The shale industry faces an uncertain future as drillers try to outrun the treadmill of precipitous well declines.
For years, companies have deployed an array of drilling techniques to extract more oil and gas out of their wells, steadily intensifying each stage of the operation. Longer laterals, more water, more frac sand, closer spacing of wells – pushing each of these to their limits, for the most part, led to more production. Higher output allowed the industry to outpace the infamous decline rates from shale wells.
In fact, since 2012, average lateral lengths have increased 44 percent to over 7,000 feet and the volume of water used in drilling has surged more than 250 percent, according to a new report for the Post Carbon Institute. Taken together, longer laterals and more prodigious use of water and sand means that a well drilled in 2018 can reach 2.6 times as much reservoir rock as a well drilled in 2012, the report says.
That sounds impressive, but the industry may simply be frontloading production. The suite of drilling techniques “have lowered costs and allowed the resource to be extracted with fewer wells, but have not significantly increased the ultimate recoverable resource,” J. David Hughes, an earth scientist, and author of the Post Carbon report, warned. Technological improvements “don’t change the fundamental characteristics of shale production, they only speed up the boom-to-bust life cycle,” he said.
For a while, there was enough acreage to allow for a blistering growth rate, but the boom days eventually have to come to an end. There are already some signs of strain in the shale patch, where intensification of drilling techniques has begun to see diminishing returns. Putting wells too close together can lead to less reservoir pressure, reducing overall production. The industry is only now reckoning with this so-called “parent-child” well interference problem. Related: Oil Slips Despite Bullish OPEC Report
Also, more water and more sand and longer laterals all have their limits. Last year, major shale gas driller EQT drilled a lateral that exceeded 18,000 feet. The company boasted that it would continue to ratchet up the length to as long as 20,000 feet. But EQT quickly found out that it had problems when it exceeded 15,000 feet. “The decision to drill some of the longest horizontal wells ever in shale rocks turned into a costly misstep costing hundreds of millions of dollars,” the Wall Street Journal reported earlier this year.
Ultimately, precipitous decline rates mean that huge volumes of capital are needed just to keep output from declining. In 2018, the industry spent $70 billion on drilling 9,975 wells, according to Hughes, with $54 billion going specifically to oil. “Of the $54 billion spent on tight oil plays in 2018, 70% served to offset field declines and 30% to increase production,” Hughes wrote.
As the shale play matures, the field gets crowded, the sweet spots are all drilled, and some of these operational problems begin to mushroom. “Declining well productivity in some plays, despite application of better technology, are a prelude to what will eventually happen in all plays: production will fall as costs rise,” Hughes said. “Assuming shale production can grow forever based on ever-improving technology is a mistake—geology will ultimately dictate the costs and quantity of resources that can be recovered.”
There are already examples of this scenario unfolding. The Eagle Ford and Bakken, for instance, are both “mature plays,” Hughes argues, in which the best acreage has been picked over. Better technology and an intensification of drilling techniques have arrested decline, and even led to a renewed increase in production. But ultimate recovery won’t be any higher; drilling techniques merely allow “the play to be drained with fewer wells,” Hughes said. And in the case of the Eagle Ford, “there appears to be significant deterioration in longer-term well productivity through overcrowding of wells in sweet spots, resulting in well interference and/or drilling in more marginal areas that are outside of sweet-spots within counties.” Related: Exxon Presents Its Very Own Solution To Climate Change
In other words, a more aggressive drilling approach just frontloads production, and leads to exhaustion sooner. “Technology improvements appear to have hit the law of diminishing returns in terms of increasing production—they cannot reverse the realities of over-crowded wells and geology,” Hughes said.
The story is not all that different in the Permian, save for the much higher levels of spending and drilling. Post Carbon estimates that it the Permian requires 2,121 new wells each year just to keep production flat, and in 2018 the industry drilled 4,133 wells, leading to a big jump in output. At such frenzied levels of drilling, the Permian could continue to see production growth in the years ahead, but the steady increase in water and frac sand “have reached their limits.” As a result, “declining well productivity as sweet-spots are exhausted will require higher drilling rates and expenditures in the future to maintain growth and offset field decline,” Hughes warned.
By Nick Cunningham of Oilprice.com
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Hopefully, by using energy more efficiently and effectively, we can compound technological progress in clean energy production.
An attitude of stewardship and appreciation of Earth's finite resources should guide us.
And despite impressive technological improvements, the US shale oil industry is already seeing diminishing returns.
The report by Post Carbon Institute, one of many authoritative reports of recent times, highlights the fact that technological improvements don’t change the fundamental characteristics of shale production, they only speed up the boom-to-bust life cycle. The report points out that in 2018 the US shale oil industry spent $54 bn on tight oil plays, 70% of which served to offset field declines and 30% to increase production.
The US shale oil industry has seen its best performance over the last few years but it is now in a state of decline with real (not the hyped one) production projected to slow down to 11 million barrels a day (mbd) in 2019 and 10 mbd or even less in 2020.
US shale oil industry could be no more in less than 10 years.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
I see so many arm chair experts here with big brimend glasses.
Now i live in the middle of the patch in Saskatchewan where a pad of 15 wells using thermal recovery methods take a min of 5 years to get near peak production. They avg near 15000 bpd at 3 years and are exceding production estimates. Expected life of each pad is on the order of 25 years as the heating expands they get more oil with less input costs. Future plans in this area from 5 test pads that are now full operational are to expand to near 50 in the future.
As for saying were in a decline is pure hype by market speculatiors. I watched this heavy oil recovery here for 40 years with test plant developing this tech and it was only suposed to be a test site but after 20 years in they were over exceding their goals and the test plant was giving back millions in profit and they moth balled the project as it was never to make money but only study heavy oil recovery.
Now this tech will be used for the next 50 years and beyond giving man much time to develope alternate energy sources.
As geologist Colin Campbell said, all estimates of oil supplies are wrong. The only correct numbers in reports of what's left are the page numbers.
There's no question that shale wells rise and fall far faster than conventional wells. Fracking also postponed oil and gas rationing. We'll see how increasing efforts to extract can bridge the gap of the decline of conventional fossils. Entropy is not a good idea, it's the law.