People in the oil business knew for decades how to predict flow of oil and gas without the help of astrologers, clairvoyants or divining rods: Just count the number of rigs pumping the stuff out of the ground.
Oil field services titan Baker Hughes started doing that decades ago, and still does.
In the last few years, though, a U.S. production surge from Texas to North Dakota has mystified number crunchers: Oil and gas continue to flourish even as Baker Hughes’ once reliably predictive rig count declines.
New drilling technologies are breaking down that simple link between production and rig count, enabling oil and gas producers to drill more wells for every rig and prompting analysts to divine new metrics.
Getting the right answer is imperative: The industry and the nation need to know for strategic reasons how much energy is coming out of the ground and how much is left. What they already know is that producers are draining tight rock formations much faster than they did the sandstone reservoirs that fueled the world for more than a century — a fact sometimes lost as absolute production numbers soar.
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In years past, U.S. producers drilled one well per rig into large, predictable sandstone formations that declined 3 percent a year on average.
Formations in North Dakota’s booming Bakken Shale, by contrast, decline 6 percent every month, said Lynn Westfall, director of energy markets and financial analysis for the Energy Information Administration — the U.S. Energy Department’s independent analytic arm.
“With swift declines like that, you need much more timely data,” Westfall said. For every 100 barrels of oil produced in the Bakken, he said, 70 barrels simply replace declining production from old wells.
“You’re having to run faster to stay in place,” Westfall said.
In October, the agency marked a major shift in a central industry forecast when it released a new monthly report — a year in the making — on drilling productivity in the country’s six major shale plays, where newly exploited pools of oil and gas are accounting for much of the country’s production growth. It combines the rig count with a new calculation that includes the number of wells each rig drills, the productivity of those wells and the well depletion rates.
Though still a valuable tool, the weekly rig count that Baker Hughes and its predecessor companies have issued since 1944 is “not sufficient to understand what’s going on with the productivity of oil and gas,” Adam Sieminski, the administrator of the Energy Information Administration, told an audience at Columbia University last month.
Foreseeing production trends has become more complex. It takes an understanding of drilling efficiency measures as operators boost the number of wells they can drill, shorten the time the time between drilling wells, increase drill hole widths and extend the reach of horizontal wells.
Since July, Houston-based Baker Hughes has reported a quarterly well count, realizing that its well-known rig count has become “a little disconnected” to the amount oil and gas extracted from the ground, said Ahmed Mousbah, a director of marketing and business development for the company.
“Especially in North America, there has been a huge increase in efficiency,” he said. “The typical rig is drilling wells in a much faster manner.”
In the third quarter, Baker Hughes reported, each North American active rig drilled an average of 5.4 wells, up from 4.7 in the first quarter 2012, when the company first took the measure it now reports quarterly.
Rig count down, but …
At the Bakken Shale in North Dakota, oil production from new wells for each rig is projected to increase from just over 250 barrels of oil per day last year to 496 barrels per day in December, even as the region’s rig count sank from more than 200 in 2012 to about 160, according to the Energy Information Administration.
Meanwhile, in South Texas’ Eagle Ford Shale, daily production from new wells for each rig is expected to rise to 413 barrels in December, up from just over 200 last year. But at the same time, the region’s rig count has dipped from about 325 last year to 280.
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Advances in horizontal drilling and hydraulic fracturing — forcing water, sand and chemicals into a formation to release oil and gas — have opened shale and other tight rock plays and altered the U.S. energy landscape.
And as geoscientists learned more about North American shale formations, producers developed about 30 new or improved techniques to cut costs and bolster well performance, according to Wood Mackenzie.
One rig, multiple wells
Drilling from temporary rig foundations called pads, for example, makes it easier to drill multiple wells using one rig, boosts rig mobility and enables producers to drill wells faster. Pad drilling, now widely used in U.S. operations, probably is the biggest driver of improved drilling efficiency, said Eric Kuhle, an analyst at Wood Mackenzie.
Drillers originally used pads to cut drilling time in challenging environments, such as the Rocky Mountains in Colorado, and the technique quickly spread to regions including the Barnett Shale in North Texas, Kuhle said.
Pad drilling can save operators an average $500,000 per well.
But they my find even more savings in the completion side of the operation — the post-drilling process that includes cementing a stabilizing pipe called casing into the well, and perforating the casing in preparation for production.
“Completion has a lot of running room left, because the technology is still in its infancy,” Kuhle said.
Multi-stage fracturing, an emerging technique that allows producers to cut completion time by isolating productive areas within horizontal wells, also is on the forefront of new developments inefficiency.
Technological advances can be a boon for oil field services companies that can keep pace.
Gains in market share
Schlumberger, the world’s largest, said last month that prices have weakened for its North American land drilling business, but third-quarter market share gains in technology sales pushed revenue from the region to a new record, $3.6 billion.
And the widespread switch to multi-well pad drilling is driving demand for services in North America, Houston-based Halliburton said in third-quarter regulatory filings.
The technologies are reducing the time a rig spends on each well, increasing wells-per-rig and contributing to the growing reliance on well count along with rig count as a measure of oil field activity.
The longtime rig -counter Baker Hughes itself pushes such technology as its AutoTrak Curve, a steerable drilling system it says allows faster and more accurate operations.
The upper hand
Companies with the muscle to pump effective technologies into the market are gaining advantage as exploration and production customers tighten their spending while looking for new opportunities, said Baker Hughes’ Mousbah said.
For example, the Permian Basin in West Texas, one of the country’s oldest oil patches, is still new to shale drilling, and could mature as the industry turns its attention to the region, Mousbah said.
In his presentation at Columbia University last month, Sieminski, of the Energy Information Administration, said the agency believes that U.S. natural gas production can grow until at least 2040, and while oil production may plateau in the next decade, it will increase to “levels significantly higher than where we are now.”