The (r)evolutionary new Oil and Gas Factory – study excerpt
Oil and gas exploration and production in the US has always been different from the rest of the world, not least because of the sheer number of wells and the required underlying supply infrastructure. The volume growth in oil and gas production from shale hides a deeper revolution that has consequences and give new best practices for oil and gas activities in the rest of the world, what we call the new Oil and Gas Factory.
NASA’s well known 2012 nighttime Picture1) of the US shows clearly gas flaring from North Dakota’s Bakken and Texas’ Eagle Ford basins. Zooming into Bakken reveals the lattice placements of well pads, east-west, and north-south, corresponding to the 1 square mile, 640 acre, “section” as defined in the early days of western settlement.
The number of producing wells will hit 9000 this summer, with 100 new wells added monthly by 180 active rigs, corresponding frac-crews and others. The typical horizontal length is 7-10 000 ft, spanning two sections. These averages hide very large differences between operators.
Initially it took well over a month from spudding to completed well. For the best operators, the time for drilling has now more than halved and time for multi-stage fracturing 75%. AC-driven rigs on multi-slot pads have evolved. Microseismics and zipper fracs have recently been introduced, optimizing parallel pairs of wells along with designer proppants. Logistics have improved significantly, with litte waiting time between operations. Not only has well cost come down, the quality of mechanical components, component handling and well completions is higher. At the same time, environmentally friendly solutions have been found.
The sheer number of wells has allowed an unprecedented competence and experience build, in and across all stages of the value chain. Companies have literally created well factories with dramatic cost, productivity and quality benefits, many of which are now starting to be ported to non-tight operations and internationalized. New best practices are being defined. Our expectation is that drilling efficiencies, frac design and completion advances will become globalized, realizing both higher recovery (“EUR”) and lower unit costs.
Such efficiencies require competence, systems, significant scale of operations and a strongly integrated supply chain. With new data available for tight oil and gas operations, it is now also possible to benchmark companies on their chosen exploration, development and production strategies. Our study of the largest operators in Bakken shows a facinating consistency, yet also significant systematic differences. The sample of eight companies represents over 45% of active rigs and include Continental, Whiting, EOG, Statoil, Hess and Oasis.
Driven by market prices and cash payback requirements to feed the investment cycle, companies have chosen strategies that focus on either cost or EUR, the former involving simple and the latter more complex development strategies. Per foot EUR and well output can differ by a factor of 2-4x between companies in otherwise similar wells. For example, companies with access to new technology or low cost sand (such as EOG) tend to use highly intensive well completions, giving higher well productivity and EUR.
A major conclusion is that there is not a single best practice, but an “envelope” defined by a fairly small reference group of optimal performers. It is interesting that local property owners are now hearing about, and seing these differences between operators. Some owners even require the use of “best available technology” and a focus on EUR in their selection of partner.
The next year or two will show if the productivity and cost efficiencies can continue to improve for the best operators of tight resources in the US, or if they must stabilize. Regardless, the learning is already being taken to other areas, both through service companies and oil companies. International companies, such as Statoil, have already done acquisitions and partnerships as a road to competence building.
In particular it is our expectation that the dissemination and adoption of the learning from tight oil and gas resource development in the US to conventional and challenging basins will focus on new and advanced technologies. Generally, therefore, areas where dependence on US culture, land/resource ownership model and infrastructure is small.
Interestingly, there are strong tie-backs to earlier dramatic improvements in deep-water E&P technology and project developments in the North Sea. The biggest winners will be those companies that standardize, recreate and emulate the revolutionary oil and gas factory concept in other basins. Importantly, that also means further developing a company “stamp” and profile.
Contact us for further details of our analysis.