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Page added on March 26, 2019

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Shale’s Growing Pains Could Curb US Oil Production

Production

The dramatic ramp-up in U.S. shale production is running into a combination of issues — technical and financial — that threaten to slow the pace of expansion, according to some of the industry’s biggest companies.

Schlumberger Ltd. and Halliburton Co., two of the largest providers of oil services, said Monday there will be a double-digit drop in spending from customers in the U.S. and Canada this year, a gloomier outlook than they had previously given.

American frackers are tightening their belts following a plunge in crude prices in late 2018 and as investors urge drillers to do more with less. An explosive surge in output from shale formations has pushed U.S. oil production past Russia and Saudi Arabia to become the world’s largest. There are warning signs that growth cannot continue indefinitely.

That’s leading one of those producers, Devon Energy Corp., to slash its workforce by about a third amid pressure on spending, Chief Executive Officer Dave Hager said Monday at the Scotia Howard Weil energy conference in New Orleans. The Oklahoma-based driller has already whittled down its headcount by 200 people this year, he said, and is planning to get its total down to 1,700, from about 2,500 now.

In addition to financial limits, technical difficulties are sparking concern that some oil production forecasts won’t materialize. Schlumberger Chief Executive Officer Paal Kibsgaard became the latest voice in the U.S. energy industry to warn of the problems caused by “interference” between newer oil prospects — called child wells — and their so-called parent.

Too close, and the child wells can turn out to be less prolific than their parent. But too far apart, and drillers can end up leaving oil in the ground.

“Is there a parent-child relationship? Absolutely. Has it been there since time immemorial? Absolutely,” Diamondback Energy Inc. CEO Travis Stice said at the conference. “It’s our responsibility to account for the economics of the degradation between a parent and child well, and it’s our responsibility to dial that into our forecast.”

Stice said Diamondback hasn’t had to cut back its activity in response to those issues, like some of its peers who have had to widen spacing after production failed to live up to expectations.

“I think what you’re seeing is reserve reports coming out at the end of last year with a lot of negative performance revisions in there,” he said. “That’s really the first tell as an industry that you’ve overcapitalized your assets.”

It’s not just budget constraints or technological challenges that may slow growth. Concho Resources Inc. President Jack Harper said the industry will have to throw more money at the Permian Basin’s stretched schools and roads for the hot shale play to handle the level of activity expected over the next several years.

In another sign that the shale boom might be slowing down, explorers have reduced the number of oil rigs operating in the U.S. to the lowest in about a year, a report by Baker Hughes showed on Friday. There’s also a backlog of thousands of wells that have already been drilled but haven’t yet been fracked, the most costly part of the process of bringing a well into producing.

So far, U.S. oil output is holding at a record 12.1 million barrels a day after jumping about 30 percent in just two years. But shale wells have a short life span, with yields sometimes declining in just a few months. More have to be drilled and fracked frequently just to keep up the pace of production.

RIGZONE



4 Comments on "Shale’s Growing Pains Could Curb US Oil Production"

  1. Robert Inget on Wed, 27th Mar 2019 11:36 am 

    Korea Rejects certain crude shipments due to impurities.
    https://finance.yahoo.com/news/infected-u-shale-oil-being-014257003.html

    (here’s a taste of what I’ve been talking about re:
    ‘condensates’).

    “In the case of American condensates, a type of ultra-light oil pumped in shale fields, cargoes can get pollutants such as “oxygenates, metals and cleaning agents,” said Sebastien Bariller, senior vice president at South Korea’s Hanwha Total Petrochemical Co. That’s causing uncertainty around U.S. oil quality, unlike purchases from the Middle East, where quality is stable, he said”.

    For a few months China stopped buying US crude and soy beans (among others). (around trade talks, Trump tariffs)

    As it happens, most of the world’s oil and soy beans were already spoken for. So, China returned to US markets to pick-up low cost beans and oil.

    Now, S. Korea is in direct compete w/China for
    US ‘cheap’ oil. Keep in mind, Brent crude is around eight bucks more than WTI.

    https://en.wikipedia.org/wiki/List_of_countries_by_proven_oil_reserves

  2. Robert Inget on Wed, 27th Mar 2019 12:01 pm 

    Names for ‘tight oil, shale, condensate’.
    Tight oil – Wikipedia
    https://en.wikipedia.org/wiki/Tight_oil
    Tight oil (also known as shale oil, shale-hosted oil or light tight oil, abbreviated LTO) is light crude oil contained in petroleum-bearing formations of low permeability, often shale or tight sandstone.

    Unlike actual crude oil, most condensate wells are short lived.
    “Let me begin by clarifying that “shale oil” and “oil shale” refer to two completely different resources. “Oil shale” is in fact not shale and does not contain oil, but is instead a rock that at great monetary and environmental cost can yield organic compounds that could eventually be made into oil. Although some people have long been optimistic about the potential amount of energy available in U.S. oil-shale deposits, I personally am pessimistic that oil shale will ever be a significant energy source”.
    More:
    https://oilprice.com/Energy/Crude-Oil/How-Shale-and-Tight-Oil-Have-Changed-the-Look-of-US-Oil-Production.html

    It all gets back to MY favorite stumbling block.
    W/O additional pipelines from Canada we, the US,
    are totally screwed w/o Venezuelan crude.

  3. Robert Inget on Wed, 27th Mar 2019 12:16 pm 

    Because lack of nearby Venezuelan oil, we will soon, very soon, wake-up to a ‘national emergency’. IOW’s we gonna get those PLs
    from Canada, no matter what.

    Already we see predictions of three new PL’s from Alberta as soon as next year. In the meantime,
    Americans will learn more about viscosity than
    we every wanted.

  4. Robert Inget on Wed, 27th Mar 2019 12:56 pm 

    Where will the lenders come up with the tens of billions of dollars needed to fund ‘new’ (shale) wells, when debts haven’t been repaid from the first wave of shale exploration and development?

    It’s really not about locating oil, it’s about extracting financing for one money losing deal after another. These short lived wells almost never pay for themselves after ALL costs are factored.

    Ultra deep water drilling is far more expensive than shale. However, since 1999 Thunder Horse
    has been pumping 250,000 B p/d for BP.
    In a few years from now most shale wells will be
    pumping fewer than 100 B p/d on Good Days.
    Other ‘stripper wells’ will produce fewer than 20 barrels, too little to pay for energy consumed.

    Oil companies are exporting condensates just to show cashflow if not oil flow.

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