The shale industry was in trouble even when oil was priced at $30 a barrel. Hundreds of small producers across Texas and the Midwest were laden with debt, sweet spots already taken and forcing well operators to tap higher-cost locations. WTI crude at under $20 a barrel, is less than half the $40-plus-a-barrel breakeven needed by the shale industry. The slump in crude prices and a supply glut lasting into the foreseeable future leaves the shale industry with stark choices: to limit production, cut costs and increase productivity.
Cost and spending reductions
Cutting exploration budgets, rigs, well drilling, laying off frack crews and closing old wells are tried and tested methods to weather a downturn in prices.[i] After these measures, Chapter 11 Bankruptcy, [ii] is available and gives companies space to restructure and restart operations when oil prices recover. But the gap between the oil price and breakeven price of shale which, according to the latest Dallas Federal Energy survey, averages $48 to $54 per barrel, demands drastic action to bring costs down and productivity up. (See Chart 1)
Source: Federal Reserve Bank of Dallas
Deloitte’s Deciphering the Performance Puzzle in Shales: Moving the Shale Revolution Forward, October 2019, [iii] highlights that at least 80,000 wells in the Eagle Ford and Permian basins needed to improve their productive efficiency by at least 20 percent, if they were to break even. To survive this low price environment, E&P operators and oil field service companies need to deploy new technology and innovate.
Operational innovations
Just as the shale industry responded to the 2014 price collapse with technical improvements in horizontal drilling, well pads, and entering new areas like the oil rich Permian, so today, it must improve productivity and reduce costs if it is to survive. Repeatedly drilling and fracking similar wells at increasing depths are no longer enough. One promising strategy, highlighted by Scott Sanderson, Principal at Deloitte, is “better well designs coupled with greater understanding of the shale rock and fluid movements underground could boost efficiency levels by about 20 percent, representing almost $25 billion in annual savings for the U.S. shale sector.”
Improving hydraulic fracturing
Deep Imaging
Hydraulic fracturing, using water, sand and chemicals was the revolutionary technological breakthrough that unlocked shale. Now, in development and an advance on seismic surveys tracking the fracking operation is real-time, electromagnetic monitoring of where the fracking fluid runs is being marketed to save on fracking materials. Start-up [iv], Deep Imaging’s chief executive David Moore explains, “Too often the fluid movements don’t match the initial modelling as the fluids travel farther than predicted or even escape into nearby wells, wasting millions of dollars in the process.” [v]
Smart microchip proppants
Kansas University’s Computational Earth Science and Smart Analytics Lab [vi], is working on "smart microchip proppants" [vii] for injection alongside traditional proppants to give well operators unprecedented precision in visualizing fracture networks in real-time. The Lab’s Director, Masoud Kalantari states, “This technology will support the U.S. operators to maximize the efficacy of recovery from unconventional resources while minimizing the environmental footprint by optimizing the well spacing and improving completion design."
Faster drilling
Baker Hughes’s latest Navy-Drill™ DuraMax™, the product of simulation design and latest technology, has reduced drilling time by 40 percent [viii]. Where time is money and drilling costs are high, the drill’s durability also reduces downtime.
More efficient hydraulic fracturing and well drilling can boost productivity and cut costs even outside the so-called sweet spots of the Permian and Texas Eagle Ford basins. Whether today's shale industry can repeat its revolutionary productivity improvements and cost reductions of the previous bust remains to be seen. Past performance is no guide to the future.
[i] https://www.texastribune.org/2020/04/06/texas-oil-producers-shutting-wells-coronavirus-dispute-plummet-prices/
[ii] https://www.houstonchronicle.com/business/energy/article/Can-shale-survive-another-bust-15129773.php
[iii] https://www2.deloitte.com/us/en/pages/about-deloitte/articles/press-releases/deloitte-study-deciphering-the-performance-puzzle-in-shales.html
[iv] https://www.deepimaging.com
[v] https://www.deepimaging.com
[vi] https://today.ku.edu/2019/08/27/smart-microchip-proppants-technology-could-transform-hydraulic-fracturing-making
[vii] https://today.ku.edu/2019/08/27/smart-microchip-proppants-technology-could-transform-hydraulic-fracturing-making
[viii] https://www.bhge.com/system/files/2019-07/navi-drill-duramax-3laterals-ndakota.pdf
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