New technology helps US shale oil industry start to rebuild well
productivity
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[April 24, 2024] By
Sabrina Valle
HOUSTON (Reuters) - Technology advances are making it possible for U.S.
shale oil and gas companies to reverse years of productivity declines,
but the related requirement to frontload costs by drilling many more
wells is deterring some companies from doing so.
While overall output is at record levels, the amount of oil recovered
per foot drilled in the Permian Basin of Texas, the main U.S. shale
formation, fell 15% from 2020 to 2023, putting it on par with a decade
ago, according to energy researcher Enverus.
That is because fracking, the extraction method that emerged in the
mid-2000s, has become less efficient there. In the technique, water,
sand and chemicals are injected at high pressure underground to release
the trapped resources.
Two decades of drilling wells relatively close together, resulting in
hundreds of thousands of wells, have interfered with underground
pressure and made getting oil out of the ground more difficult.
"Wells are getting worse and that is going to continue," said Dane
Gregoris, managing director at Enverus Intelligence Research firm.
But new oilfield innovations, which began being implemented more widely
last year, have made it possible for fracking to be faster, less
expensive and higher yielding.
The advances in the past few years include the ability to double the
length of lateral wells to three miles and equipment that can
simultaneously frack two or three wells. Electric pumps can replace
high-cost, high maintenance diesel equipment.
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"Companies now can complete (frack) wells faster and cheaper," said
Betty Jiang, an oil analyst with Barclays.
A drawback to the new simultaneous fracking technology, also called
simul-frac, is that companies need to have lots of wells drilled and
ready to move to the fracking phase in unison before they can proceed.
Pumps inject fluids into and get oil and gas out of two or three wells
at the same time, instead of just one.
Because these act as an interconnected system, wells cannot be added
piecemeal. But companies eager to cut costs have not deployed enough
drill rigs to capitalize fully on the potential of the innovations.
"Instead of drilling the wells and getting production in a few months,
you have got to drill eight wells, or 10 wells," said Mike Oestmann, CEO
of Tall City Exploration.
"That's $100 million in the ground before you see any revenue," he said.
"For small companies like Tall City, that's a big challenge."
The number of active drilling rigs in the U.S. this month fell nearly
18% from a year ago.
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Simul-fracking can also lower well costs by between
$200,000-$400,000, or 5%-10% apiece, said Thomas Jacob, senior vice
president of supply chain at researcher Rystad Energy estimates.
NEW TECH SUPPORTS RECORD PRODUCTION
Oil analysts anticipate use of the new technology will accelerate.
"We saw a trend of companies shifting to simul-fracs in the second
half last year, and that is only going to continue," said Saeed Ali
Muneeb at energy analysis firm Kayrros.
Longer wells and advancements in fracking techniques are more than
offsetting declining productivity and limited rig count, helping the
U.S. reach record oil production volumes.
The top U.S. shale-producing regions are forecast next month to hit
the highest output in five months with new-well production up 28%
from a year ago, according to the U.S. Energy Information
Administration.
"Companies are making a fine-tuning and getting better and better in
fracking," said Oestmann. "Without them, production would fall."
Innovations are going to gain scale once top producers like Exxon
Mobil Corp and Chevron Corp adopt them more broadly, shale experts
said.
Mid-sized shale firms like Pioneer Natural Resources that can afford
the costs were first to embrace the new methods. The positive
results make them more attractive to big firms like Exxon, which is
awaiting regulatory approval to buy Pioneer.
But the biggest shale producers have committed to using oil revenue
to finance shareholder returns rather than drilling expansion. Two
of the biggest shale oil operators, Exxon and Chevron, have missed
targets for Permian production in the past years.
Exxon said its own new fracking technology will allow it to extract
an extra 700,000 barrels of oil equivalent per day (boepd) from
Pioneer's assets by 2027, tripling output there to 2 million boepd.
Chevron is increasing use of simul-fracs and says the technique will
help it increase Permian production by 10% this year to 900,000
boepd. It also completed a triple-frac pilot and anticipates using
it more widely, a spokesperson said.
(Reporting by Sabrina Valle; Editing by Cynthia Osterman)
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