Can Fracking Keep U.S. No.1 Oil Producer?

247wallst ^ | November 13, 2013 1:26 pm EST | By Paul Ausick

[ckilmer]

Two recent well-respected and long-running oil industry publications have proclaimed that booming production in North America, particularly in the U.S. shale fields, will hit a plateau as early as 2016 and that production declines will follow soon thereafter. Last week the Organization of Petroleum Exporting Countries (OPEC) set the decline date sometime before 2020 and this week the International Energy Agency (IEA) set the 2016 plateau date.

The boom in U.S. production is set to displace Russia as the top oil-producing country by next year. Had you said this to anyone five years ago, you might have been laughed out of the room. And as both OPEC and the IEA have made clear, the U.S. is not likely to stay on top for long.

That view is not widely shared among the companies that are operating in the Bakken shale play or the Niobrara or the Eagle Ford or the Permian Basin or any of a number of other shale regions. In fact, more than one company think that the boom is just getting underway.

We should assume, of course, that both sides are talking their book, but if we take a look at what’s happening in the shale plays, the scales tip in favor of the operators and away from the cartel and the IEA for two basic reasons. First, technological advances, and second, the vast size of the resource.

Technology first. Continental Resources Inc. (NYSE: CLR) is the largest leaseholder in the Bakken shale play and has been working the field for the longest time. In its third quarter earnings report the company said it had reduced its average well cost to $8 million, two months earlier and $200,000 below its target price. Much of this savings is related to a new technique where one well-pad serves several wells, each of which is draining a different part of the oil-bearing rock.

According to an engineering manager at oil field services giant Schlumberger Ltd. (NYSE: SLB) told Platts that U.S. shale production is only going to go up. His reasons: the vast size of the resource and growing familiarity with it. He also said that there’s plenty of room to improve extraction techniques and minimize the pushback from environmental groups. In the Eagle Ford shale play, for example, Schlumberger now uses well log data to determine the first five wells to drill in a new area. The technique has improved production by 33%.

Everyone knows that fracked wells produce at their maximum level within a very short period of time compared with conventional vertical drilling techniques. Everyone also knows that the maximum level of production tapers off just as quickly and has a very short tail. What not everyone knows is that horizontal drilling techniques and hydraulic fracturing currently recover less than 20% of the oil in place, and in some places even less than that. As technology improves and gets cheaper, companies will return and squeeze more oil out of the reservoir.

Another area where technology has vastly improved is in water consumption. A Texas company is developing technology that uses no fresh water and others have figured out methods for reclaiming 95% of the water used in fracking operations.

Total production costs have fallen from around $80 a barrel three years ago to around $50 to $60 a barrel today at the most advanced producers’ sites. As WTI prices continue to slide, wringing out production costs will become more important than ever. Energy consulting firm Bentek has said that even if oil prices fall to around $60 a barrel production will continue to grow.

We’ve already noted that Continental Resources and Schlumberger are advancing drilling technology and making money while doing it. Other publicly traded firms developing better and cheaper ways of extracting oil include SAP AG (NYSE: SAP), which has developed technology that allows a drilling company to monitor the operation of thousands of pieces of equipment in real time from a single location. The software has cut maintenance and repair time in half, and when downtime can cost half a million dollars a day, the software quickly pays for itself.

Chevron Corp. (NYSE: CVX) currently reuses all the water it uses for drilling in the Marcellus shale play in Pennsylvania, and reuses about 80% of the produced water that flows from producing wells. The company believes that regulatory agencies could soon require that 100% of the produced water be recycled, and it is aiming to do just that.

The fastest growing segment of General Electric Co. (NYSE: GE) is its oil and gas equipment business which contributed more than $15 billion to the company’s 2012 revenues and more than $2 billion to earnings. Like SAP, GE is getting into the big data business as a complement to its existing work as a designer and manufacturer of compressors, turbines, generators, and other drilling equipment.

Will the fracking revolution carry the U.S. to the top spot in global oil production? Absolutely, but the question is how long can it stay there. OPEC and the IEA reckon not for long. But given the size of the resource and the number of big, experienced firms that continue to invest billions of dollars in technology to get even more out of U.S. shale plays, expecting U.S. production to peak in less than six years seems like a foolish bet.

[American Constitutionalist]

" So, if everyone starts fracking....will oil go dirt cheap again? "
Ask Thackney, if the price of oil goes down to a certain point the oil boom would die because there is no incentive to invest and to go out and look for new oil plays.
Thackney ? what if they can reduce the price of production ?
Would not it naturally the price of oil go down anyway ?
Another element that needs to come into play here is the demand side of things.
If the USA can cut the consumption of all it's energy with better technologies that make the most out of all of our current fuels, raw materials that we use we would be in even a greater shape.
More efficient homes, more efficient transportation, more efficient cars, more efficient production, so on and so on.( and no, I am not a screaming wacko environmentalist, but it's smart to use what we have wisely )
The USA can't rest on it's laurels and go back to the way we use to do things 50 60 years ago.
The USA must, must, must get more competitive and remain competitive in all fields, including science, manufacturing, education, banking so on and so on.
Get the government out of all education and privatize all schools and education in this country.

[American Constitutionalist]

Just keep a good eye on what Boeing does with where it decides to place their new 777-X production.
Starve the union beasts slowly, I hope.
Can't blame any company that uses robots to build things, and some times better than humans to cut costs.
Those workers would have to go back to school and learn how to operate a robot then.

[thackney]

Both traditional plays and tight formations like shale fall in production due to loss of oil that is free to move through the formation. Shales typically have a much harder time to get the movement of oil due to low permability. That is why hydraulic fracturing is typically used. To create cracks that allow the oil to move to the well bore.

Without enhanced oil recovery methods, neither shale or traditional wells are going to typically produce more than 10~20% of the total oil in the ground. We have been using enhanced oil recovery methods like water flood, CO2 injection, etc for a long time in the country. Some reading on the concepts: http://www.csur.com/sites/default/files/Understanding_TightOil_FINAL.pdf http://en.wikipedia.org/wiki/Enhanced_oil_recovery

[American Constitutionalist]

If there is a drastic cut in demand for oil, or rather gasoline in the next 10-15-20 years then I hope those oil companies don't sit on their laurels and just watch it happen.
Rather ? invest in another and new areas so they don't get stuck like the Big 3 auto manufactures did in the early 70's.
Hope they invest in new types of fuel, or new business.
There will always be a need for crude oil in other areas like raw materials unless someone comes up with new technologies for that.
Hope those oil companies don't watch the whole bottom drop out of oil, rather gasoline and sit there holding the bag with no where to go.
They need to start planning now to see where everything is going and what would happen when and if does when the demand for gasoline drops permanently.

[American Constitutionalist]

Correction : " I’m all for this, but I hope everybody understands that this buys us more LIMITED amount of time "

As in ? it moves the goal posts out a little furter and gives us a better fighting chance.
However ? we have pleanty of coal as a reserve in case we run out to use to produce electrical power.
Actually with a ICE or rather a internal combustion engine in a car ? there are another ways to power a car other than gasoline.
During WWII in Europe they even use Syngas from wood to run cars and trucks.
Diesel ? Can be produced from a non-food stock plant called: Canola, or rapeseed that farmers can grow as their winter crop.
The end of crude oil as we know it would not be the end of the world as there are other ways to run engines or power electricity, it just won't be at the levels as we know it now.
It won't be the cave age or stone age.

[American Constitutionalist]

Thorium reactors power plants making electricity safe and cheap would make a hydrogen economy and infrastructure more practical and cheaper.

[ckilmer]

Thorium reactors power plants making electricity safe and cheap would make a hydrogen economy and infrastructure more practical and cheaper.
.............
agree. lots of agreement in fact all over. however, the feds are the last to know. they are wedded to current nuclear contractors who don’t much believe in innovation.

[ckilmer]

If there is a drastic cut in demand for oil, or rather gasoline in the next 10-15-20 years then I hope those oil companies don’t sit on their laurels and just watch it happen.
...........
actually this is the prediction of shell oil. that gasoline will fall off sharply starting about 2035-2040
http://gas2.org/2013/11/07/shell-lays-predictions-future-energy/

I think it will come sooner. Maybe starting around 2025. the tell will come in 2016. if tesla is able to produce an electric car that can go over 200 miles on a charge for 30k—then the volumes will start to ramp. but it will still be 10 years before they even get 5-7 percent of the automobile market.

[American Constitutionalist]

That's when the Thorium reactors come in handy for they would really open up the real electric 2nd industrial revolution.
I have no problem with using or having a electric car so as long as I can afford it and it's practical.
Right now electric cars are only practical in urban areas.
Get it down to where it only takes a hour to charge, for that's the average time most people shop at a mall and a full charge gives you over 200 miles.
Have no problem with a hydrogen economy either.
Have to get people truly educated with the facts about hydrogen instead parroting the ignorant sayings of those who fear hydrogen.
Hydrogen is about as safe to use in a car as LP or natural gas.
If hydrogen is stored in a strong tank and handled correctly it is safe.
Besides they have done accident tests with hydrogen and it is proven that hydrogen is even safer in a accident than gasoline.
Hydrogen is dissipated faster into the air than gasoline therefore safer for the occupant if there is a accident.
Gasoline tends to gling or stay around a while like napalm.
The truth is ? on the Hindenburg ? the material that they used on the outside of the dirigible was also flammable.
Yes Hydrogen is very explosive and flammable but it got a bad rap from the Hindenburg accident.
Check out Roy McCalister's videos Hydrogen 101.
He makes a good case for a hydrogen economy.
They even use hydrogen in Hong Kong as a cooking gas.
Did you know ? the exhaust from a hydrogen burning engine or stove is harmless ?

[American Constitutionalist]

In other words, to put it shortly, it's the viscosity of the oil that flows through the rock formation ? correct ? and so to speak hit up against a rock wall.
So what they do is put microscopic blasted holes in the rock to allow it to flow.
Perforating the rock.

[American Constitutionalist]

These big oil companies need to invest in and spend reseach money on Thorium reactors and Hydrogen.
Partner with the big companies that build the current Nuclear reactors like G.E., Westinghouse, or electric giants like Siemans.

[thackney]

Viscosity affects production rates but not so much the rate of change in the production.

Hydro frac creates cracks not holes. The sand in the franc fluid keeps the cracks from closing once the franc job is completed.

[ckilmer]

imho the USA has been steadily decapitalized for the last 40 years.

The biggest and most important thing that the USA can do is recapitalize.

I’m in favor of thorium reactors because they promise to cut the cost of electricity to 1/4-1/10 current cheapest coal based electrical power generation.

I’ve not heard that hydrogen could do the same thing. But if it could — then I’d be in favor of that too.

[American Constitutionalist]

Yes I have not heard that hydrogen would be as cheap either but what favors hydrogen is that it is plentiful almost none exhaustible.
Of course hydrogen won't be the sole source of energy in the future for the one whom is smart would diversify in many cheap and easy to get energy sources.... if it is possible.
I can see where hydrogen can be used efficiently as a cooking source or in static stationary uses.
That is ? until it can be stored and produced in a vehicle safely and economically.
Your absolutely correct that thorium reactors is a huge game changer and can open up a whole new world for us as far as energy is concerned.

[American Constitutionalist]

Even though us evil right wingers are not radical shove it down your throat environmentalist wackos, we do care and want to use what we have wisely.
Yes Liberals ? Environmentalist ? take the time to listen to us instead of listening to your radical agenda propaganda.
Yes, we are for solar, wind, and renewable energy sources, that is ?
When those energy sources mature to the point where it can logically and economically power our whole country and not at the determent of losing jobs or hurting the economy.
I wish our side would get that message out and keep getting the message out...
We are not against keeping the environment clean, or being good stewards of what God has given up, but on the other hand we want to promote jobs, and promote a strong economy, a strong fiscal country, strong national defense so on and so on....
There must be a level headed and logical balance approach.
What the radical environmentalist wackos want us to do is to jump over the cliff with blind faith without testing or maturing the so called " Green technologies " and go head long to our doom.
What I propose is to keep using the technologies what we have now to keep our country strong and viable, and develop new technologies to improve on our current oil, gas, coal traditional infrastructure,
and at the same time ?
While we use those traditional energy sources, keep developing, and improving on those renewables until they are mature and can viability power our country and not at the determent of our countries national security, or our national economy, jobs and our future.
Of course ?
That's to logical and smart for the liberal environmentalist wackos for their agenda is to drive America into the pit of doom.

I challenge any liberal or environmentalist here on Free Republic to come here and challenge that.

[ckilmer]

while the prices of wind and solar are falling and likely to continue to fall for the next couple years—I don’t think either are good for base load energy production —except in the southwest. and even they can’t go all that far until they have solved the intermittency problem. California is putting up a lot of solar but its expensive stuff compared to coal.

I don’t actually buy any of the carbon dioxide arguments of the leftists. I think that’s total BS.

I buy TBoone Picken’s arguement that fracked natural gas is an intermediary energy source. That fracked oil and gas in abundance in the USA will buy the USA time and money to develop the true 21st century energy sources that will be cheap plentiful safe and clean.

What those energy sources will be as yet is unknown. There are a lot of good candidates out there however. We’ve mentioned a few of the likeliest candidates.