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US drillers scrambling to
thwart OPEC threat
Jonathan
Fahey
The
Associated Press, New York | March 24 2015 | 7:16 AM
OPEC and
lower global oil prices
delivered a one-two punch to the drillers in North Dakota and Texas who
brought the U.S. one of the
biggest booms in the history of the global oil industry.
Now they are fighting back.
Companies are leaning on new techniques and technology to
get more oil out of every well they drill, and furiously cutting costs in an
effort to keep U.S. oil
competitive with much lower-cost oil flowing out of the Middle East, Russia and
elsewhere.
"Everybody gets a little more
imaginative, because they need to," says Hans-Christian Freitag,
vice president of technology for the drilling services company Baker Hughes.
Spurred by
rising global oil prices U.S. drillers
learned to tap crude trapped in shale starting in the middle of last
decade and brought about a surprising boom that made the U.S. the biggest oil and gas producer in
the world. The increase alone in daily U.S. production since 2008 — nearly 4.5
million barrels per day — is more than any OPEC country produces other than
Saudi Arabia.
But as oil
flowed out and revenue poured in, costs weren't the main concern. Drilling in shale,
also known as "tight rock," is expensive because the rock must be
fractured with high-pressure water and chemicals to get oil to flow. It became
more expensive as the drilling frenzy pushed up costs for labor, material,
equipment and services. In a dash to get to oil quickly, drillers didn't always
take the time to use the best technology to analyze each well.
When oil
collapsed from $100 to below $50, once-profitable projects turned into money losers. OPEC added
to the pressure by keeping production high, saying it didn't want to lose
customers to U.S. shale drillers. OPEC nations can still make good profits at low oil prices
because their crude costs $10 or less per barrel to produce.
Now drillers and service companies are laying off tens of thousands of workers,
smaller companies are
looking for larger, more stable companies to buy them, and fears are rising of
widespread loan defaults. OPEC said in a recent report that it expects U.S. production to begin to fall later
this year, echoing the prediction of the U.S. Energy Department.
To compete,
drillers have to find ways to get more oil out of each well, pushing down the
cost for each barrel. Experts estimate that shale drillers pull up just 5
percent to 8 percent of the oil in place.
"We are leaving behind a
large amount of hydrocarbons, and that's quite unacceptable," Freitag
says. "It requires different thinking now."
Engineers have adapted some of the best sensor technology
and mathematical models, developed first for deep offshore drilling, to see
into the rock better. As they drill, they use imaging technology to find natural cracks in the
rock that they can then use as a target when they fracture the rock, to
leverage natural highways for oil and gas.
After they
fracture the rock, they can map the new cracks. That way they can know how
close they can drill another well to target more oil without sapping production
from the first well. EOG Resources, one of the pioneers of shale oil drilling,
has reduced the space between wells in an area called the Leonard Shale, in
Texas, to 560 feet from 1,030 in 2012.
Drillers are finding they can back into wells drilled
only a few years ago to re-frack them or inject specially tailored fluids to
get oil flowing again. That can return a well in some cases to peak output, without the expense
of drilling a new well.
The companies are also getting much faster.
Exxon says it has cut the time it takes to drill a well in North
Dakota's Bakken formation by one-third over the past four years. It has also cut by half the cost of fracturing the
rock and preparing the well for production. Exxon will run 13 rigs in the
Bakken this year, the same
number it did last year, despite the low prices.
Companies will save money in the coming months because
service companies, rig operators and other suppliers to the industry will lower rates to
keep business. Oil companies have been
telling investors in recent weeks they expect to see cost reductions of
10 percent to 40 percent, depending on location and type of service.
Drillers are also focusing on the wells in the parts of
formations that they know to be the most prolific, and cutting back drilling in
places where they aren't quite sure what's below. That reduces overall spending
without dramatically decreasing production.
U.S. shale drillers will never push
costs as low as OPEC countries. But the U.S. industry may be able to survive — or
even thrive — if drillers can learn to quickly adapt.
"There
is a significant portion of this that is competitive on a global basis,"
says Exxon Mobil CEO Rex Tillerson at an annual investor meeting earlier this
month. "North American tight oil supply is more resilient than some people
think it is."
Jonathan
Fahey can be reached at http://twitter.com/JonathanFahey . (***)
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