pad. (And, as quoted in the Philadelphia Inquirer, Dan O. Dinges, Cabot’s CEO (COG:US), is of the opinion that: “This 10-well pad represents the new standard for operational efficiencies and technological advancement in our Marcellus operations.”)

However, in light of its own plans, for Continental Resources (CLR:US), this would appear to be child’s play. The company says it is set to: “[D]rill 350 wells (gross) over the next four to five years … [u]tilizing mega-pads with as many as 30 wells per pad.”

On an even more basic level, rigs and wells have become more efficient not only as their operators have got better at their jobs, but also as accumulated experience provides them with greater understanding of both the geography and geology of where they are drilling.

And this is quite apart from continuing technological advances that enable operators both to drill faster (and get to the next job more quickly—thereby also reducing the number of rigs needed), and further laterally. Some data, from its Eagle Ford–Western Acreage, given in an investor presentation in November by EOG Resources, Inc. (EOG:US) provide a good illustration of what is being achieved by some in the industry.

 

 

Treated Lateral Length (Ft)

Treated Lateral Length

Source: EOG Resources, Inc.

 

Drilling Days (Spud to TD*)

Drilling Days

Source: EOG Resources, Inc.
Note: "Spud to TD" means the time from when the drill bit hits the ground to total depth (TD)

But in some regions like the Bakken, for example, the drilling is also going deeper and spacing is getting tighter. In Bakken’s case, there are five oil-bearing layers, consisting of a total of some nine different layers. The top two of these currently produce most of the region’s output, but producers are already exploring the possibility of commercially tapping the three much deeper layers.

Spacing wells more tightly, in some areas of the region, 160-acre spacing has been successfully achieved (initially, producers in the Bakken used 640-acre spacing); this can also increase productivity. And in some regions, spacing can be reduced to as little as 40 or even 20 acres. Essentially it’s a matter of figuring out the least spacing required to achieve optimal drainage of the reservoirs.

Tighter spacing as a route to both greater efficiency and productivity does not seem to be limited only to wells. Early in October, there was buzz in the market about both EOG’s and Whiting Petroleum’s (WLL:US) use of short fat fracks—as opposed to long thin fracks—in Bakken wells to increase significantly their estimated ultimate recovery (EUR). And indeed, Whiting had a nice little diagram to illustrate what it’s all about.

 

 

Whiting Illustration

Source: Whiting Petroleum

 

It remains to be seen, however, if the new “improved” method’s use of both more water and sand in any way impedes its adoption anywhere else it can be used.

And this is only some of what’s going on. The entire industry is characterized by innovation. (Indeed, had there been no innovation, there would be no fracking industry.) So, the advances above have not included mention of the likes of disintegrating plastic frack balls or the use of sliding sleeves.

But then again, while there will be some innovations (“game changers”) that will affect the whole industry, there will be others that are much more “region-specific,” and work only in specific geologies and specific circumstances.

Clean Water: The Holy Grail

To butcher Pindar’s first Olympian Ode (you know, the one that starts ἄριστον μὲν ὕδωρ…): “Water is best, but clean water is better (italics are my words).” This is the elusive commodity. Yes, millions of gallons come back up the wells, but it is dirty, filthy dirty. It then needs to be disposed of, perhaps by being injected back down into the ground (occasionally causing small earth tremors).

Why isn’t it just processed and reused? We should wish! As would many others, not least a company like Schlumberger, the head of whose oilfield water management unit was quoted in a recent Bloomberg piece as saying: “We’ve spent millions and millions of dollars evaluating virtually every available and reasonable-looking technology out there, always hoping we’d find the silver bullet … At this point, we found nothing.” And if Schlumberger cannot find anything … !

It might sound easy, but this would be far, far from the truth, as evidenced by the blanks drawn so far. Not least, according to Bloomberg, because the wide variations in both water chemistry and geology between different locations vitiate the concept of finding a universal solution for all circumstances.

Any real success could have a huge impact on the industry for a number of reasons. Two of the harshest criticisms of fracking have been focused not only on its need and perceived profligate use of vast amounts of water, but also the sometimes-pernicious consequences of ways in which wastewater from the fracking process is disposed of, as mentioned above, by injecting it back into the earth.

Criticism aside, the opportunities it could open up would be immense. Either in regions of a particular country or in countries themselves where fracking is—because of a dearth of water—currently just not viable, the story could be very, very different. China could be a case in point. As things stand, however, there appears to still be a long way to go. But this has not, and does not, prevent a number of companies from continuing to try.


The Future

A big phrase, “the future,” but what does it hold? I think we can be pretty sure fracking is here to stay. A number of people have opined that the future of the industry is shaky, perhaps headed for bust. Sustainability and longevity are oft quoted in this context—a lack of the former and the “shortness” of the latter.

But, as has been discussed, the industry is all about innovation. Even if Whiting and EOG’s “short and fat” doesn’t work everywhere, it has extended EUR where it does, and one can be sure that some company, somewhere, will be grounding its next innovation on the work these two companies have done, and will come up with some derivative process, or a new one altogether.

But will the innovation continue? Well, how long has fracking been around? From at least the ’40s. And when did things really take off? 2005-2006.

 

EIA Illustration

Source: EIA

 

Suffice to say, the viable resources of oil and gas available by fracking are probably more likely to have been pumped out before the industry stops innovating. And that could be a very, very, long time.


TOPICS: Business/Economy
KEYWORDS: baaken; fracking; shalegas; shaleoil

1 posted on 12/29/2013 7:33:46 PM PST by ckilmer
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To: ckilmer

All wonderful, I just wish it would bring down the price of gasoline to reasonable levels! I guess the world market still will control the prices though, even though the middle eastern Cartel use to do that much better - and at less of an increase per barrel. Maybe the Western world is too greedy... :^)


2 posted on 12/29/2013 7:37:06 PM PST by Deagle
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