Level-Headed Analysis of the Future of U.S. Shale Oil Industry

[D Coyne + 305]

18 hours ago, Douglas Buckland said:

Towards the beginning of the comments, before they took a more 'financial' turn, I once again saw references regarding the magical technologies which will allow the shale oil industry to go forth and prosper.

I am sure that there are technologies out there that can enhance initial production rates and also technologies which can be used to flatten out the decline curves (for awhile anyhow), but at the end of the day you work with what God gave you.

Tight rock is tight rock. Fluid pressure in the tight rock is a given.

I have not seen any technology which will change the matrix permeability. Fluid dynamics are also a given. Technology will not change the underlying principles of either the inherent rock properties of shale or fluid dynamics.

Sure, you can frac until the cows come home and create flowpaths to the well, but the matrix rock properties will determine the flow feeding these fractures.

In my mind technology can help the production of shale oil wells initially and for a period early in the life of the wells, but eventially it all goes back to the basics of rock properties and fluid dynamics.

Agree 100%.

[DanilKa + 443]

19 hours ago, Douglas Buckland said:

Towards the beginning of the comments, before they took a more 'financial' turn, I once again saw references regarding the magical technologies which will allow the shale oil industry to go forth and prosper.

I am sure that there are technologies out there that can enhance initial production rates and also technologies which can be used to flatten out the decline curves (for awhile anyhow), but at the end of the day you work with what God gave you.

Tight rock is tight rock. Fluid pressure in the tight rock is a given.

I have not seen any technology which will change the matrix permeability. Fluid dynamics are also a given. Technology will not change the underlying principles of either the inherent rock properties of shale or fluid dynamics.

Sure, you can frac until the cows come home and create flowpaths to the well, but the matrix rock properties will determine the flow feeding these fractures. 

In my mind technology can help the production of shale oil wells initially and for a period early in the life of the wells, but eventially it all goes back to the basics of rock properties and fluid dynamics.

Very true. On a frac side (sort of my specialty), there are limits as well. Productivity is increased by creating humongous contact area between conductive fractures and reservoir. It is fairly easy to satisfy minimum conductivity requirements for the fractures, even few millidarcy-feet may give enough contrast to create stimulating effect (because formation perm is in nano-to microDarcy range). Stimulating entire volume of rock is a different story. If fractures spaced too close, they affect stress field around it: Hookes law (frac width * rock youngs modulus)/distance from the frac. As a result significant %% of perforated clusters remains unstimulated, meaning sand is wasted (used inefficiently) elsewhere. Most popular frac fluid is "slick water" - trace amount (~0.005%) of polyacrilamide added to reduce friction. It is cheap but it does not transport sand very far thus limiting created propped length (there were debates on "who needs the stinky proppant" but average use per well over 10MMlb answers it). Propped length does not equal effective length - it needs to clean out from frac fluid for hydrocarbons to move. I've seen modelling showing ~15% of propped length (product of another modelling; reality often different) is contributing to production. 

Than there is an issue of ash beds and vertical discontinuities which prevents stimulation of large formation height. Need more laterals for this...

Bottom line - there is a limit on how much sand you can stuff into a well before it passes point of diminishing returns and we are about there.

Same with a well length; drilling longer (already past 10,000ft Hor lateral length in Bakken) may not justify expenditure. Adds to complexity (hard to cleanout screenout etc) and too many eggs in one basket.

We've had massive incremental technological improvements which enabled us to produce HC from pool table black slate (in case you were wondering how organic shales looks like) with permeability less then that of concrete or brick. Further gains are still possible - ensuring all clusters are treated (one at a time or fewer per stage; diverters), use of energized or foamed frac fluid (Natural Gas foam, if we can learn to handle it safely), better sand transport additives, etc. Bared use of nukes or something as radical - I don't see those changes to be revolutionary but rather incremental evolutionary. Just like entire "shale gas revolution" - slow learning process ("25 years overnight success"). I do chuckle when I hear magical thinking that technology will save the day, don't even bother answering.

Edited May 23, 2019 by DanilKa
added units

[Mike Shellman + 548]

2 hours ago, DanilKa said:

I do chuckle when I hear magical thinking that technology will save the day, don't even bother answering.

Your are an enigma, Daniel, and far too "level headed" to be be commenting here. I've listened to frac engineers debate the extent to which stages near the toe of a 10K ft. lateral actually get effectively stimulated and it wanders between they don't, to 30-40%, to just long enough to post a big IP number. 

[Ian Austin + 131]

On 5/22/2019 at 7:34 PM, Mike Shellman said:

Your are kind, Dennis, but you will never get me to predict oil prices. Nobody in the oil business using they're own money does that. All I can say is that my budget for the year is based on $53 by mid summer and what happens after that is lagniappe; I hope. I will engage in some infill drilling but that is based on two year payouts and greater that 300% rates of return over 15 years. The IEA, for instance, that has suggested that my break'evens are the same as shale oil break'evens is laughable. There are many of us out here grinding away quite happy with $60 oil and humbled by OPEC's help with that, waiting on the US shale oil phenomena to screw that all up. Again.  

Your EUR's are OK, Dennis: I stand firmly by Enno's data. It is meticulous and I am proud of the truth his data brings to this debate. Its interesting, isn't it, how many people criticize my "bias," then again somehow think a few wells they have interest in circumvents all other factual data, and they are NOT bias?

Your incremental lift costs per BO are too low; I am unclear why you purposefully do that? GOR and WOR is going up; water costs in the Permian are astronomical. I did a quick thing on JIB data I've seen from W. Texas associated with ESP's. Maybe $5 bucks per incremental BO, just to use that crap for AL. We are getting shaked, rattled and rolled in the EF right now with earthquakes: finding fresh water to frac with and where to put produced water is the biggest hurdle the shale oil industry faces. You do what you want and you will of course understand why I think your model suggesting debt can be paid back over time is, forgive me, ridiculous.There are too many greedy folks associated with the shale gig to EVER let that happen. You have too much faith in human goodness. Google Floyd Wilson, Gary Evans, Tom Ward and a bunch of other "wildcatters," hee hee;  that should change your mind. Walker was driving  his company into the ground and he walked last week with $70MM. He didn't think twice about any of that and will be at it again by year end, with more borrowed money.

Lastly, shale oil "haters" is a really high school term for knowledgeable folks concerned about the long term sustainability of shale oil in America. There are, gasp, a lot of us, actually. Implying that shale oil haters relish in  people losing their jobs in West Texas is actually grade school stuff. But it is, after all, the nature of our industry, to lose your job. It is precisely BECAUSE of the shale oil business model that over the ensuing years more people will lose their jobs in the shale oil industry, sadly. BTW, there are several tens of thousands of good men and women in the US conventional industry, including the GOM, that have been out of work for years...because of the shale oil industry. Do shale oil "lovers" care about that? Or wrecked social structures throughout the world because of shale oil induce price volatility? Of course not. They could care less. Some of us are striving for price AND employment stability, industry wide.

Stick to your guns. Remember, royalty owners and people who think they are in the oil business via MLP's with five zeros in front of their interest don't know shit about well economics. Royalty owners wiggle out of paying for everything, even marketing costs to get their minerals sold. Leave the links behind and think for yourself. Think about it as though you were IN the shale oil business, running the show, up to your ass in debt, facing maturities, with no cash on hand and production that is dropping like a rock everyday.  Think of it all as though you are using your own money and it all gets real clear, real fast. And quit hoping for higher oil prices ! That's no plan ! 

 

 

  

 

All anybody can say to that is 👍

[DanilKa + 443]

4 hours ago, Mike Shellman said:

I've listened to frac engineers debate the extent to which stages near the toe of a 10K ft. lateral actually get effectively stimulated and it wanders between they don't, to 30-40%, to just long enough to post a big IP number. 

@Mike Shellman, %% of contributing clusters is inversely proportional to number of clusters per stage. At least that what PLT logs are telling us (SPE-144326-MS).

With clusters jammed closer together it will only get worse (fracs tend to repel each other). I'm hearing of cases when insane number of clusters (over 10) shot per stage and diverters are used. It may work but have to be done properly - with pad stage starting after diverter pill; else sand will bridge new frac and stop its propagation.

LE=Limited Entry. Image from Oilfield Geomechanics LLC.

Closely-spaced clusters and "proppagedon" help to boost IP but NPV suffers down the line. No free lunch...

[D Coyne + 305]

12 hours ago, DanilKa said:

@Mike Shellman, %% of contributing clusters is inversely proportional to number of clusters per stage. At least that what PLT logs are telling us (SPE-144326-MS).

With clusters jammed closer together it will only get worse (fracs tend to repel each other). I'm hearing of cases when insane number of clusters (over 10) shot per stage and diverters are used. It may work but have to be done properly - with pad stage starting after diverter pill; else sand will bridge new frac and stop its propagation.

LE=Limited Entry. Image from Oilfield Geomechanics LLC.

Closely-spaced clusters and "proppagedon" help to boost IP but NPV suffers down the line. No free lunch...

Interesting Danika,

Unfortunately I am not a member of the SPE, maybe I will check and see if I have access at the nearby university.

I think of this in the non-technical sense of the law of eventually diminishing returns.  My guess is that at this point the petroleum engineers may have figured out the optimum setup for frac fluids, proppant, lateral spacing, lateral length, etc.  Any further improvements will be minor incremental improvements and often the net revenue generated by the increased output will not cover the cost of the "improvement".  It all comes down to dollars and cents, often it is said that the aim is not so much to produce oil, it is about maximizing return on investment.