WTI Crude

Loading...

Brent Crude

Loading...

Natural Gas

Loading...

Gasoline

Loading...

Heating Oil

Loading...

Rotate device for more commodity prices

Alt Text

Is This The End Of The Road For Indonesian Oil?

Indonesia, one of OPEC’s newest…

Alt Text

The Inevitable Winners Of The OPEC Meeting

As the informal meeting of…

U.S. Shale Boom May Come To Abrupt End

U.S. Shale Boom May Come To Abrupt End

U.S tight oil production from shale plays will fall more quickly than most assume.

Why? High decline rates from shale reservoirs is given. The more interesting reasons are the compounding effects of pad drilling on rig count and poorer average well performance with time.

Rig productivity has increased but average well productivity has decreased. Every rig used in pad drilling has approximately three times the impact on the daily production rate as a rig did before pad drilling. At the same time, average well productivity has decreased by about one-third.

This means that production rates will fall at a much higher rate today than during previous periods of falling rig counts.

Most shale wells today are drilled from pads. One rig drills many wells from the same surface location, as shown in the diagram below

EagleFordShaleDiagram


The Eagle Ford Shale play in South Texas is one of the major contributors to increased U.S. oil production. A few charts from the Eagle Ford play will demonstrate why I believe that U.S. production will fall sooner and more sharply than many analysts predict. Related: Why The World Needs Both Shale And Tar Sands

The first chart shows that the number of active drilling rigs (left-hand scale) in the Eagle Ford Shale play stabilized at approximately 200 rigs as pad drilling became common. The number of producing wells (lower scale), however, has continued to increase. This is because a single rig can drill many wells without taking the time to demobilize and remobilize. In other words, drilling has become more efficient as less time is needed to drill a greater number of wells.

EagleFordRigCount

The next chart below shows Eagle Ford oil production, the number of producing wells and the number of active drilling rigs versus time.

EagleFordProduction

This chart shows that production growth has not kept pace with the rate of increase in new producing wells since mid-2012. That is because the performance of newer wells is not as good as earlier wells. Related: A Word Of Warning About EIA Forecasts

The final chart shows that the rate of daily production is now more dependent on the number of drilling rigs than on the number of producing wells. Rig productivity--the barrels per day per rig--has increased but average well productivity--the barrels per day per well--has decreased. In other words, production can only be maintained by drilling an ever-increasing number of wells.

EagleFordProductionPerRigPerWell

Average rig productivity has almost tripled since early 2012. Average well productivity has decreased by one-third over the same period. This means that every rig taken out of service today has more than three times the impact on daily production as before pad drilling became common.

Most experts do not anticipate any significant decrease in U.S. tight oil production in the first half of 2015. Their analyses may not have accounted for the effect of pad drilling and the decrease in average well productivity.

Using the Eagle Ford Shale as an example, U.S. oil production should fall sooner and more sharply than many anticipate. This will be a good thing for oil price recovery but maybe not such a good thing for the future profitability of the plays.

By Arthur E. Berman for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • Roy Barton on January 26 2015 said:
    Where did you come up with the idea of wells becoming less productive over time? As in independent producer, I would argue the complete opposite. Higher IP's, higher EUR's per well....drilling becoming more efficient, not less. Pad drilling contributes to higher efficiency, yes and that makes it easier to shut down production (becoming the new swing state, like it or not) -- so yes production will shut off quicker -- but that in no way brings the 'shale boom to an abrupt end.'
  • Andrew B on January 27 2015 said:
    Is this the "canary in the coal mine"? The fracking technology is the man ingenuity that we have seen time and again wrest the resources used to lift us from the dark. We will surely see who is right as time will reveal.
    It seems that there is no one with the outright verdict of where this business is headed.
  • Oliver on January 27 2015 said:
    If you are an independent producer I'm Obama.

    The figures are freely available from the EIA, and it demonstrates well productivity is pathetic in both Bakken and Eagle ford. It is as the guy suggested the number of wells that keeps it going. With decline rates around 65-70pc in first year and decline rates increasing in 2nd and third years and most oil companies hiding behind half cycle figures. There will be a lot of pain in the U.S. shale industry, but then it was only ever a last chance saloon, as the bigger U.S. oil players have always said.

    Even without the oil price being slashed shale was only ever going to peak in 2016 or earlier, and with that allied to the decline rates and having drilled out the sweet spots, declines would be very fast, with resulting legacy wells after 3 years being no more than marginal stripper wells
  • c1ue on January 27 2015 said:
    Mr. Barton,
    Are you seriously asserting that wells do not deplete?
    Or are you saying that new wells produce the same as old wells?
    Neither statement is a positive to your credibility.
    The data shown above clearly illustrates the average barrels per day falling from a peak of 180 to 120 - which is to say, that the best shale exploitation sites are largely already tapped, at least in the Eagle Ford. This in turn means that production increases are largely a function of ongoing rig activity - and there's no debate at all that rig activity is dropping off.
  • richtfan on January 27 2015 said:
    For all of you who say that shale is on the way out, I'd say you're nuts. We continue to see exploration and results from that exploration. 15 years ago these locations were thought to be dead and done. Now, they're giving us relatively record low prices. We're continuing to find new ways to get oil out of the ground, and we'll see the same thing in the next 2 decades. plus, there are other countries who have resources that they will want to take advantage of. it doesn't have to be just a North American thing.
  • Seth on January 27 2015 said:
    While the Chicken Littles have shifted from "Peak Oil" to "Peak Shale," it is very unlikely that Shale production will "end." The average cost per barrel for shale is around $44, and that means that some areas are higher, and some are lower - even as low as $29. We're seeing a cutback in rigs, but U.S. oil production continues to increase.

    richtfan is correct. "Fracking" is simply an evolution of drilling techniques that has occurred over decades and it continues to evolve. Drillers continue to share successful approaches, are utilizing big data, improved technology, and hard-working American workers to get more oil out of the ground.

    Depending on the price of oil, some more rigs will shut down and shale production will suffer but to say it may "end" is just absurd. Fracking has created a permanent "ceiling" on the price of oil protecting us from OPEC, which is now a paper tiger.

    http://www.eia.gov/petroleum/drilling/
  • David Hrivnak on January 27 2015 said:
    But at what price??? I agree shale oil and fracking will not go away but would we not see a huge decline as long as oil is less than $60/barrel? My understanding is at somewhere below $70 is does not make sense to drill a well and them move and pump millions of gallons of fracking fluid into a well that produces a few hundred barrels a day. If oil jumps back up to $100, which I believe it will, then yes fracking will return. But for now it appears the industry is in a significant decline if not a total free fall.
  • Brian on January 27 2015 said:
    Totally agree with richtfan. The US onshore is only the beginning. Shale drilling has yet to tap reservoirs in Africa, Europe, South America and Asia.

    However, I dispute we've seen the end of even the US. I'm not sure what Barton thinks he's proving. Everyone knows that shale wells have steep decline curves; however, they're largely offset by initial production rates that are not even in the same ballpark as most traditionally drilled vertical wells. This has always been a characteristic of the shale revolution. The data Barton is showing speak less to the demise of shale reservoirs and more to the efficiency of pad drilling. Because we are able to drill multiple wells from a single pad, a significant drop in rig count (which we're seeing in capital spending announcements) would logically lead to a sharp reduction in production. I agree with the assertion that this will be good for WTI pricing.

    I would also advise Barton to take a slightly longer-term view of the world -- particularly with regard to technology. There are still tremendous hydrocarbon reserves that we know about, yet we still can't access them for various reasons -- simply because the technology isn't there yet. However, it will be. If we have learned nothing else from the shale revolution, we should take careful note of this fact: the technology will evolve and advance and allow for new horizons in the exploitation of reservoirs.

    It makes me laugh when people predict the demise of US shale; it's a bit like a six-year-old saying he knows all there is to learn.

    Finally, let's not forget that, even with current technology, new plays are being discovered every day and virgin reservoirs abound ... they are just yet to be found.
  • Brian on January 27 2015 said:
    Price swings will not affect the long-term utilization of fracking and that's why the Saudi's price war is futile. They can temporarily swing the price down right now, but looking long term, as soon as it is economically feasible as a result of economic growth, rig cuts, geopolitical uncertainty, bottlenecks, whatever; the rigs will follow the price. Once technology is there, it doesn't go away; you can't unring a bell.
  • cjones1 on January 27 2015 said:
    Too many cooks spoil the broth!
    Too many wells in the same area causes a decrease in output per well is what I think the author is describing.
    It stands to reason that the decrease in the price of oil will lessen the number of rigs operating and may cause the production per well numbers to rise again.
  • L. Stenger on January 27 2015 said:
    Humanity would be wise to relegate its hydro carbons for aircraft, trains, ships, drug, plastic and fertilizer manufacturing and let renewables such as solar, wind and hydro provide the long term sustainability needs to offset the environmental effects of pollution caused by hydro carbons. If we don't then we will be re-introducing millions of years of recapture carbon back to our atmosphere in less then 250 years which will unbalance how our planet deals with massive changes. Money is not the only value we should be considering here.
  • Oilie on January 27 2015 said:
    May come to an end? It already has
  • Jerry Spetseris on January 27 2015 said:
    I provided this response on another website the opinion was published on prior to Oilpice.com running it. First, Roy Barton’s comment is spot on. It is flawed logic that laying down a drill rig will lead to a 3X impact on daily production as asserted. What Mr. Berman's "Drilling Source" data indicate at best is that the rate of growth of daily production will slow from 3X. Of course this is a meaningless statistic, as increase/decrease of daily production per well is the valid measure. In absolute terms of daily production decline, the relationship doesn’t behave linearly (i.e. 3X) as Mr. Berman describes; it behaves logarithmically. Here is the truth from a Texas licensed geologist: In the EF play, each completed well adds from 0.850 MMBOE to 1.67 MMBOE in EUR which will require around 30 years to produce. Completed wells in the EF and most shale plays are characterized by steep decline curves. Though this information is available publicly or by subscription, it is not included in the piece. Production decline curves in the EF show on average from 75% to 90% decline in production over the first year of production, with rate of decline slowing to asymptotic with increasing passage of time (think stripper wells). Only when new production brought online from newly drilled wells plus the backlog of drilled but not completed wells is at an average rate less than the average rate of natural decline for producing wells will net daily production decrease (logarithmically). That will not be before sometime next year as many operators have debt to service, employees to pay, royalty interests (18-25%) to pay and taxes owed. For many operators, some level of new production is necessary to cover these costs or else the assets will need to be sold. So although rigs will be stacked, to think that reduction of current daily production will be 3X for each rig laid down is not supported by the facts.
  • South Texas HC on January 28 2015 said:
    With all due respect Mr. Spetseris, this is the most astatine post I have ever read. I don't even know where to start with you. Your EURs are about 5x too high for the average well. Not even the public companies selling stock through their unscrupulous website claims would have the balls to claim those EUR figures. Look at your decline rate %'s, if you believe that then a well must be making 120K barrels peak month avg. (there not) to translate to those ridiculous EURs. Seems those decline rates would justify Mr. Berman's forecast for overall decline-not the contrary.
  • B Shagnasty on January 28 2015 said:
    Art has stuck to his guns on these matters of shale for many years. I still do not think he is wrong. Shale is a nice promotional play but not a legacy reserve. Like 30 days of water supply on 35 day trip, if shale oil wells don't pay out in the first year they will likely never pay out. There will not be enough oil production left at any price to pay for the well.

    A simple drilling and production model will show that, because of the precipitous decline rate, each rig, depending on drilling pace and initial well productivity, has a plateau production rate for all of the wells it drills. Modeling suggests that this is between 17,000 bopd and 6,000 bopd per rig for one month and three month completion rates per well respectively and 1,000 bopd IP and 70% decline in the first year. Shorter cycle times, higher IP and lower decline rates will increase this plateau production rate per rig. Inputs and your mileage may vary.

    North Dakota's Oil and Gas Commission suggests that about 230 rigs are necessary to sustain the current production rate but that no more than 198 rig have been drilling at one time. Current production of 1.2 mmbopd corresponds to a production rate of about 5,600 bopd per rig.... not far from the 3 month per well pace plateau production of the model.

    The model also shows that 11 to 18 months after a rig stops drilling the production from the string of wells that it drilled will fall by 50%. Sooner for the lower production plateau.

    It may take a year but probably less for the negative production impact of laying down rigs to show up.

    We showed a deal to a real estate investor from Fort Worth a few years ago. He had a lot of acreage with minerals in the Barnett. He said he was looking for deals to roll his falling royalty cash flow stream into that didn't produce the source rock.... meaning shale because the shale cash flow stream did not have any legs on it. So it has been, so it is and so it will be.
  • David B on January 28 2015 said:
    The article is spot on for the Eagle Ford. The EIA likes to talk a big game about drilling productivity which yes has improved significantly. All that means is we can deplete the reservoir even faster than we were depleting it before. As the article correctly points out, overall production from new wells is down by 1/3 compared to wells drilled before 2014. You only have to look at 2 charts to prove that to yourself. The first one being the production curve in one of the charts above which shows the rate of growth in the field has remained constant and is now showing a very slight weakening for 2014. The other chart is the rate of wells being drilled per month over time. That chart shows that from 2010 towards end of 2013 about 300-325 wells per month drilled. From that point to the end of 2014 shows a steady increase to 500 wells per month drilled. So putting it simply, it takes 50% more wells drilled per month to maintain the same or slightly less rate of production growth for the field, or put another way the new wells are overall producing 1/3 less. The EIA also claims that IP for new wells is higher now than before. This is also meaningless rubbish. If I have a well with a horizontal string of 1000' and another with a horizontal string of 5000', which one is going to have a higher IP and does that actually mean anything. The rate of production growth for the Eagle Ford has peaked.
  • Mark T on January 29 2015 said:
    I think understanding the data requires a lot more insight than most lay people are afforded. Pad drilling involves drilling multiple formations. Some of the formations are indeed more productive than others. I can only speak for the Bakken since that's where I wetted my beak. In other words, when rig A sits on pad x it will drill 3-4 Bakken wells, and 3-4 three forks well and maybe throw in a birdbear for good measure. Rig B back in 2010 ran around and drilled the highly productive Bakken and never spent time drilling the other formations.

    Additionally, I'm not sure if efficiencies of pad drilling can be show in time. When a pad is drilled over months the first well will likely wait over 30 days to be completed. I don't have the data, but I'd be willing to bet the volume of wells waiting for completion are significantly greater than just 2 years ago.

    Moreover as others above have pointed out, fracturing and horizontal wells are in their infancy. Wells used to come online and roar up the casing and would be lightly restricted. A lot of companies are choking their wells immediately now thus restricting flow immensely.. Allowing the well to flow hard and with little restriction allows the fracturing treatment and stimulation to come unraveled. The fluid velocity and formation pressure applied on the fractured zones pulls the proppant from the stimulated areas effectively closing the producing zone from the wellbore.

    You have to look at individual well performance over a 3, 6, 12, 18 month period with respect to pad drilling. If you do that to say EOG, Statoil, and Whiting Oil and Gas in the Bakken region I think you'll find their new wells are producing significantly better than earlier wells, but have lower IP rates. Admittedly completion designs and techniques have improved. However, pad drilling is nothing new to the above mentioned.

    I'm not an experienced oilman or an engineer. I have been on well sites and I talk to company men and pumpers during my day. I'm also privy to well data for certain operators and I see productions numbers. There are hundreds of wells over 5 years old now steadily producing 50-90 bbps a day. Some make only 20-30 or maybe the occasional dud of 10. There's a few wells that are 3-4 years old and still have no Pumping unit on them.

    I wouldn't discount shale or bet on its abrupt downfall unless I really knew what I was talking about.
  • Mark T on January 30 2015 said:
    Also the eagle ford production graph above is entirely misleading. You may be showing us wells drilled and production volumes from the EF, but your rig count is US as a whole. In July 2014, the U.S. land based rig count was around 1900 rigs I believe. Maybe update the article with a table showing rig count in just theEF.

    Furthermore, if rigs have accelerated drilling time and drilling more feet/day than before, it certainly doesn't mean completions are keeping pace with that drilling efficiency. No new completions, no new production.

    Since adding my comment last night I looked at some IP stats for EOG in the Bakken (largest lease holder in the EF oil window). They brought three pad wells online in August 2014. The avg. daily production was outpaced by the IP rate for 90 days. In the first 90 days of production you have to also account for work over treatment. During fracturing stimulation plugs are set in the lateral. A drill out or clean out of the lateral is required. This interrupts production slightly. Additionally, wells are being plugged as adjacent wells are stimulated. It may just require a wireline truck to plug the well but most companies will unplug with a rig to retrieve the plug and assemble a production string. This all takes time to happen so wells may be unable to produce for weeks. The more densely populated the field (aka pad drilling) the more new wells need to be plugged off during fracturing stimulation of adjacent wells.

    So many above are using absolute adjectives to describe this data while showing a complete lack of understanding of oil and gas production. Yes, shale wells decline sharply, but the tail is long and steady and compares to long run production of conventional wells. And also pointed out above, shale wells come online with IP's much higher than most conventional wells. At best the above is pure speculation on a new trend from data, but no solid inferences can be made at this time. I would say the speculation also comes from an uneducated position in oil and gas production. Or at least the dynamics of pad drilling. Hopefully no one making the above comments is managing my 401k fund.
  • AB on February 06 2015 said:
    The ultimate test of economic viability is financial returns - do shale oil producers make money or not?

    The evidence is in the September 30th SEC filings. I looked at 27 mid to small producers' filings and also reviewed filings for most of the international producers.

    Observations:

    Virtually none of the mid-to-small companies had any held cash reserves and receivables beyond near-term creditor requirements. If they couldn't even generate enough cash during a period of peak oil prices and close to peak production then how is this a good business?

    Some did not report profits even for a period when WTI averaged over $90 per barrel. Deducting 'profits' on future price hedging to get at genuine Q3 results makes the picture much worse. A number even had accumulated losses rather than profit reserves.

    Retained Property, Plant and Equipment balances averaged around ten years at current depreciation rates even though, on average, wells have 80-90% production decline rates after three years. This looks incredibly optimistic and largely explains the anomaly between apparent profit and absence of cash build.

    Drilling costs were heavily debt financed with most companies already carrying heavy debt burdens by 30 Sept. Sub-prime bonds are no longer available, so how long will reserves based lenders keep financing them?

    None of the international producers carried any significant price hedging for 2015. Amongst the mid-small producers, price hedging averaged 33% of projected 2015 production though a proportion of this is three-way collars which offer a maximum cover below $15 per barrel and even the full hedges are below Q3 average price levels so not much income protection there.


    Conclusions:

    This looks like a poor business even at $90-100 WTI.

    A surge of subprime debt in excess of $200 billion has lead to a culture of chasing production without regard to economics. Funds for future drilling will be drying up much faster than the market has understood and existing production declines at an average 10% per quarter or more across the whole shale oil sector without new wells coming on. It probably takes at least 1,250 new wells per quarter just to maintain overall production.

    The industry's challenge is to make this a good business at say $75 WTI. It was nowhere near that up to Q3 2014 and it will take much better financial management and operational honesty to achieve that.

    That means better balance of financing between operating cashflow, debt and equity. It also means respecting rather than ignoring economics.

    I reckon that it can be done and we could see decent ongoing shale oil production for years to come but at significantly lower daily rates than we have seen recently.

    That means we still have a great resource to enjoy for a decade or two. Just as soon as someone tells the company promoters and their co-conspirators in the financial markets to stop talking rubbish about healthy IRRs at WTI as low as $50and start running their operations properly.

    The problem with US shale oil isn't WTI at $50 it's WTI at $100.

    $50 just isn't going to stay for long but if the industry can't admit that it wasn't going well at $100 then it isn't going to sort out its problems and then they are going to see a whole lot of bond defaults, and bankruptcies.
  • Paula Audette on February 06 2015 said:
    Don't forget in this discussion that recovery factors for shale plays like the Eagle Ford are on the order of 6%. They used to be 0% before fracking. The recovery factors are gradually increasing. Imagine some new technology, like fracking, that recovers an additional 5%. I expect that there will be new technologies in the years to come. The point is, there are enormous quantities of in-place oil and gas in these plays that is waiting to be recovered by new technology. Exactly when and in what form this technology will emerge is not obvious, but in the 100+ year history of the oil industry, this is always what happens.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News