Posted on 06/01/2014 3:49:02 PM PDT by ckilmer
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June 1, 2014 | Comments (0)
As the U.S. energy boom has taken off over the past several years, the term "fracking" has become a household name. But fracking, which involves pumping massive quantities of water, proppant, and other chemicals into a wellbore to unlock trapped hydrocarbons, isn't the only drilling technique responsible for the surge in U.S. oil and gas production.
Horizontal drilling, which allows operators to reach hydrocarbon formations that cannot be accessed via vertical drilling, has also played an equally important role. In fact, horizontal drilling has been absolutely crucial to the development of West Texas' Permian Basin and could hold the key to success for Permian-focused companies like Pioneer Natural Resources (NYSE: PXD ) and Occidental Petroleum (NYSE: OXY ) .
Photo credit: LINN Energy LLC
Horizontal drilling taking off in the Permian
According to the U.S. Energy Information Administration (EIA), the number of horizontal, oil-directed rigs in the Permian Basin has risen by 63 rigs over the past five months, accounting for roughly half of the growth in U.S. horizontal drilling for oil over the period.
As the EIA notes, this rapid growth in horizontal drilling reflects operators' growing interest in tapping the so-called "stacked pay" potential that exists throughout the Permian Basin. These stacked pay formations are in such high demand because they feature multiple hydrocarbon producing zones, which can materially boost overall production levels due to the larger resource base.
In the first quarter of 2014, nearly 80% of all new horizontal, oil-directed drilling in the Permian Basin occurred in just five counties that contained these stacked pay formations, including the Spraberry, Wolfcamp, and Bone Spring formations. A number of operators see tremendous potential in these formations.
2 companies to watch in the Permian
Occidental Petroleum (NYSE: OXY ) , for instance, is especially optimistic about its opportunities in the Delaware Basin's Wolfcamp shale, where it estimates it has roughly 800 remaining drilling locations. During the first quarter, the company brought online 12 wells in the Wolfcamp, bringing its total to 18 producing wells.
While initial production rates for these wells averaged just around 750 boe/d, Occidental reckons it can significantly improve production rates by increasing the lateral links of its wells and improving the efficiency of its fracs. With the company planning to significantly accelerate horizontal drilling in the Permian Basin this year, oil production is expected to grow by 6%, which should generate $1.8 billion of cash flow after capital.
Combined with the spinoff of Occidental's California unit and the start-up of the BridgeTex Pipeline joint venture with Magellan Midstream Partners (NYSE: MMP ) and the Al Hosn Gas Project in the United Arab Emirates this year, the company's cash flows are set to grow sharply. This will allow it to bolster its balance sheet and buy back another 40 million-50 million shares, which could be a catalyst to send its share price higher.
Pioneer Natural Resources (NYSE: PXD ) is another company with a massive opportunity in the Spraberry/Wolfcamp formation, where it commands roughly 600,000 gross acres and expects to spend the vast majority of its $3 billion drilling capital budget for the year.
Pioneer's first-quarter production grew 5% sequentially thanks largely to accelerated horizontal drilling activity in the northern Spraberry/Wolfcamp, as the company ramped up its drilling program from five horizontal rigs as of year-end 2013 to 16 rigs. As Pioneer further accelerates horizontal drilling across the Spraberry/Wolfcamp in the years ahead, the share of oil and natural gas liquids (NGLs) in its production mix should rise meaningfully, boosting margins, cash flow, and return on capital.
But perhaps the most compelling reason to be optimistic about Pioneer is that the company's overall resource potential in the Permian may be as much as 22x its current proven reserves. If the company can successfully delineate its acreage and book additional resources as proved reserves, it could significantly boost its net asset value (NAV) and share price.
Beware the BOPDE numbers. The only part that makes any money is the “O” part.
Horizontal gets fracked also
And this article is misleading. These horizontal wells are fraced as well. Or they wouldn’t make anything.
Yes, it’s very awkward when you do it vertical.
Oh ?
Sorry ... wrong thread ...
Correct me if I’m wrong, but I think that what distinguishes the Permian Basin, I think, from the Eagle Ford and the Bakken
is that Eagle Ford and Bakken have mostly been derisked. That is, for the Bakken and Eagle ford the drillers know where all the most profitable oil is and understand the best economics for oil extraction at these locations—including spacing drill depth etc. As a result both the Bakken and Eagle Ford are in production phase.
This is not so for the Permian.
Even though much of the new horizontal drilling in the USA is being done in the Permian Basin—drillers do not have the permian derisked.
As a result, no safe estimates can be made for the amount of oil that can be extracted at what speed and at what price from the Permian. The Permian has not been derisked.
But you can see from the article the areas of concentration in the Permian.
If there is going to be any serious growth in US oil production after the end of 2015—it will have to come from the Permian Basin.
Will that happen?
Beats me but the Permian is where the big story is for the rest of this year and next—because we’ll learn just how much & how fast the oil can be extracted in the next 12 months or so.
( As a side note, EOG Resources is doing an immense amount of drilling in their derisked parcels in the Eagle Ford this year)
There are some areas in Grayson County that have fairly well de-risked as well.
Rapid growth in production; imperceptible decline in price at the pump.
derisked parcels
- - - - -
From my perspective, that is a term made up to get more investors.
The growth in production is due to the relatively high prices for the oil. We wouldn’t be producing from the expensive shale fields if the prices were falling deep.
We have China, India and Brazil to thank. Were it not for those booming economies, OPEC would drive down crude prices and drive U.S. domestic unconventional exploration and production out of business. As it stands, OPEC doesn't need to worry about declining U.S. imports.
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For those who want to see a video showing how horizontal drilling and fracking is done, Northern Gas and Oil has a great one. It’s 6 minutes.
It includes a visual piece on how fresh water aquifers are protected from contamination.
http://www.northernoil.com/drilling-video
Here in SW Pa there seems to be a well every half mile or so ... pretty close IMO.
are these directional wells ?
If so ... is one deeper than another and etc, thereby getting maximum "coverage" from a small area ... i.e. ... #1 is a half mile deep before turning ... #2 is 3/4 mi and turns maybe 30 degrees from #1 ... #3 is 1 mile and directional is 30 degrees from #2 ..... etc.
So if you spy down from above you see a "ray" of directionals
Or am I inventing things ?
derisked parcels
- - - - -
From my perspective, that is a term made up to get more investors.
...............
I’m sure that the word “derisked” in the hands of someone like McClendon is a term made up to get more investors.
But How about EOG Resources? Any map of the most productive areas of the Eagle Ford will show that its a long narrow cresent arc. EOG is doing now a massive amount of drilling in that crescent. I have not heard them use the word “derisk” but the confidence of their drilling methodology suggests that “derisked” is the appropriate way to characterize their drilling.
http://www.bizjournals.com/houston/news/2014/05/08/eog-resources-ceo-lays-out-ambitious-eagle-ford.html
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EOG Resources CEO lays out ambitious Eagle Ford drilling schedule
Houston-based EOG Resources is planning to drill more than 500 wells in the Eagle Ford Shale as part of its long-term exploration strategy.
EOG Resources Inc. (NYSE: EOG) will drill 520 wells in the Eagle Ford Shale this year, completing the “vast majority” of its 2014 drilling obligations in the basin’s oil-rich section by July, its top officer told analysts.
“We’re currently running 26 rigs in the play,” CEO Bill Thomas said on an earnings call this week.
The key phrase her is "may be as much as". Last time I invested in a Texas oil company they used the stock book as a check book to pay their living expenses.
They can do just about anything with directional drilling.
The largest step-rate technological advances That have given us access to huge added amounts of economically-extract able oil I have witnessed in the oil industry in past 4 decades(not in any order):
1.3 dimensional seismic( we can image what we used to have to drill to see)
2. Deep water drilling and production(be cause most of the world is underwater and oil exists there too)
3. Horizontal drilling (now we can explore and develop other than vertically)
4. Stage fraccing(cause the rocks are now so low quality we must create our own permeability)
I dream of what might transpire during the next 40 years
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