Unconventional 1.0, 2.0, and 3.0 -- Update -- August 21, 2014

WoodMac is reporting:

Energy research firm Wood Mackenzie believes the emerging third phase of onshore unconventional oil and gas development in the United States could show the way ahead for shale gas and oil projects in Europe.

Wood Mackenzie said that after conducting an in-depth analysis of U.S. unconventional activity over the last decade, it considers that the emerging third phase of the unconventional sector in the Lower 48 States of the United States – focusing on brownfield exploration – signals a shift in the industry's thinking about what constitutes a successful unconventional play.

The firm now believes that the characteristics of "Unconventional 3.0" projects could be readily applied to brownfield sites further afield, including in Europe. In the United States, Wood Mackenzie estimates that 3.0-style projects have the combined potential to produce more than one million barrels of oil equivalent per day by the end of 2020.

It looks like I have some research yet to do, regarding unconventional 1.0 and 2.0:

"The emergence of the unconventional 3.0 phase of development in the United States could provide the bridge for international unconventional projects to be successful. To date, operators have struggled to build unconventional 1.0 and 2.0 projects outside of North America. However, the development of international plays does not need to follow the same sequence of phases as has been successful in the United States," Clarke said.

Here's a quick overview of Unconventional 1.0, 2.0, and 3.0.

Unconventional 1.0: numerous mega gas plays

This period was characterised by intense production growth, with operators amassing positions in dozens of mega gas plays.

In 2005, the Barnett Shale in North Texas was the only significant shale gas play but by 2011, seven plays were all producing more than 500 mmcfd. Marcellus shale supply rose rapidly, with producers adding over 3.0 bcfd to the market each year over a 36-month period.

Unconventional 2.0: high margin, smaller volume tight oil plays

In 2011, the booming supply of shale gas caused prices to drop and producers quickly began redeploying their asset teams to high margin tight oil plays, including the Eagle Ford, Wolfcamp, Bone Spring and Cline.

Yet as oil plays developed, total production volumes from successful plays were – on average - around a third smaller compared with typical unconventional gas plays during a similar timeframe.

Most importantly, a smaller absolute number of commercially successful large scale liquids plays have been discovered. Two plays are clear leaders, currently producing more than 800,000 b/d, whilst the third most productive asset is only producing 160,000 b/d.

Unconventional 3.0: Development of niche assets

The smaller number of large scale plays in the unconventional 2.0 tight oil phase provided the impetus for operators to explore more aggressively.

In this current third phase, producers are using the combined knowledge from unconventional 1.0 and 2.0 to target niche plays  - essentially re-evaluating existing inventory and underexplored strata previously considered insufficiently permeable.
Smaller companies are leading exploration efforts and unexpected sweet spots are being identified at a fast pace.

Consequently, non-headline 1.0 and 2.0 plays now have 35 more unconventional rigs running in them than they did last year. This is a larger year-on-year increase than the joint number of rigs added in the prominent Utica and Denver-Julesburg Niobrara plays, which together boast over 550,00 boed in production.

In a global sense, operators have struggled to build unconventional 1.0 and 2.0 projects outside of North America, and we believe the emergence of this new 3.0 development phase could provide the bridge needed for international unconventional projects to ultimately be successful.