Shale wells pump out a lot more oil right up front, and deplete much faster than conventional wells. It’s a bit of technical mathematics that doesn’t work well in the current oil price environment—but what we’re seeing now is a finely tuned new balancing act that gives US shale players another way to play the waiting game, and possibly win.
The new trend is to conserve shale, so to speak, and use new technology such as artificial lifts, to ramp up production in mature wells that don’t pump out as much, but neither do they deplete as rapidly.
By doing this, the key players in the shale patch are preserving precious shale wells—the less up front pumping they do, the longer they prolong the life of the shale well, saving it for a time when prices are more attractive. At the same time, shale wells that have been drilled and not completed will remain so until the time is right. And to make up for the decline in production, they’re focusing on giving mature wells a bit of a boost.
It’s yet another way that U.S. shale producers—hard hit by the global oil price crisis—are able to adapt and survive. The production curve is being redrawn to suit the present situation.Related: Exposing The Oil Glut: Where Are The 550 Million Missing Barrels?!
According to an Evercore ISI analyst cited by Reuters, you can’t beat the math for trying to jumpstart a mature, conventional well using artificial lifts. The Reuters report notes that while it may cost up to $6 million to drill and frack a new well, an artificial lift on an old well could run $250,000 to $500,000, and result in a 50-75 percent increase in the initial production rate.
Artificial lifts increase pressure in oil wells and help bring more oil to the surface—reinvigorating the pumping.
The global market for artificial lift systems is estimated at $12.21 billion for last year and could reach $17.55 billion by 2020, according to Mordor Intelligence. We’re looking at a potential compound annual growth rate of 3.37 percent during this period. Some 96 percent of wells in the U.S. require some sort of artificial lifting—and with shale wells being choked to save for a brighter future, artificial lifting of older wells is gaining much more attention.
And when we swing back around to the shale wells, the increasing trend is to choke them off—for now.Related: Why Saudi Arabia Has No Intention To End The Oil Glut
Devon Energy explains it succinctly. Since it acquired Eagle Ford shale acreage in 2014—even before prices plummeted—it set out to figure out how much it could produce while at the same time preserving the longevity of its wells. It’s a process they call “choke management”, with a bit of a twist.
Shale wells are under a pressure so great that you can’t just turn them off. They must be choked, which involves quite simply blocking the flow with a piece of steel. The amount of flow-blocking is determined in eighths of inches. But Devon was experimenting with a more flexible way of choking that involves blocking and unblocking depending on how the well is doing—how much is coming out and what that means for the longevity.
Now the chokes are on in full force all over the shale patch, but we’re seeing the results more in gas than oil for the time being. The Marcellus shale gas patch, for one, is making anyone banking on reduced gas production thinking twice.
According to the Energy Information Administration (IEA), Marcellus will come out with production figures of 17.4 billion this month—or, to wit, 2 billion cubic feet more than the EIA had earlier predicted.Related:Three Stocks Well Positioned For An Oil Price Rebound
Reuters noted that Continental Resources is using chokes to manipulate production in three wells in its Oklahoma STACK play.
Finally, we have the drilled wells that haven’t been completed yet. This means the bulk of spending has already been shot on these wells. So if they just sit around now, waiting, when the price is right they can burst onto the scene with immediate production and revenue. North Dakota’s Bakken has seen several producers decide to halt well completions and move elsewhere until the economics makes sense to finish it off and turn on the taps.
This is often viewed as a doom-and-gloom story by the media. But the flip side of this is an entirely different story—one that very clearly shows how U.S. shale producers are surviving the downturn and being smart with their shale. Downturns are a great time to get creative, and they breathe new life into rising technologies that extend the productive life of wells. This is exactly why the significant rig count reduction doesn’t necessarily translate into a significant production reduction—if at all.
Efficiency techniques are about to get … more efficient, and at the end of the day, it is this and some innovative rebalancing of production that keeps US producers in the game.
By Charles Kennedy of Oilprice.com
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