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Page added on June 25, 2011

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Cracking the Permian to provide oil supplies for future


While oil patches from the Bakken shale to the Eagle Ford have been getting a lot of attention in recent years, the oil industry is focussed increasingly on one of the oldest and richest basins in the country – the Permian Basin. Permian formations have long trapped hydrocarbons in shale and other tight sands and rock in what was formerly the Permian Sea, an area of what is now 110-degree-heat desert that stretches 100,000 square miles across West Texas and Southeastern New Mexico.

The attention there is not coming so much from companies going out in search of new acreage. Many of them have held acreage in the Permain for decades. Others have accumuated it over the years through a series of mergers and acquisitions. Everyone has known the area held oil – lots of oil – and it was just a matter of time before advances in technology meant they could get a little bit more of it out.

This time, the advance has been made by using on shale and other tight sands and rocks in the Permian the same horizontal drilling and multi-staged hydraulic fracturing that has led to the shale gas boom.  The new technology enables the industry to drill down 10,000 feet or more and then turn the drill bit so it pushes out horizontally, as much as another 10,000 feet, to expose a much wider area to extraction through a single well. The pipe pushed into this pathway is set with explosives that rip holes along its length. Then water laced with fine sands and chemicals that kill bacteria and help the sand flow are pumped through, in a series of stages, at high pressure, pressing out through the holes to fracture the surrounding formation. The sand keeps the new passageways open so the oil can escape.

While the industry has been using hydraulic fracturing and horizontal drilling on easier -to-penetrate formations for years, the technology has become better and cheaper, so that, amid high oil prices, it is now economic to use it on source rock, such as shale, which the industry long ignored as too hard a rock from which to extract hydrocarbons. The industry is even using the new technology on conventional fields, such as Permian’s Bone Spring, which has been a conventional operation for years, with less than 50 per cent of the oil extracted.

According to Mitch Mamoulides, manager of the Permian south for Chevron, the oil that simply flows from a well there accounts for about 15-20 per cent of  production. Flooding it with water brings up 15 per cent more oil, and carbon dioxide flooding adds another 10 per cent. Pete Stark of energy consultancy IHS CERA, says the new technology can add another 10-15 per cent to production.

That is a major achievement, especially if  the advances being made in the Permian could be made in oil fields and basins across the US and around the world. To see what I am getting at, let us focus on the Permian. Since the first commercial well was drilled here in the 1920s, about 40bn oil equivalent barrels have been produced, 30bn of which were oil. That leaves projections of some 60bn left in the ground, according to Chevron.

Oil fields and basins around the world have similiar percentages of oil still stuck in the ground. Each technological advance squeezes out a bit more. To get a sense of how important this advance is for the oil industry, one must go to Midland – the Texas city at the center of the modern boom. Here, the Holiday Inn Express runs consistently at 98 per cent occupancy. The wait at the Avis Preferred line, an express service for premium car rental customers, stretches for half an hour. Not to mention that service at the restaurants has been falling back since the ramp up in activity began last year. Joe Moroles, Halliburton’s project coordinator for Chevron’s drilling in the Permian Basin, recalls back in 2009 when Permian restaurants were empty and waiters stood around with nothing to do.

Now waiters have joined policemen and teachers in the oil patch, where demand has grown for everyone from engineers to truck drivers, who can ferry the oil out of areas so new there are no pipelines to refineries. This is an area Mike Braswell, a Devon Energy field worker, recalls hunting in during the 1980s. Now a hunter would be likely to hit one of the oil pumps stretching in and around West Texas and into Southeastern New Mexico, as far as the eye can see.

Apache plans to drill 550 or more wells this year in the Permian, after having accumulated over 3m acres. It opened a regional office in the Permian last year, hiring 175 people and growing its field operation from 298 employees to 430. But, like others, it is having a hard time finding enough staff to do all it wants to do. Service companies, such as Halliburton, are overbooked. Chevron has designated more than $600m of capital for the area this year, yet Mr Mamoulides wonders if it will get to spend it all:

We have a lot more wells we want to do than we can get to. It is possible we won’t get all of our investment dollars spent.

While the oil industry has become increasingly high tech over the years, it is still a hard place to work. The 110 degree heat out at Chevron’s fracturing job left Mr Moroles welcoming visitors into a high-tech control centre trailer he called a “sauna” after the airconditioning gave out. The sweat was literally pouring off everyone inside. It was hard to imagine working in a more miserable environment until one stepped outside and saw other field workers directly under the noon-day sun.

But the industry is undeterred about the staff shortages. John Christmann, regional vice president for Apache’s Permian operation, says:

The reason we’ve got some vacancies right now is because we’re looking for the right people. We’re trying to build this platform and set this up to where we can grow for many, many years to come.

Going by the scale of technological breakthroughs made in recent years – from shale gas to floating LNG terminals to shale oil production – it certainly seems Apache is right to think long term. Despite constant fears about where future oil and gas supplies are going to come from, the industry still has a long way to run before all the world’s known resources are extracted.

Michael McMahon, a managing director of Pine Brook Road Partners, a private equity firm that invests in shale natural gas/oil exploration and production companies, is financing management teams in both shale and conventional oil fields on what he sees as a bet on technology. He explains that the Gulf of Mexico, in the early 1950s, was hot. Then it petered out in the 1960s. It picked up in the 1970s, petered out again in the 1980s, picked up again in the 1990s, petered out in the early 2000s, and has, once more, become a centre of activity:

We used to refer to the Gulf of Mexico as the Dead Sea, and it has come back to life four times. It’s understanding the evolution of technology.

That is something those fixated on the concept of peak oil seem to resist understanding. Certainly it is hard to picture it when you cannot get out to the oil production platforms in the gulf to see when activity ramps up with the latest advances. However, the Permian is much easier to access, being on land. A trip there into the desert heat might make clear the production growth possibilities in the oil patch created by technology.


4 Comments on "Cracking the Permian to provide oil supplies for future"

  1. John on Sat, 25th Jun 2011 1:42 pm 

    So, what you’re saying is that all we need to make this work is that gas prices hang around $3.50+ per gallon (US) where we’re already starting to see that the economy can barely manage any growth?

    It isn’t about oil being available. It is about the cost of making that oil available. If we’re getting that oil out of the ground at an EROEI of less than two to one, then it is hardly worth it.

    What’s more, this would only delay the inevitable. Even if we double reserves, right now, it will only put off the peak for a few decades. More efficient extraction is only a temporary solution.

  2. jeyeykei on Sun, 26th Jun 2011 3:31 am 

    who in his right mind would call a high-tech technology, that adds oil production, yet ruins the ecosystem a progress?

  3. Makati1 on Sun, 26th Jun 2011 6:49 am 

    Has anyone on here read the SF novel Dune?

    If you have, you must realize that the above advocates are Harkonnens. The people who destroyed their planet for oil and greed. The novel paints a very good picture of the way we are doing this and the results. The Harkonnens consider the smell and look of a greasy, oily planet as ‘beautiful’.

  4. DC on Sun, 26th Jun 2011 12:18 pm 

    The Dune reference is interesing Makati1. FH painted an interesting back-story to the Dune-Verse. Up until the time of the butlerian jihad, the all humanity lives in a sort of high-tech version of the singularity. AI, thinking robots, powerful computers, all manage human affairs and well-being. Presumably this state of affairs was very energy and resource intensive. After that event however, things take a dramatic turn. A Galaxy-wide feudal political system takes control. And not just that, computers, all outlawed, so are vitually all auto-mated devices and technologies.

    The new elite has access to what we would call high-tech, powered transport, aircraft, long range commincations FTL spacecraft, etc, but, for the vast majority of humans, its a low-or medium tech exisistance at best. The automated easy life we have simply does not exist for most people in the Dune-Verse, its quite litterally, a galaxy made by hand for the almost everyone. Now I dont think it was FH intent to paint a picture of what a low-tech, low energy future would be like, but he did inadvertenly. Geidi Prime I think was an anomoly even in the Dune-Verse. It was mentioned at some point that GP was hardly common, and the damage done was extreme by any measure of the worlds of the imperium. Of couse, in Dune GP was but one world of many, we only have one…

    Of course the Harkonnens opinion would translate into oil executives calling the stench of oil, “The smell of money”. It could be that GP was meant to be represent the careless negilgent oil companies, after all spice was a euphasmim for oil, he could very well have meant GP to represent a world devasted by oil companines(ie ours)

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