Oil companies drilling so-called child wells in the Permian risk losing 15 to 20 percent of the crude oil that could be recovered otherwise, investment bank Tudor, Pickering, Holt & Co. has said in a presentation seen by Bloomberg.
Child wells are secondary wells drilled close to the first, or parent, well. According to Tudor, Pickering, Holt & Co., the proximity makes the child well a lot less prolific than one further away from the parent. On the other hand, however, if the secondary well is drilled too far from the parent, the driller risks a dry well.
“Child wells get progressively worse relative to their parent well with tighter spacing,” the Houston-based, energy-focused, investment bank wrote. This means wells are at their most prolific in some Goldilocks zone that is neither too close to the parent nor too far from it.
One way to get around this problem is to drill two wells at once. This approach, according to Tudor, Pickering, Holt & Co., ensures better recovery rates closer to the driller’s projections.
The ban knotes that 60 percent of the wells drilled in the Delaware Basin in the Permian last year were child or simultaneously drilled wells, as opposed to the period until 2017, during which most of the wells in the Delaware Basin were parent wells. Related: War In The Middle East Is China’s Worst Nightmare
Some producers are already suffering the consequences of too tight well spacing, Bloomberg reports. Concho Resources most recently had to endure a 22-percent drop in shares when it emerged the company had drilled too many wells on a single pad, with recovery expected to miss company targets.
Spacing is crucial with shale wells: they dry up quickly—with output falling by 70 percent over their first year—and new ones need to be drilled on an ongoing basis to maintain production. As a result, the best, lowest cost, acreage in the Permian is running out and recovery rates are getting worse.
By Irina Slav for Oilprice.com
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I have said time and again that the die is cast for the US shale oil industry. In 5-10 years it will be no more. This is the price the US shale industry is paying for continuing to be unprofitable year after year. If judged by the standard commercial criteria by which other successful companies are judged, it would have been declared bankrupt years ago. The US shale oil industry has been underpinned by hype and lies.
Yet, the US Energy Information Administration (EIA) in cahoots with the International Energy Agency (IEA), Rystad Energy and BP Statistical Review of World Energy continue to hype about booming production of shale oil with the Permian claimed to continue to set new production records and how shale oil is flooding the global oil market when the highest export figure US oil exports reached was 2 million barrels a day (mbd) in 2018 according to the authoritative 2019 OPEC Annual Statistical Bulletin.
The US shale industry has been lying about its break-even price of shale oil, the profitability of shale oil production when it was in effect following the adage of “robbing Peter to pay Paul” and also claiming possession of oil reserves it can’t produce.
And now we discover that it is a disaster for the environment contributing significantly to the increase in global warming we’ve seen and shale gas is a major player according to a new study by Robert W. Howarth of Cornell University, the author of the study. Howarth concluded that shale gas is a key driver in the increase of methane which is a dramatically more powerful greenhouse gas than carbon dioxide, although it is much more short-lived according to the study.
Moreover, flaring is a major source of pollution as well, and flaring in the Permian is running rampant.
Yet, the Trump administration has not only decided to walk away from the Paris Climate Change Treaty but it has also been rolling back regulations on methane. It wants to go further than simple deregulation.
Moreover, the US Environmental Protection Agency (EPA) is working on a rule to essentially end its own ability to regulate methane on existing oil and gas wells, presumably to head off future limits.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London