Technology Redefining the Energy Sector -- US News -- July 13, 2017

Updates

Later, 1:48 p.m. Central Time: see second comment -- something new -- something I had not seen before --

When cumulative production is charted between wells with equal amounts of conventional proppant use, the ones with microproppant added show little gains at first, with a widening advantage as they reach the 1-year mark....

It...does not fit neatly into the current industry focus on maximizing early production as the testing suggests that the benefits of microproppant become apparent later in the life of a well.

Wow, now it's not just sand vs ceramic proppant, but the size of the individual "pellets." This is not a bit surprising but it does add one more variable to the mix. Good stuff.

Later, 1:44 p.m. Central Time: see first comment where there are some great links. This caught my eye since it really fits the original post:

Enhanced oil recovery from unconventional formations has been sought since unconventional development first began.

While recovery factors in conventional reservoirs commonly exceed 25%, unconventional development seldom recovers more than 9%.

There is, therefore, a tremendous amount of oil and gas still in place in unconventional fields, waiting to be recovered. 

Think about that. If current unconventional recovery is less than 9%, imagine what 12%, 15%, 18% might mean in the out years.

Original Post

I thought this was another one of those superficial articles. If so, I had planned to simply link at one of the earlier posts. Surprise, surprise. It's a very, very good article, but you have to read past the fluff.

From US News via Yahoo!Finance:

Technology has redefined the energy sector. The first thing investors should understand, says Reynolds, is how horizontal drilling and hydraulic fracturing technology has revolutionized the energy industry.

It used to be that oil companies were primarily explorers hunting for oil pockets they could tap and bring to market, and the potential of those fields was limited by the price of oil.

"The fields were discrete, so if there was 100 million barrels there would always be 100 million barrels," Reynolds says. "The value of that discrete field was simply calculated based on the price of oil."

The result was that oil companies were always on the hunt, spending billions each year in pursuit of the next oil field. Reynolds says the industry got a reputation for "destroying capital" as a result, since expensive deepwater exploration "didn't have high enough success rates to make for sustainable companies" and the high cost of extraction relied on perpetually high energy prices.

Now, technological advances like fracking allow oil companies to access massive onshore shale oil fields with greater ease and much lower investment. The volatility in energy prices will never go away, Reynolds says, but now "the only thing these guys need to worry about is getting the cost of getting that oil out of that shale lower and lower -- and over the 10 years this (fracking) industry has really existed, that's all they've done."

As a result, many investors are expecting North American shale companies to "grow 20 to 30 percent, or even more," Reynolds says. And since risk is lower than conventional oil companies thanks to cost controls, these shale companies look particularly attractive right now.

Note: over the 10 years this (fracking) industry has really existed. Exactly my numbers. Corresponds exactly with the EOG "discovery" well in the Parshall oil field in 2007. As Donald Trump, Jr, would say, "I love it."

We've talked about this on the blog numerous times.

When they first started fracking in the Bakken, they talked about recovery rates (we're talking primary production here) of 1 to 3 percent. Early analysis suggested they were getting significantly more production than 3 percent, and, in fact, Whiting was soon talking about 5 to 8 percent recovery.

Now, I think the new number is as much as 20% recovery (not yet, but apparently a realistic goal).

If the OOIP of the Bakken was 500 billion bbls, a 1% recovery rate meant 5 billion bbls of crude oil would eventually come out of the Bakken.  At 3%, it become 15 billion bbls. At 6%, it becomes 30 billion bbls. Regardless of the recovery rate, the later bbls are less expensive to produce than the earlier bbls. (Don't take this out of context; not all would agree.)

At 1 million bopd, one year, 365 million bbls, 10 years, 3,650 million bbls or 3.6 billion bbls of crude oil after ten years.

Over time, each additional bbl comes in at a lower cost. In conventional drilling, well, I'm starting repeat the article linked above.