Data experts explains outlook for tight oil

By Staff | March 06, 2018

Assembled to explain the short-term outlook for U.S. tight oil production and investment variables, data experts and analysts recently took part in the Center for Strategic & International Studies Energy and National Security program. Speakers from energy service firms, investor analysts and energy research firms spoke on breakeven prices, CEO pay and trends to watch in the next three years.

Production Expectations

Rystad Energy’s Artem Abramov said the U.S. will grow oil production 100,000 barrels a day each month on average. By late 2019, oil production from the U.S. could reach 12.5 million barrels per day. The only issue holding back production growth, Abramov said, is bottlenecks in trucking, labor and even road degradation linked to the transport of proppants, well site materials or water. Despite talks of service cost inflation that started early 2017, Abramov said the issue never became too great for operators to overcome. Even in the Permian and Eagle Ford, where some drilled but uncompleted well numbers grew because of service availability restraints, the issue was nothing operators couldn’t overcome.

Base decline—the amount of production loss that occurs with every unconventional oil well over time—was not an issue the past two years, but, it could become something the industry must deal with as it moves to increase production. New artificial lift approaches and fracking strategies are helping to overcome the issue, but more needs to be done, he said. In 2014, an average shale well fell by 50 percent in production in year one and then another 10 percent in year two. To help offset base decline in the coming year, the U.S. needs to overcome a base decline number of roughly 3.1 million barrels per day.

Where Are The Opportunities In Shale?

Robert Kleinberg, fellow and leader of unconventional resource research and development for Schlumberger, noted three areas that will change for shale in the future: more efficient fracking, permeability enhancement and tertiary recovery methods. Each area shows opportunities for greater and more efficient production as sweet spots and primary recovery methods are exhausted.

Tight oil recovery is still in primary recovery. Conventional oil has primary, secondary and tertiary all working today to recover 40 to 50 percent of the oil in place. Tight oil can only recover between five and ten percent of the oil in place. But, Schlumberger and others have found ways to help.

With a new measurement process used to inspect the amount of organic matter along various sections of the horizontal, operators can help improve the effectiveness of frack perforations. Currently, Kleinberg said, most frack jobs only effectively perforate two-thirds of the horizontal. With the organic measurement approach, unproductive zone percentages can be lowered to 10 or 20 percent, he said. Clients don’t yet use the approach today because it is expensive and elaborate, he said, but when the time comes for new technology in more difficult production scenarios, Schlumberger and others already have the answer, he said. “This is one thing that gives me confidence that we can overcome the depletion problem,” he said.

Another approach that is ready—but expensive—is reservoir permeability enhancement. Certain solutions can be pumped downhole to enhance the permeability of the rock downhole.

Tertiary recovery, often referred to as enhanced oil recovery, could be the most interesting part of the story, he said. EOG offers a glimpse into the future. EOG Resources, sometimes referred to as the Apple of the shale players, is injecting field gas into more than 70 Eagle Ford wells in a pilot project. Although EOG has been tight-lipped about the project, Kleinberg said there is great evidence that the approach will work. According to Kleinberg, the best solution industry thought it could use for the EOR approach was with CO2 injected downhole. Such a solution can help the oil move through the rock and flow to the surface again. But, in the Eagle Ford, EOG has used field gas for its injections. The mixture is laden with ethane and propane, two gases that Kleinberg said are even better than CO2. “I know believe that EOG might be injecting the optimal mixture,” he said.

Shale Money Makers

Jan Stuart, global energy economist at Cornerstone Marco LLC, said that although shale firms have not made much money in the past, they are very close. The positive outlook is based on the team’s assumptions of oil supply and demand. “We are in a tightening set of fundamentals,” he said. By the end of the year, the world will have a deficit of oil supply and by 2022, the world will need higher amounts of oil produced.

The global supply and demand curve for oil, combined with a new company strategy explained by Paul Sankey with Wolfe Research, has Stuart and Sankey each bullish on shale. “Shale companies are about to get profitable,” Stuart said.

The assumption is best understood through Sankey’s explanation of a major shift that has taken place amongst the producers. Prior to the price downturn, most companies were working under the thesis that oil prices would always rise in the future and larger oil majors would eventually need to acquire smaller producers that had proven operations and acreage.

“In 2017, that model broke down,” Sankey said. Everyone realized you can’t rely on oil prices, Sankey added, and because of that most investors are looking for shale companies to become cash return focused. With oil price increase uncertainty set for many years into the future, shale companies can no longer grow production hoping to cash-in when oil prices reach a certain level. Instead, they need to focus on managing current operations so that investors will receive a 10 percent return plus cash invested, Sankey explained. CEO’s, once incentived to grow production and the portfolio, will now be viewed on their ability to provide the returns to investors that had been lacking for the past several years of the infant shale production industry.

Although there isn’t a high number of shale producers that can currently meet the requirements Sankey believes investors want, there is a major number of producers that could achieve that status in the near-term future.

“There is almost as much growth potential now as there was in 2014 when oil was $100/b,” Stuart said. “There is an insane inventory of really good wells.”