More Oil, Fewer U.S. Rigs: Hey Saudis, Something to See Here
Amid all the anticipation on how many barrels Saudi Arabia will be cutting next month and beyond, a revelation about new drilling efficiencies in U.S. shale surfaced last week — and disappeared almost as quickly.
For those who heard or read ExxonMobil CEO Darren Woods’ comments at the Bernstein Strategic Decisions conference on Thursday, the bet about U.S. drillers having the potential to double output from just existing wells must have sounded as something borderline incredible or incredulous.
Since the fracking boom first caught the Saudis unawares nearly a decade ago with an oil glut they had not witnessed before, evolution in shale had produced wonder after wonder year after year — until the pandemic.
The epic demand destruction and bankruptcy filings in the industry that followed naturally slowed, if not killed, innovation as U.S. production was allowed to plummet from an all-time high of more than 13 million barrels daily to below 10 million at one point. American oil companies went from “Drill Baby, Drill!” to “Dividend Baby, Dividend!” as capex excesses gave way to extraordinary fiscal discipline in a determination to return cash to shareholders (and buy back shares, of course).
More than three years after the pandemic drove a barrel of the West Texas Intermediate crude benchmark to minus $40, the U.S. Energy Information Administration, or EIA, projects production will set new annual records averaging 12.4 million barrels daily in 2023 and 12.8 million in 2024. But that’s still short of the 13.1 million per day high seen in the first week of March 2020 when COVID-19 broke out.
Limiting any optimism of shale overreach are falling numbers for both oil rigs, which are an indicator of future production, and drilled-but-uncompleted wells, or DUCs — whose completion can bring oil faster to the market. Other deterrents are shortages in equipment and workers — two legacies of the pandemic — and fear somewhat of Saudi reprisal: In 2020, the kingdom maxed out production and drove prices to zero after Russia refused to cut output under the OPEC+ pact between them, hastening the demise of most U.S. drillers that might have had a chance of surviving the pandemic.
But if ExxonMobil’s Woods is right, then U.S. oil may be on the cusp of another revolution in production. And it has to do with drilling innovations, including one called shale well refracturing.
To hear energy engineer and researcher Alex Kimani put it, refracturing hasn’t gone mainstream but was quietly producing significant results.
“The technique is seeing higher adoption as drilling technology improves, aging oilfields erode output, and companies try to do more with less,” Kimani said in a post that ran on oilprice.com on Saturday, a day before the latest OPEC+ meeting where Saudi Arabia pledged to cut another million barrels per day in July, bringing its production down to 9 million daily.
Higher drilling efficiency is why U.S. oil production is again heading for annual highs while the rig count has dwindled to 555 from a post-pandemic high of 627 in November 2022 and DUCs fell to 4,863 in April from 4,905 in March.
ExxonMobil (NYSE:XOM) itself is working on two specific areas to improve fracking, CEO Woods says. The first is to “frack more precisely” along the well so that more oil-soaked rock gets drained. The second is to look for ways to keep the fracked cracks open longer so as to boost the flow of oil.
Adds Woods:
“There’s just a lot of oil being left in the ground. Fracking’s been around for a really long time, but the science of fracking is not well understood.”
Nick Dole, an erstwhile commentator on Investing.com’s oil discussion forums, said recently that US oil wells, especially horizontal ones, were being drilled three times deeper now thanks to evolution. He adds:
“When I was a drilling engineer, a well’s max lateral footage was typically about 5,000’, give or take. Now wells are almost all drilled with 10,000’ of wellbore lateral and many are pushing to 15,000’. So, you have effectively drilled 2 wells in a lot less time as the vertical section/rig moves etc time isn’t wasted. So, the ‘productive’ footage is the same with fewer rigs.
That is why U.S. companies are making so much money and can do well in a much lower prices [environment] than when shale well drilling/horizontal with large fracking [was] the normal way to do business. It is … efficiency gain per rig and … fewer are needed.”
Kimani notes that the shale boom was one of the most impressive growth stories ever, from its take-off in 2008 to the Permian stealing the mantle from Saudi Arabia’s Ghawar as the world’s highest producing oilfield in a little over a decade. He alludes to a Reuters estimate that “U.S. petroleum production is at least 10-11 million bpd higher than it would have been without horizontal drilling and hydraulic fracturing.’’
Refracturing particularly helps shale operators return to existing wells and apply a second, high-pressure blast to increase output for a fraction of the cost of finishing a new well.
It is an operation designed to restimulate a well after an initial period of production and can restore well productivity to near original or even higher rates of production as well as extend the productive life of a well.
Says Kimani:
“Refracking can be something of a booster shot for producers — a quick increase in output for a fraction of the cost of developing a new well.”
According to the Journal of Petroleum Technology, new research from the Eagle Ford shale patch in south Texas shows that refractured wells using liners are even capable of outperforming new wells despite the latter benefiting from more modern completion designs.
The Journal also estimates that North Dakota’s Bakken Shale straddles some 400 open-hole wells capable of generating an excess of $2 billion if refractured, based on estimates of just $60 per barrel.
https://m.investing.com/analysis/mor...here-200638800
