Shale well depletion raises questions over US oil boom

HOUSTON — The stubborn rock that the energy industry breached to unleash a nationwide oil and gas rush remains a worthy foe, as producers must turn their drills ever faster to keep the boom’s lifeblood flowing.

Engineers have long known that shale, the source rock that fed North American sandstone reservoirs for millennia, could never muster the natural pressure producers need to extract oil and gas. Its molecules are too tightly packed: Shale is about 1,000 times denser than brick, and so far, only hydraulic fracturing can induce enough artificial permeability to clear a path for the fossil treasure.

But that technique also creates an initial production spike that soon turns south: Behind the headlines boasting of a U.S. oil boom, producers have been grappling with rapid production declines at aging shale-play wells. The only answer: drill more and more wells.

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In recent months, falling production at individual wells has garnered more industry attention and has stirred a debate over how long the production surge in Texas, North Dakota and elsewhere can last, even as policy makers hope the boom will enable the U.S. to wean itself from Middle Eastern crude.

“Shale does not defy the laws of physics,” said Art Berman, a petroleum geologist and director of the Association for the Study of Peak Oil — the theory that the planet’s oil production is near the point at which it will begin a permanent decline.

“The shale has bought us a couple more years before we’re in real trouble,” he said. “People should understand that the shale boom we’re in is the last gasp.”

Charting the declines

U.S. oil production first peaked in the early 1970s, then declined until the shale revolution brought it back into the black over the past half decade. Analysts disagree about when the music will stop – or slow, at least.

In October, the government began issuing a monthly report on drilling productivity that charted declines in six major U.S. shale plays. The U.S. Energy Information Administration estimates that it takes seven of every 10 new barrels produced in those areas just to replace lost production.

Since 2006, U.S. tight oil production has risen from about 300,000 to 1.9 million barrels per day. Two-thirds of that is pumped from the Eagle Ford Shale in South Texas and the Bakken Shale in North Dakota.

According to Energy Information Administration projections in April, the country’s daily oil production could reach a pinnacle at nearly 8 million barrels in 2020 and dip to about 6 million barrels by 2040.

But its unreasonable to assume the drop in older well production indicates that producers are draining reserves in the shale formations, said Michael Nikolaou, a professor of chemical and biomolecular engineering at the University of Houston.

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About 30 emerging technologies and techniques have made it easier and cheaper to drill more wells from every rig on an oil field, enabling companies to glean more oil and gas from the tight rock, according to consulting firm Wood Mackenzie.

Unforeseen technologies one day may allow companies to extract oil and gas at rates that will enable producers to keep beating out the steep declines. For now, producers are drawn to the fast return on investment in the shale business: They can make their money back quickly because the of the wells’ initial production surge, Nikolaou said.

“Companies love it,” he said.

Production declines at older horizontal wells are much steeper than conventional wells drilled into the country’s original sandstone reservoirs, which helped feed American engines for more than a century. It comes down to geology. Shale rock has much lower porosity than conventional wells, which means it has less storage space.

“For the longest time, we didn’t believe the numbers because they were so low,” said Eric Potter, an associate director at the Bureau of Economic Geology at the University of Texas at Austin.

Depletion rate doubling

The rapid decline rates in shale wells suggest that oil and gas molecules are moving just a short distance out of the pores created in hydraulic fracturing, the process of injecting sand and water into formations to unlock trapped hydrocarbons.

That’s far removed from the days when producers at conventional reservoirs could soak up oil from hundreds of miles away because of the sandstone’s natural porosity and permeability, Potter said.

In North Dakota, the oil-rich Bakken Shale’s daily production from new wells is projected to jump 89,000 barrels of oil per day this month, but aging, depleting wells are expected to drain 63,000 barrels from the region’s production – about 20,000 barrels more than the decline from old wells a year ago, according to the Energy Information Administration.

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And while South Texas’ Eagle Ford Shale is projected to produce 116,000 barrels of oil a day this month, production from the region’s older wells will decline by 83,000 barrels. That’s double last year’s daily depletion rate.

Oil and gas analysts say, however, that old shale wells will be able to produce – albeit, at a fraction of its original production – for decades.

“There’s a long, stable tail of production you can count on and forecast quite easily,” said Greg Haas, manager of research in integrated oil and gas for Hart Energy. “It’s common to have a pretty quick decline in the first several quarters and years and then a much longer tail of production life of perhaps 10 to 20 years.”

And there’s still plenty of running room in the major shale plays. The Three-Forks formation in North Dakota, for example, could “add tremendous drilling potential to the Bakken,” Haas said. “The productivity of these wells could very well increase over time. There are multiple pay zones that these producers can go after.”

But like nature’s host of critters, oil producers tend to use up the best resources first, said Charles Hall, an ecology professor at State University of New York who has studied oil production for years.

It’s hard to believe that unconventional shale plays will replace the declining conventional, sandstone-reservoir production, he said, when it’s only natural that producers will first drain the most productive “sweet spots,” and leave the less lucrative oil for another time.

“The question is whether technological innovation is in a race with depletion, and in a race for the best spots,” he said. “It’s really something what these guys do, but nature holds the high cards.”

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It’s true, said Nikolaou of the University of Houston, that much of the “easy oil” has been spoken for, and it’s highly unlikely North American producers will find huge new deposits onshore – although harder-to-reach domestic oil awaits the industry in the Gulf of Mexico.

“Liquids production into the future will keep increasing mainly as a result of technology and increased efficiencies,” Nikolaou said. “But there can always be surprises.”

Self-sufficiency unlikely

Like the U.S. Energy Information Administration, the Paris-based International Energy Agency projects that U.S. tight oil production will peak and begin to decline around 2020, and that the surge in production will give the country only a little breathing space from its dependence on foreign oil.

Still, the U.S. is expected to achieve overall energy independence around 2020, meaning it would become a net energy exporter, mostly because of growth in natural gas production, according to Wood Mackenzie.

But the U.S. probably won’t ever wean itself completely off of foreign oil: Refineries along the Gulf Coast are designed to process heavier crudes that the U.S. typically imports from the Middle East, not the light sweet crudes North American producers have found in the shale rock, said Paul MacConnell, an analyst with Wood Mackenzie.

“We still believe the U.S. will be a net oil importer,” MacConnell said. “We think imports of particular crudes will slow, but we don’t see oil self-sufficiency.”


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