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U.S tight oil production from shale plays will fall more quickly than most assume.
Why? High decline rates from shale reservoirs is given. The more interesting reasons are the compounding effects of pad drilling on rig count and poorer average well performance with time.
Rig productivity has increased but average well productivity has decreased. Every rig used in pad drilling has approximately three times the impact on the daily production rate as a rig did before pad drilling. At the same time, average well productivity has decreased by about one-third.
This means that production rates will fall at a much higher rate today than during previous periods of falling rig counts.
Most shale wells today are drilled from pads. One rig drills many wells from the same surface location, as shown in the diagram below.
(click image to enlarge)
The Eagle Ford Shale play in South Texas is one of the major contributors to increased U.S. oil production. A few charts from the Eagle Ford play will demonstrate why I believe that U.S. production will fall sooner and more sharply than many analysts predict.
The first chart shows that the number of active drilling rigs (left-hand scale) in the Eagle Ford Shale play stabilized at approximately 200 rigs as pad drilling became common. The number of producing wells (lower scale), however, has continued to increase. This is because a single rig can drill many wells without taking the time to demobilize and remobilize. In other words, drilling has become more efficient as less time is needed to drill a greater number of wells.
(click image to enlarge)
The next chart below shows Eagle Ford oil production, the number of producing wells and the number of active drilling rigs versus time.
(click image to enlarge)
This chart shows that production growth has not kept pace with the rate of increase in new producing wells since mid-2012. That is because the performance of newer wells is not as good as earlier wells.
The final chart shows that the rate of daily production is now more dependent on the number of drilling rigs than on the number of producing wells. Rig productivity--the barrels per day per rig--has increased but average well productivity--the barrels per day per well--has decreased. In other words, production can only be maintained by drilling an ever-increasing number of wells.
(click image to enlarge)
Average rig productivity has almost tripled since early 2012. Average well productivity has decreased by one-third over the same period. This means that every rig taken out of service today has more than three times the impact on daily production as before pad drilling became common.
Most experts do not anticipate any significant decrease in U.S. tight oil production in the first half of 2015. Their analyses may not have accounted for the effect of pad drilling and the decrease in average well productivity.
Using the Eagle Ford Shale is as an example, U.S. oil production should fall sooner and more sharply than many anticipate. This will be a good thing for oil price recovery but maybe not such a good thing for the future profitability of the plays.
12 comments:
I would like to hear your thoughts on two related issues:
a) The potential interference between closely drilled wells, such as those found on pad rigs.
b) The apparent exhaustion of sweet spots at the Bakken and possibly other shale plays as well.
c) The extent (or the lack thereof, to be more precise) of remaining light tight oil reserves in the US.
Apologies. Make that three related issues.
Stavros,
There is excellent evidence of well interference in closely-spaced laterals in the Eagle Ford in Dimmit County, TX and probably elsewhere. There was more room to drill in the sweet spots of the Bakken and Eagle Ford when we last updated those plays almost a year ago. We have not renewed the work because of the time and cost to do it on our own, unfortunately. There is at least one new play that I am aware of for light tight oil presently in East TX although the company involved is taking extraordinary measures to keep it confidential.
I hope that helps.
All the best,
Art
http://peakoilbarrel.com/bakken-sweet-spots-petering/
I have come across several articles such as the one above claiming that the Bakken sweet spots are progressively being exhausted.
Even though that is not explicitly stated above, I gather that the per well productivity decline that you refer to is down to the interference effect. Is that correct?
Stavros,
It depends on the area and its development maturity.
We have seen areas where recent production performance is better than earlier performance and areas where the inverse is true. A lot of that depends on how many unswept locations remain. In newer development areas, of course, the likelihood of unswept volumes is higher and in older areas, lower.
I wish that I could give you a simple and unequivocal answer to your question but it really does depend.
In general, however, the performance of the plays--Bakken, Eagle Ford, Permian, etc.--gets worse with time.
All countries, basins, plays and fields behave similarly regardless of reservoir type (conventional, shale, heavy oil, etc.): the best production is found early and then declines. Outliers are found late in the history but the overall trend is downward.
Art
Mr. Berman,
In light of your comments on the EF wells: Is it safe to qualify your assessment to performance of in-fill wells in the sweet spots of the play or is the data based off of all wells drilled from point in time A to B? Based on reported production (from the better operators) who drilled 2014 wells in the “sweet spots”, it would appear the production rates are prohibitively better. Personally, I can’t infer what the infills in these areas are doing because of the lease cum problem. However, it would seem that a data point taken from all wells drilled in a given year would be severely obscured by the poor performance of wells drilled off strike with the most productive segments of the trend. I guess the important take away is what are the in-fill wells doing? I have heard that the EF (of all NA shale plays) has lowest P&P which would seem to work in favor of closely drilled in-fill wells. Whereas the contrary might be the performance of wells in areas of high natural fracture porosity where cannibalization might be more likely? Can you give any insight to how this might be affecting the data?
Mr. Cobb,
As you correctly note, the problem of lease production makes it increasingly difficult to evaluate well performance in the Eagle Ford play.
This post is meant to address the general aspects of the Eagle Ford play and, by extension, other tight oil plays. It is not a research paper on reservoir performance.
I have presented data that show the relationship of rig count and the number of producing wells to production rates. These data indicate that there is a disparity between the number of producing wells and the production rate. I interpret this to result from poorer well performance through time.
Individual operators may show data that suggests something different for their wells and acreage positions. We can argue about whether their data is accurate or applies to all of their wells or only to select wells.
That does not mean what those operators present applies to the entire play whose production and potential change in production with falling rig counts is my subject.
Art
I don't follow. One rig can drill more than one well even if it is being moved to do it. Whether drilling from a pad or multiple locations, if you lose a rig you lose however many wells are normally drilled over the period of time that you are considering.
Unknown,
You are right that in some ways a rig is a rig no matter whether it is drilling a single well or multiple wells. Part of the change in rigs per barrels per day is because the industry is getting better at drilling and completing wells faster.
Pad drilling, however, is a more efficient use of a drilling rig. Rigging down, skidding the rig and rigging up takes days. Some operators now claim an Eagle Ford well can be drilled in 7 days. Time savings due to pad drilling are on the order of 25% per well. Walking rigs designed for pad drilling also shorten the time needed for mob-demob.
The observable fact is that fewer rigs are needed to drill more wells and produce more oil however you explain or understand it. That makes the impact of removing a rig from service more significant now than in the past.
Art
Thanks for the reply. I appreciate your work and have been following along with much of your writing. The inequities of shale economics will surely come to the surface before long. That said, if the behavior of infill wells in areas of decent ROR turn out to be markedly worse than the initial wells- well then "houston we have a problem." I understand this post is not directly addressing this issue but there seems to be overtones of this sentiment in your work and others recently. I was wondering if there is meaningful data to infer that indeed infill drilling in the EF is under achieving. The data (as reported by TRRC not public company websites) would seem to indicate that wells drilled in otherwise commercial areas (say post june 2013) are producing more year over year. I'm not trying to start an internet argument or anything just think its important to get some dialog concerning behavior of these infills before we condemn the shale business.
Ry,
Thanks for your comments. Stay tuned. I will publish more detail in my next post.
Art
Sorry for the late comment, but as a layman I'm really impressed by the fact that US natural gas output has not fallen (it increased indeed) in recent years despite a very steep fall in the number of gas drilling rigs. I assume associated gas produced by LTO plays may help to partially explain it (have no idea by how much though), but, even so, couldn't shale oil output also exhibit some sort of unexpected "resiliency"?
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