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Page added on December 26, 2017

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Shale Growth Hides Underlying Problems

Consumption

All eyes are on U.S. shale as we head into 2018, with a growing number of analysts worrying that shale will spoil the oil price rally. Estimates of supply growth varying quite a bit, but directionally, everyone is in agreement: Supply is set to surge.

However, there are some cracks in the shale complex that might not necessarily mean much in the short-term, but raises some questions about the long-term durability of shale output. According to Rystad Energy, there is empirical evidence that points to falling production in the Eagle Ford from some of the recently drilled shale wells.

Everyone knows that shale wells enjoy an initial burst of output that is quickly followed by a precipitous decline within a few months. A driller must constantly drill new wells in order to grow production.

The shale industry has boasted of higher initial production rates from their shale wells over the last few years, which is seemingly evidence of improved drilling techniques, such as longer laterals, the increased use of frac sand and fluids, etc. In short, the shale industry has been able to coax more oil and gas out of a shale well in the first few months of a well coming online than it used to.

However, Rystad Energy argues that there is some evidence that suggests those higher initial production (IP) rates do not necessarily translate into larger gains in the total volume of oil and gas that is ultimately recovered. A sample of wells in the Eagle Ford showed steadily higher IPs in recent years, but they also exhibited steeper and steeper decline rates.

Part of the reason is that the shale industry has had to drill more wells that are closer together. That has typically been described as an innovation that leads to more recovery. Indeed, the initial production rates from the average well in several counties in South Texas have increased markedly year after year.

The first few horizontal wells in a section are classified as “parent” wells, with follow-up completions described as “infill” wells. In the Eagle Ford, according to Rystad Energy, the makeup of spudded wells has shifted dramatically towards infill wells as many areas of the basin have been worked over. In 2010, Rystad says, “up to 90 percent of activity corresponded to new pad development. This share declined rapidly over time, falling to 15-20 percent in 2015-2017.” As such, the rebound in output from the Eagle Ford over the past year has mostly come from infill drilling.

(Click to enlarge)

Rystad looked at two counties in particular – Karnes and De Witt – where infill drilling was especially dominant. In these two counties, the IP rates increased sharply between 2011 and 2016. In 2011, the IP for a new well in De Witt County peaked at about 500 barrels per day (bpd), a figure that nearly doubled to 900 bpd by 2016. Based on that, it appears that the shale industry has become dramatically more efficient, and it suggests that if such breakthroughs can be replicated, U.S. oil production can continue to climb.

But the huge gains fizzled after the first few months. Rystad concludes that when taking into account the first full year of production, not just the first month or two, the 2016 wells only resulted in an additional 40,000 barrels of oil compared to the 2011 wells. By the second year of production, the newer wells do not outperform the older ones at all. In other words, the 2016 wells had a stronger burst of output right away, but that was offset by steeper declines as the year wore on. “By any means, this cannot be classified as a significant uplift for the well ultimate recovery when considering a 100 percent increase in the peak production rate,” Rystad concludes.

(Click to enlarge)

Rystad even looked at a specific lease held by Marathon Oil. The first well drilled in 2012 had a peak IP rate of 35,600 barrels of oil equivalent per month. 13 months later that flow fell to just 8,000 boe per month.

By 2016, Marathon came back and drilled more wells armed with new knowledge and drilling techniques. It drilled longer laterals and used much more frac fluid. Only four of the completions outperformed the older ones, and on average, the IP peaked at 32,500 boe per month (less than the older average) and declined to just 8,000 boe per month in seven months as opposed to the 13 months the first time around.

In other words, Marathon drilled more aggressively in 2016 and arguably came up with less impressive results.

This is not necessarily indicative of the entire shale industry by any means, but it does highlight some of the problems with relying too much on the initial production metric. Yes, IPs have climbed over time, but some of these wells are petering out faster than older wells.

In a way, this trend is understandable since it took place in an area that had already been drilled. But as U.S. shale basins mature, the industry will need to increasingly rely on similarly well-developed areas.

By Nick Cunningham of Oilprice.com



8 Comments on "Shale Growth Hides Underlying Problems"

  1. MASTERMIND on Tue, 26th Dec 2017 9:30 am 

    The US Shale Business is “not profitable” and can’t fund itself whether oil is at 100 or 50 dollars a barrel
    https://imgur.com/a/t7ulB

    MIT Technology Review: Shale Oil Will Boost U.S. Production, But It Won’t Bring Energy Independence
    https://www.technologyreview.com/s/507446/shale-oil-will-boost-us-production-but-it-wont-bring-energy-independence/

    The world’s largest oil trader Vitol says US oil production will peak in 2018
    https://www.reuters.com/article/us-commodities-summit-vitol/u-s-oil-output-may-be-set-for-last-spike-in-2018-vitol-idUSKBN1CF1MZ?rpc=401&

  2. adamb on Tue, 26th Dec 2017 10:19 am 

    Cliffy, you know as much about shale development as you do astrophysics. Just run along and find another Rapture event for your religion already.

  3. MASTERMIND on Tue, 26th Dec 2017 10:24 am 

    Adam

    Its not my fault you have been duped by a fraud and total nutter who has been arrested several times (James Hansen)..He also has said we could turn earth into another Venus. Venus is 250 degrees warmer than earth…Do you really believe that will happen?

  4. MASTERMIND on Tue, 26th Dec 2017 10:27 am 

    Adamn here are five peer reviewed scientific studies authored by top experts that conclude you will be dead or wish you were within the next decade….

    NASA Study: Industrial Civilization is Headed for Irreversible Collapse (Motesharrei, 2014)
    http://www.sciencedirect.com/science/article/pii/S0921800914000615

    The Royal Society: Study, Now for the First Time A Global Collapse Appears Likely (Ehrlich, 2013)
    http://rspb.royalsocietypublishing.org/content/280/1754/20122845

    Study: Limits to Growth was Right. Research Shows We’re Nearing Global Collapse (Turner, 2014)
    http://sustainable.unimelb.edu.au/sites/default/files/docs/MSSI-ResearchPaper-4_Turner_2014.pdf

    Study: Financial System Supply-Chain Cross-Contagion: in Global Systemic Collapse (Korowicz, 2012)
    http://www.feasta.org/2012/06/17/trade-off-financial-system-supply-chain-cross-contagion-a-study-in-global-systemic-collapse/

    German Military (leaked) Peak Oil study concludes: oil is used in the production of 95% of all industrial goods, so a shortage of oil would collapse the world economy & world governments
    https://www.permaculture.org.au/files/Peak%20Oil_Study%20EN.pdf

    Now go back into your cave Troll…

  5. onlooker on Tue, 26th Dec 2017 2:04 pm 

    Yes and how about the obvious one. Namely, that from the beginning to the present it has NOT been a profitable endeavor

  6. Outcast_Searcher on Wed, 27th Dec 2017 12:36 pm 

    onlooker, as has been pointed out time after time, just because folks like you know zero about corporate accounting, doesn’t mean the entire industry and energy markets are wrong.

    But keep fantasizing. Because the doomers have made so much money being short the markets in the past decade while they’ve been constantly predicting doom next week, month, year.

    Sure.

  7. onlooker on Wed, 27th Dec 2017 6:33 pm 

    Is that so Outcast
    https://www.desmogblog.com/2017/10/03/welfare-kings-half-current-oil-production-unprofitable-without-government-subsidies
    ” A new study published in the peer-reviewed journal Nature Energy found that 50 percent of new oil production in America would be unprofitable if not for government subsidies. The study, performed by researchers at the Stockholm Environment Institute and Earth Track, Inc., found that, at prices of $50 per barrel, light oil produced by hydraulic fracturing (“fracking”) was heavily dependent on subsidies.

    In fact, forty percent of the Permian basin in Texas would be economically unviable without subsidies, and for the home of Bakken crude production, Williston Basin, that number jumps to 59 percent, according to the researchers.”
    And over $60 and that probably tanks the Economy as history has shown

  8. Green People's Media on Thu, 28th Dec 2017 5:35 pm 

    Seems to me that the material coming out of Rystad Energy is generally pretty soundly-researched and well-presented. Certainly more enlightening than reading a bunch of commenters here bashing and insulting one another.

    https://www.rystadenergy.com/

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