Oil exec: “It’s criminal the amount of oil and gas we’re leaving behind”

HOUSTON – Environmentalists want oil companies to leave fossil fuels in the ground. To a large extent, they already have.

U.S. shale drillers have created the nation’s biggest oil and gas boom in four decades and the amount of fuel extracted from U.S. shale rocks lags behind only three nations — Saudi Arabia, Russia and the United States.

Yet the individual wells they drill only drain a quarter of the natural gas and less than 10 percent of the oil buried in the once-inaccessible shale and other tight rocks.

“It’s criminal the amount of oil and gas we’re leaving behind,” said Hans-Christian Freitag, vice president of integrated technology at Baker Hughes, during a panel on the third day of IHS Energy CERAWeek in downtown Houston.

Freitag blamed the shale industry’s so-called manufacturing process of shale drilling. The way shale-oil producers approach an oil field is this: to get a constant rising flow of oil and gas out of rapidly declining shale wells, they need to drill up several similar wells in a short period of time. It’s a rapid-fire, repeatable process.

But 70 percent of unconventional wells don’t reach their production targets, and 30 percent of all perforation clusters aren’t yielding as much oil or gas as they should, Freitag said.

“Anybody here in the room own a factory that has this kind of performance?” he said. “When oil prices were in the $100 range, we were insulated from that.”

He said the industry has probably almost exhausted the advancements it can make in terms of drilling speed and efficiency, but the wells could be a lot more productive.

“We’re probably not going to be able to drill a well in two days,” he said.

Still, the industry has made progress on production in recent years. Shale wells get 30 percent more oil than in 2013 and it’s 40 percent quicker to get a well from spud to production, said Greg Leveille, general manager of ConocoPhillips’ unconventional reservoirs technology program.

“There’s just so much opportunity to make more progress,” he said. “There’s probably as much advancement to be had as there is behind us.”

Shale drillers are getting more crude out of the earth per each rig they deploy after the advent of multi-well platform called pads. They use dissolving metal in the wellbores to allow oil to flow more freely. They are exploring so-called Big Data to study the microscopic elements of the rock. And many are planning to re-stimulate wells to get more energy out of assets they’ve drilled before.

Leveille said when crude prices are high there’s not much incentive to work on improving productivity, and at the current $30 oil price it’s not financially viable to run experiments. But there’s likely a mid-way point, in terms of the oil price, at which it makes sense to explore new technology more aggressively.

But since crude prices began dropping, oil companies have been able to save money on service costs and by making technological improvements. At least half of the decline in costs are structural in nature, Leveille said.

“We’re changing the way we construct wells,” he said. “Small improvements have enormous impacts. You take a $10,000 improvement in a program where you have 5,000 wells. You’re talking real money. ”