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The Technologies Keeping Shale Alive

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The Technologies Keeping Shale Alive
fracking

While the press fixates on the plunging rig count in American oil fields, fracking companies are increasingly turning to new or improved technologies that are keeping shale alive.

These methods for extending the life of shale wells has helped keep US oil production steady, even as the active rig count has fallen 75% since 2014.

Yankee Ingenuity

Market analysts and OPEC believed that the fracking plays in the Bakken, Eagle Ford, and other shale fields would quickly fold in the face of unlimited production from the Middle East. They've all been surprised that, nearly a year and a half after OPEC declared war on shale, production is only now starting to slowly fall. Maintaining production levels with far fewer wells is due to advancements in deep-well recovery techniques. Before we talk about these techniques, let's talk about the characteristics of a shale well itself.

Horizontal Drilling and Fracking

Shale oil and shale gas wells go much deeper than many people think. The vertical depth of a shale well can be anywhere from 5,000 to 10,000 feet deep. Once it curves to the horizontal inside a shale formation, it can travel another 5,000 to 10,000 feet per leg, following the shale. ExploreShale.org has an interactive graphic explaining how a typical well in the Marcellus shale formation works.

What Marcellus shale looks like, after being brought to the surface What Marcellus shale looks like, after being brought to the surface

The horizontal portion of the well is punctured by small explosive charges at regular intervals.  Water, sand, and chemicals are then piped in under pressure to exit these holes and "fracture" the shale rocks, making channels for the oil and gas to be extracted. ("Fracking" is shorthand for "hydraulic fracturing.") As the water travels back up the pipe, it carries oil and natural gas with it.

The first horizontal well was drilled in 1927, at depths much shallower than today. The average shale well costs $3 million to $6 million to drill and complete. Production starts out strong, but within nine months the well is only functioning at 30% of original capacity. New advances and innovation in extending the productive life of these wells are what is keeping shale alive in the face of falling prices.

Artificial Lifting

oil_rig2 We called these pump jacks "grasshoppers" as kids.

Artificial lifting is used to pressurize an oil well to bring the oil and gas to the surface after the natural pressure has fallen below that threshold.  You've seen those big structures that bob up and down in an oil field? That's a type of mechanical artificial lifting at work.

Artificial lifting is not a new technology, nor is it limited to shale wells. Industry sources say that 96% of all US oil wells need some sort of artificial lifting from the very start. The global artificial lifting market was estimated at $12 billion last year.

Artificial lifting can involve mechanical methods like a rod or plunger, or an electric submersible pump that uses impellers to push the oil up the shaft.  A gas lift uses waste gasses to mimic the pressure that trapped natural gas provided when the well was new. The bubbles from the injected gas lowers the viscosity of the oil, and the pressure pushes it to the surface.

Remember when we said that production on the average shale well drops to 30% after nine months? Artificial lifting can restore production to anywhere from 50% to 75% of the original rate. That means a longer life for the well, and more oil for a relatively small investment. Fitting an artificial lift system to an existing well only costs from $250,000 to $500,000, a fraction of what it costs to drill a new well. It is even cheaper than putting a well in "mothballs" with an eye to resuming production when prices rise. In some cases. shutting a well down could permanently damage the reservoir beneath.

Choking

Another method that is seeing even more use than before is called "choking." Instead of referring to a sports team that can't hold on to a lead, choking in shale drilling is the installation of a steel plate in the wellbore that restricts the amount of oil coming out. This lets drillers reduce output during low price, without shutting the well down completely. It also has the effect of providing up to 10% more oil from the well over its life. By not letting all the natural pressure rush out unhindered when the well is first drilled, there is more pressure later on in the well's life. This is by far the cheapest method of extending the life of a well.

Refracking

oil-well-worker

Refracking, also known as restimulation, is simply repeating the initial process of hydraulically fracturing the shale formation. This enlarges the original fractures, allowing more oil to be recovered. Refracking has been around since the 1950s. Since the process revives an existing well that would otherwise be written off, refracking is much like getting a new well without paying for the drilling. Refracking a well costs from $1 million to $1.5 million, and can provide up to a 100% rate of return. This makes it profitable to revisit abandoned wells drilled with older technology. Refracking can be hazardous when conducted near aquifers, and has a chance of stealing reserves from another well nearby, resulting in no extra production.

Workover

A workover is the repair or refurbishment of an oil well. It can involve replacement of artificial lift equipment, installing a narrower bore pipe inside an existing one to counteract dropping pressure, or the complete removal and replacement of the tubing lining the well. While a workover can prolong the life of a well, it is a very complicated, expensive, and time-intensive operation.

These methods for extending a well's life is keeping shale alive during a very precarious time for the industry. Those companies that can get more from their top wells using these techniques have the best chance of holding until the market turns.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product

About the Author

Everett Millman

Steven Cochran

Precious Metals Market Analyst
BS University of South Florida (2002)

A published writer, Steven's coverage of precious metals goes beyond the daily news to explain how ancillary factors affect the market.

Steven specializes in market analysis with an emphasis on stocks, corporate bonds, and government debt. He writes a monthly review of the precious metals markets for SurvivalBlog.com.

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