Challenges Facing Shale | Russell T. Rudy Energy LLC
“Rigzone” reports that most industry observers agree that 3-D seismic, horizontal drilling and hydraulic fracturing led to the shale revolution which in turn fueled the manufacturing renaissance. However, significant issues loom on the horizon for unconventional oil and gas plays. While there is agreement on the issues, there is a wide range of opinions as to how to deal with them and their implications for the future. Capital spending, diversification, water, staffing, and regulation all must be addressed for the shale revolution to continue at its present levels.
Initial rates on shale wells have been promising, but steep declines are common. Maintaining, and hopefully increasing, production requires additional capital in terms of drilling and completion costs. Although it might sound counter-intuitive, this problem is especially acute for the major oil companies because most of them got in late, paid too much, and consequently missed out on the best opportunities. Exploiting unconventional oil and gas requires quick decisions, and short project cycles. Generally, the larger the organization, the more difficult this is to achieve.
ExxonMobil came to this realization and gave their XTO unit an atypically high level of autonomy. BP apparently is trying to emulate Exxon Mobil with their creation of a new Lower 48 onshore unit, and Shell recently sold their Eagle Ford interest to Sanchez. Conversely, ConocoPhillips is bullish on shale and sees the U. S. possibly becoming an exporter of natural gas within a couple of years. Regardless of the size of the operator it is clear that if current profit margins are to be maintained, well costs must be minimized and rates and reserves maximized.
For shale to continue its prominent role in U. S. oil and gas production, we need to increase the number of major plays. While there are quite a few formations being explored and developed, nearly 70% of current unconventional oil production is from the Eagle Ford and the Bakken.
Water is a precious, and often scarce, commodity and fracing requires a great deal of it. While each situation is different, 3 million gallons per well is a rule of thumb. In drought stricken areas this is an acute problem. While the industry has made progress with treating, recycling, and using brackish water, more progress is needed and best practices must be universally implemented.
The loss of experienced baby-boomer employees to retirement is a major consideration for the industry and unconventional oil and gas operators are no exception. Collaboration between academia and the industry appears to be a good way to insure qualified candidates as we move into the “Great Crew Change” era.
Finally regulation is a significant issue for the industry and especially shale operators. With new technologies, and operations in areas without infrastructure, co-operation between legislators and industry is essential if we are going to effectively develop resources in a safe and environmentally responsible manner. As we have already seen with the Bakken, inexperienced regulators, and a lack of natural gas transportation and processing capacity are leading to disagreements as to how to most effectively curtail flaring. Lack of oil pipelines has led to extensive reliance on rail transportation of crude oil with sometimes disastrous results. Here again, co-operation is the answer.
No one knows for sure the future of unconventional oil and gas in the U. S. However, by raising issues early, sharing ideas and collaboration among key stakeholders, the industry has shown it can overcome challenges and move us further toward economic success and energy security.
To read the article in its entirety, please go to www.rigzone.com/news/oil_gas/a/133285/ .
