Shale Revolution

The vast majority of new production in the US is from shale formations. It has been understood almost since the beginning of the oil and gas industry that shale deposits are the source rock for conventional crude oil and natural gas deposits. Over geologic time hydrocarbons migrate under pressure and high temperatures from the shales to reservoir traps in conventional sandstone and carbonate reservoirs.

Existing drilling, completion, and production technology did not allow for practical production of this hydrocarbon-rich “unconventional” resource – the shale rock itself – until just over ten years ago. At that time engineers at Mitchell Energy combined advances in horizontal drilling technology with massive hydraulic fracturing (“fracing”) to economically produce the gas from the Barnett Shale. This opened the door to production from other gas shales such as the Marcellus and the Haynesville and oil shales such as the Bakken, the Eagle Ford, and the Wolfcamp.

Shale reservoirs have ultra-low permeability, which means that the “holes” (porosity) in the rock that contain the hydrocarbons are very poorly connected and the fluid does not easily flow through the rock. “Fracing” opens pathways in the shale that allow the hydrocarbons to more easily flow into the wellbore. The wells produce at high rates but with a very rapid initial rate of decline as the fluids and pressure within the fractures are drained. The flow then begins to come from the shale matrix and the production levels out at a low rate.

Bakken Decline Curve (Baja 2215H Well)

GLS - Bakken Decline Curve (Baja 2215H Well)

Source: Five States data

 

Development of horizontal drilling technology combined with new advances in the 60-year-old hydraulic fracturing technology has made shale development technically viable. Using horizontal drilling through the length of the reservoir instead of across (perpendicular to) the reservoir, one well can now access the same amount of “pay” formation that previously would have required drilling 10 or more vertical wells. The combination of high oil prices and higher production rates has made the shale plays economically viable.

But this technology is expensive. The capital cost to drill and complete horizontal wells is three to five times or more that of conventional vertical wells. The operating costs of horizontal wells are also significantly higher than vertical wells. The capital cost per recoverable barrel of oil of a conventional well is in the $20 to $40 per equivalent barrel range. The capital cost per recoverable barrel of oil of an unconventional well is in the $40 to $80 per equivalent barrel range or more. This technology has a great deal of operating leverage.

Testing the Shale Boom

GLS - Testing the Shale Boom

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