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David Messler

David Messler

Mr. Messler is an oilfield veteran, recently retired from a major service company. During his thirty-eight year career he worked on six-continents in field and…

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Will U.S. Shale Ever Return To Its Glory Days?

  • U.S. shale production has seen a fall-off in productivity in some basins in recent years.
  • Though output isn’t expected to fall off a cliff, America’s shale industry may never return to its glory days.
  • With production slowing, WTI prices are expected to face a supply-side bump.

This article is intended to provide an update on one of the key trends I highlighted in my last OilPrice article on shale output in November. In that article, I discussed signs of maturing of the drilling inventory. Meaning that the number of Top-Tier locations in on the decline, and operators are being forced to drill less productive, lower-tier reservoirs to maintain output. While there is no concern about production from shale reservoirs
“falling off a cliff” anytime soon, the fall-off in productivity in at least some basins, is becoming noticeable by a number of metrics. 

The shale “boom” is about thirteen years old, if you date it from 2010 and there are clear signs the meteoric growth of past years are behind us. Our expectations are for shale production to maintain an upward trend for most of this year, but with an arc that flattens as 2023 waxes on, and then begins to bend down. Perhaps as soon as the end of this year. This opinion flies in the face of generally accepted industry and governmental forecasts that show shale production exceeding 10 mm BOEPD at the end of 2024.

Superficially, if you only look at that graph, things look pretty good for production from shale-and other reservoirs on and offshore. But, when you dig down into the weeds, and look past that dotted line that projects future growth, there are some troublesome indicators. We think that 10 mm BOEPD figure is very optimistic and reality will soon set in, resulting in downward revisions to the EIA forecasts.

Problems on the horizon with shale output

One of the problems with shale production, is the best locations in the various shale basins are well past their prime and shale output could be in the early stages of a death by a thousand cuts. (A death, I remind you again is decades hence, but hanging out there none the less.) This declaration runs in stark contrast to other data taken from the EIA Drilling Productivity Report-DPR, showing shale production is on the increase. How is this possible?

A closer look at the table below, taken from the DPR you will see that production is increasing significantly only in one basin-the Bakken, rising incrementally in another-the Permian, and barely staying even in others. What's up?

Interest in Bakken is understandable. Even though it is a mature province, the new well production for Bakken wells is about double that of any other basin at 1,716 BOEPD. This is a known feature of the Bakken and the fact is that horizontal legs are getting longer. The Bakken has increased its rig count by 65% since early 2022, which certainly accounts for much of this increase. More holes in the ground and extending the wellbore account for the increase in that play. The easy answer to increasing production, apart from drilling more holes in the ground, has been to lengthen the interval, and then to up the sand concentration per foot of interval. New research by shale analytics firm, Novi Labs, suggests we may be hitting some practical limits with these techniques.

There are limits to the benefits of extending the well bore as discussed in the Novi Labs paper #3723784, The Diminishing Returns of Extending Lateral Length Across Different Basins, presented in the 2022 Unconventional Resources Technology-URTec show. Simply put, the paper, which took a thorough look at a number of U.S. shale plays, concludes that doubling the length of the well doesn't result in doubling the output. It should be noted that there is a fairly complex discussion in the paper, about possible influencing factors in these results that include, but are not limited to: completion size, a distance of perforations at the toe of the well from the heel, tortuosity, or interactions with artificial lift.

Novi Labs has continued its analytical work with a focus on the Midland sub-basin of the larger Permian basin. The graphic below is intriguing in what the data presented might actually mean in terms of long-term shale production. The blue line shows production per foot of interval increasing rapidly to 2016, cresting above 9-bbl per foot cumulative output, and staying in that range in the years since. And, finally, in 2022, dropping back below that level on a fairly steep slope. The orange line shows the average length of the lateral section rising sharply to 8,840’ in 2018, and then flattening out toward 11,070’ in 2022. The dark blue line tracks the average 6-month cumulative production following completion. While continuing to rise, like the other metrics tracked, it flattens post-2016, and by 2022 begins a steep decline.

To add to the work done by Novi Labs, is my own work, contained in the graph below, which simply tracks data reported by the Energy Information Agency-EIA, Drilling Performance Report-DPR, on new good productivity through November of last year. I track the new well data from All basins, and the Permian responsible for about half of U.S. daily production, and is cast against data on Drilled but Uncomplete wells-DUCs, and the Rig count for the same time period. 

I don’t put any interpretation on this data other than to note the decline in new well production over the time span of the data, and to point out the inverse shape of the curve between increasing rigs, and declining DUC withdrawal. Taken together, the data does raise questions about the quality of the shale inventory now being drilled.

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Takeaways

In spite of most data from the various governmental reports showing an increase in production from shale reservoirs, there are observable trends indicating there may be a peak coming, at least on a unit basis. If this trend continues, the only way to maintain output at or above current levels will be with increased drilling.

The ability of the drilling contractors to respond to demands for additional rigs is limited by the diminishing stock of idle rigs that meet the “Super-Spec”(walking rigs, higher hook loads, higher standpipe pressures, etc.), or are economically upgradable to that status. Currently, there are 771+/- rigs turning to the right, down from 784, a peak reached in November of last year. Based on conference calls with rig providers, this fleet of active rigs could be increased by another 50-60, at a cost of $5-10 mm per rig. With rig rates now at all-time highs, $40K per day, it’s debatable how much interest operators have in paying these upgrade costs, either upfront or in still higher day rates. When you factor in the supply chain and staffing difficulties rig companies report, the idea of substantial increases in the overall fleet doesn’t seem likely in the near term.

If you add all of this together, the notion that shale output can be sustained at current levels, or substantially increased in years to come, seems increasingly shaky. In that scenario, we hold a bullish outlook for WTI prices as the perception of scarcity in oil supplies going forward, given China’s economic restart and the health of the overall U.S. economy, is reinforced later this year.

By David Messler for Oilprice.com

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Leave a comment
  • Codi on February 03 2023 said:
    All I want to say is the author clearly hasn’t been to the Permian lately because it’s got more activity than it has over the past 2 decades.
  • Mamdouh Salameh on February 03 2023 said:
    Never. Shale oil is a spent force.

    Shale production in 2023 couldn’t rise beyond 9.8-10.3 Million barrels a day (mbd) despite the usual hype from the US Energy Information Administration (EIA).

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




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