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Wells That Fizzle Are a ‘Potential Show Stopper’ for the Shale Boom


The oil patch needs more brain for its brawn.

The reason is enough to give pause to anyone enjoying the benefits of cheap, abundant energy produced in the U.S. New wells are fizzling out in their first year, threatening the 3-year-old oil boom.

The challenge is forging alliances between two groups who previously rarely needed to work eyeball to eyeball — the people who know rocks and the people who poke holes in rocks.

Halliburton engineer Ron Dusterhoft, who was charged with marshaling a SWAT team of experts to tackle the problem, can now see a solution using artificial intelligence software dubbed Cypher. One Texas well that the team studied for months should have been drilled deeper, at a different slope, to really hit the sweet spot for oil.

“A lot of these wells aren’t performing well because they just haven’t been put in the right place,” he said.

Just when the nation is hastening its march toward energy independence, the industry is concerned about crummy rock causing shale wells to sputter, some dropping as much as three-quarters of their output in the first year. That forces drillers onto a hamster wheel: They have to drill more wells, faster, to keep production up and satisfy investors, who in turn see costs rising and profits suffering.

‘Brute Force and Ignorance’

Oil and gas producers use hydraulic fracturing — fracking — to shatter the dense shale formations so that oil and gas can flow through the cracks and into the well. In the early days, fracking was a matter of “brute force and ignorance,” Andrew Gould, then chief executive officer at Schlumberger Ltd., observed in 2010.

Muscle has taken the industry pretty far. Freshly fracked wells sent U.S. oil production soaring 39 percent since 2011. That’s the steepest climb in history, and if production continues apace, the U.S. would become the world’s biggest source of oil by 2015, according to the U.S. Energy Information Administration.

Rapid well declines threaten to spoil that promise. The average flow from a shale gas well drops by about 50 percent to 75 percent in the first year, and up to 78 percent for oil, said Pete Stark, senior research director at IHS Inc.

“The decline rate is a potential show stopper after a while,” said Stark, a geologist with almost six decades in the oil patch. “You just can’t keep up with it.”

The industry has so far been able to live with the decline curve problem because operators have been able to scratch out better initial production in wells, Stark said. “If you don’t have that improvement, then you get stuck after a while and have to drill more and more wells just to stay even,” Stark said.

A Brainy SWAT Team

Now, energy companies including Halliburton and Schlumberger Ltd. are realizing they need to buttress their efforts with brains before brawn.

Dusterhoft was charged with assembling a SWAT team of engineers and geologists at Halliburton — something new in shale drilling where the two disciplines traditionally minded their own tasks: geologists found the oil, and engineers figured out how to drill the well.

Understanding the peculiarities of shale rock requires bringing both into the same room for the first time.

Ideally, fracking is supposed to create a spider web of cracks in shale that oil or gas can flow through. If the rock is too “squishy” or pliable, Dusterhoft explains, the large network of cracks may not form, or may collapse, cutting off the flow. Grains of sand that are forced into the cracks to prop them open may not penetrate deeply enough to keep the path clear.

Roughly four out of every 10 clusters of fractures in an average horizontal well are duds, Mo Cordes, vice president of integration at Schlumberger Ltd. said.

“We’ve got to be able to do better,” said Cordes, who leads a similar effort to integrate experts at Schlumberger. “Everybody’s really starting to realize you have to work together.”

The geologists are helping engineers better understand the layer-cake of rocks underground so they can guide their wells into the sweet spots and fracture the shale more effectively. Technology such as fiber-optic lines and 3D seismic imaging are helping scientists see and hear what’s going on two miles underground.

Geologists are also helping engineers understand the value of letting rocks “rest” after the brutal pounding of fracking, allowing more oil and gas to seep into the new cracks before pumping begins.

A ‘Science-Based Approach’

Before the hunger for more science and technology, the industry was essentially drilling wells blindly, said Peter Duncan, a former geophysicist at Royal Dutch Shell Plc who founded Microseismic Inc. Operators originally viewed shale rock in the “layer cake” model, thinking all of the rock was the same. Real-world experience showed that’s not the case, he said.

Last year Exxon Mobil Corp.’s Chief Executive Officer Rex Tillerson promised to devote the company’s massive research and technology capabilities to understanding shale reservoirs better than anyone else.

“We can’t take forever, but we can be deliberate about it,” Tillerson told investors March 6.

Commingling the expertise of their scientists through a software program Schlumberger calls “U-ROC” has led to an almost 30 percent increase in production in some wells in the Eagle Ford, Cordes said.

Halliburton believes it can match or exceed that improvement with Cypher, its similar package of technology and software, said Stephen Ingram, Halliburton’s technology and marketing manager for North America. The system, which has been used so far on hundreds of wells, can tell a producer exactly where to drill and the best way to frack for maximum production.

They’re starting to figure it out. Laredo Petroleum Inc. shares doubled in the five months after it talked on a call with investors in May about working with Halliburton on well-spacing and by using a “science-based approach” in West Texas’ Permian basin. By August, Laredo said it had its best-ever results in the Permian and that it was “among the best” of all peers working there. The well’s success was attributed partly to Laredo’s own internal efforts to pump more time and money into the science of drilling and production, said Ron Hagood, a spokesman at Laredo.

Ultimately, Dave Dunlap, chief executive officer at Superior Energy Services Inc., said he doesn’t ever see the decline curve challenge going away entirely.

“We’ve drilled all the good stuff,” he said. “These are very poor quality formations that I don’t believe God intended for us to produce from the source rock.”


9 Comments on "Wells That Fizzle Are a ‘Potential Show Stopper’ for the Shale Boom"

  1. rockman on Mon, 24th Feb 2014 5:31 pm 

    “A lot of these wells aren’t performing well because they just haven’t been put in the right place,” he said.” Well…duh! LOL. Truly a very funny/stupid statement. True story: about 34 years ago the CEO (who had zero oil patch experience) of a new public oil reviewed the results of the first two years of drilling for a company I just started working with. Overall not very good. But he noted that the economics of the wells that worked weren’t too bad but when you factored in the failures the final number was disappointing. So he had an obvious solution: avoid those types of prospects that didn’t work and concentrate on the ones that did, IOW: don’t drill wells that will be dry holes. Damn…why didn’t we think of that? LOL.

    ““We’ve got to be able to do better,” said Cordes, who leads a similar effort to integrate experts at Schlumberger. “Everybody’s really starting to realize you have to work together.” This article is 100% puff piece. That statement alone is 100% BS. The technology integration between geologists, geophysicists and drilling engineers to ID locations to penetrate fractures has been going on intensely for more than 25 years. This article is all sales pitch offering new versions of very old technology.

  2. Nony on Mon, 24th Feb 2014 6:06 pm 

    This company sells an analytics suite. Some of the videos are pretty promotional, but still some of the blog pieces are interesting (actual analysis done, what I like better in certain articles here).

    I think these things are matters of degree, no, Rock? Sure the geologists and drillers (and accountants and managers) have worked together for eons. It’s not “new”. After all they are in the same companies. But still, the nature of the collaboration might be very different in conventional field exploration with 9/10 holes dry versus drilling the Bakken with <1% dry and rapid drilling, high declines, "mining" activity.

    I really like your historical perspective and calling BS on the latest fad (I really do see a lot similarities to the latest US boom with what went down in the early 80s when price controls came off…heck I bought the newest Yergin book* to help me get up to speed.)

    But do you really think no one is learning anything? Isn't there a reason why Contintental took a while to figure out the Bakken (EOG with the EF was more fast and amazing).

    Ask yourself this, if you had overseen the drilling program for CLR for the last 10 years, do you think you would not have learned anything? About how to play this game? That everything was figured out by George Mitchell in the Barnett?

    I mean Earl Weaver did baseball stats back in the 70s. Heck my college coach in the 80s did hard core stats (in addition to being a mean scary SOB). And yeah, Lewis cashed in on Moneyball, but still there has been some advancement in how stats are used in sports.

    *Having a hard time getting going on it. Pretty darned thick and easier to read blogs and sites like this and all.

  3. Nony on Mon, 24th Feb 2014 6:09 pm 

    BTW, from my reading of The Frackers, it does seem like people have been working together for a long time and that this is a field where even the managers and moneymen like to look at the geology a little. Maybe they don’t know it as well as the real scientists/engineers, but they look at it and try to find opportunities. That’s actually a cool thing about the industry.

  4. rockman on Mon, 24th Feb 2014 8:26 pm 

    Nony – Good points but again remember what they are saying: “now we need to get all the different branches working together”. About 20 years ago I was involved in very complex state of the art seismic analysis trying to ID fracture patterns in the Austin Chalk to orient horizontal well bores. And 35 years ago I was using state of the art complex seismic analysis to locate fractures in the Austin Chalk to ID locations for vertical wells. And lastly, engineers have no place in picking the locations of vertical or hz wells. I would slap the piss out of my engineer (maybe not…he is my boss. LOL) if he were to interject himself into such a discussion. But I would do the same to a geologist/geophysicist trying to tell an engineer how to drill a hz well. Trust me: I’ve spent at least 1.25 million hours in joint meetings with geologists, geophysicists, engineers and lame ass managers going over such projects in painful detail.

    And yes: I’m qualified to wear both hats. That’s why I get paid the big bucks. LOL.

    And Dog save from amateur “geologists”. LOL. Actually I’ve known a few non-tech guys that did learn a fair bit over many years.

  5. Northwest Resident on Mon, 24th Feb 2014 8:56 pm 

    My guess is that the investment firms and oil companies are starting to get a lot of inquiries from investors/stock purchasers who have been hearing that these fracked oil plays have a high decline rate and want to know how that squares with all the (implied) promises of big profits and oil gluts that prompted them to put their money on the table in the first place.

    This looks like the rollout of a PR campaign to preempt a looming large scale loss of investor stock-buyer confidence in shale oil plays, which based on facts, probably isn’t that far away. The goal is to prep the investor/stock buyer community to accept that “yeah, we weren’t working together like we should have so we kind of goofed up, and yes indeed that is going to lead to some declines, but don’t you worry sir, because mister bad-ass big-nuts Halliburton is riding to the rescue with their magic software, and by God, we have learned that from now on we all have to work together. Just stay pat investor sir, you’ll see those oil gluts and big stock increases — and a return to American supremacy — if you just stick with the program.

    It is obvious (to me).

  6. Nony on Mon, 24th Feb 2014 9:03 pm 

    Yeah, the “let’s collaborate” stuff sounds awfully fluffy. People have already been doing it for a long time. That’s why teams have differing composition, why companies hire differing specialties, etc.

    And then if the type of exploration/exploitation requires different types of teamwork than I imagine companies will adjust pretty naturally. For instance if the nature of teamwork needed is different for different types of oilfields: deep offshore, conventional vertical onshore, poorly understood shale, well understood shale.

  7. chubasco on Tue, 25th Feb 2014 5:31 am 

    @Northwest Resident: bang-on brother. Was about to post to exactly the same effect when I read yours. (nice Harry Stamper reference there too 😉

  8. rockman on Tue, 25th Feb 2014 12:28 pm 

    NR – “…The goal is to prep the investor/stock buyer community to accept that “yeah, we weren’t working together like we should have so we kind of goofed up”. Exactomondo! LOL.I got to thinking that I may have been subtle. No Halliburton et al hand would dare make such a pitch to any of us in the oil patch. Very insulting proposal and would get them run off immediately. Those press releases are purely for non-oil patch public consumption.

  9. Pops on Tue, 25th Feb 2014 1:46 pm 

    “Just when the nation is hastening its march toward energy independence, the industry is concerned about crummy rock causing shale wells to sputter, some dropping as much as three-quarters of their output in the first year. ”

    Sounds like pre-emptive excuse making (PECYA) to me – yeah we promised Diane Sawyer and the SEC the US was going to be the world’s largest exporter but . . .

    ‘Well we were on the way to energy independence but then we ran into all this crummy rock.’

    LOL, tight oil decline rates have been high all along, everyone who is paying the least attention knows it. This is the driller’s Bernie Madoff moment.

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