Technology takes over tight oil
As the shale business matures, its wildcatter mentality is being replaced by artificial intelligence
A WTI crude price rangebound in the $50-$60/bl band means profitability is under pressure across the US shale business, which faces far higher ongoing opex than operators of conventional resources. WTI at $100/bl can support a fragmented market of hundreds of participants but lower prices require savings to be squeezed from economies of scale and the innovative application of new technology.
Disappointing returns have largely locked small players out of capital markets and the recent trend is solidly towards consolidation, with the majors becoming increasingly interested in taking stakes when they are available at the right price. Occidental, which purchased Anadarko and kept its US shale assets, is at the forefront of these shifting dynamics as it operates the largest number of shale wells, 25,000, and participates in a further 100,000.
While the specifics of geography, scale, total acreage and the supply chain are all important factors, “technology and datasets provide a whole host of things to make it work from a returns perspective,” says Oscar Brown, senior vice president, strategy, business development and integrated supply at Occidental.
The firm’s proprietary technology, Oxy Drilling Dynamics, is being applied to the wells it gained from its acquisition. “A lot of the real-time decisions made by the driller are becoming automated. It takes the bias out. It is the whole workstream that is different, not just the technology,” says Brown.
“One thing that is hard to do in any area—certainly in unconventionals—is to know where your [drill] bit is. The bits are under a lot of temperature pressure and that is hard on the sensors. We take the visible data from across the face and our geo-mechanic understanding of the different layers of rocks and run all that into algorithms, and then test it against our database and the real world.”
Scraping the barrel
The spectacular growth rates of 2013 are unlikely to be repeated so the focus has shifted to extracting more from each well. The challenge of extracting 1.5mn bl/d oe in 2013 from the big-three US shale basins—Eagle Ford, Bakken and Permian—is entirely different to extracting 7mn bl/d oe in 2019, notes Greg Leveille, chief technology officer at US independent ConocoPhillips. “When you look at what is behind that enormous growth, it is really a lot of engineering and science.”
While he estimates that recovery factors for unconventional liquids are 5-10pc and natural gas 10-20pc, “at Eagle Ford, our single biggest asset, we're getting a 20pc recovery factor from a liquids-rich play,” says Leveille. “We have been able to do that by looking at the completion design, the spacing and stacking of the wells—so-called parent-child relationships—and how we use refrack as a tool.”
“It is an incredible opportunity because, if you can find ways to develop automation or artificial intelligence to improve the costs of an unconventional well, you can apply it to literally thousands or tens of thousands of wells” Leveille, ConocoPhillips
“If you do the right things” in parent-child wells the reserve numbers do not change, he adds. “A lot of that has to do with innovation and technology advancements… as you are in-filling the development of your field you can get not only excellent production volumes from your new wells but actually increase the volumes in the old wells.”
Steadily increasing international oil company (IOC) involvement “certainly” signals maturity and capital discipline, says David Turk, head of the strategic initiatives office at the IEA. “There has been phenomenal technological progress,” adding that “there are areas of technology being explored right now that could be quite impactful”, but Turk would be surprised if the pace of technological progress can be maintained.
“Certainly, [enhanced oil recovery] is interesting and refracking is an area where we are getting interesting numbers. Digitalisation is impacting a lot of parts of oil and energy—whether it's AI-enabled horizontal drilling or using other tools and techniques—especially when the IOCs get involved.”
Plateauing productivity rates are reportedly prevalent across the shale sector but certain operators are breaking out of the constraints. “We are still seeing a lot of improvements year-on-year,” according to ConocoPhillips’ Leveille.
“The ones we are really excited about have to do with digitalisation impacting the way we drill wells. It is an incredible opportunity because, if you can find ways to develop automation or artificial intelligence to improve the costs of an unconventional well, you can apply it to literally thousands or tens of thousands of wells. It is a big, big prize. We are looking at automated drilling and a lot of other things for how we run the oil patch.”
The industry is drilling tens of thousands of wells a year in the US so the task has multiplied in complexity. “You cannot run those fields the same way you would have run them in the past, which was very focused on manpower. We see an enormous amount of automation coming and reducing both capital and operating costs is going to be impactful. We are still finding ways to increase productivity.”
The environmental impact of unconventional oil and gas production have been tracked for a decade. “Over time, the performance of the industry and state regulators has significantly improved. Induced seismicity was a huge issue a few years ago,” says Robert Kleinberg, senior research scholar at the center on global energy policy at Columbia University.
He notes that US-based National Academy of Sciences research detailed how engineering controls and monitoring can significantly reduce seismicity. “That was implemented by the industry and state regulators working together and now that problem is largely in the rear-view mirror,” says Kleinberg.
While the shale boom has transformed the US into the world’s largest producer, the practice is notable by its absence elsewhere in the world, despite some similarly attractive geological formations. “In the US we have 9,000 producers, all of which operate on relatively small margins, have small leases and generally—except Occidental and ConocoPhillips—have small resource bases,” says Kleinberg.
“In the rest of the world, the industry is dominated by IOCs and [national oil companies] with large inventories of fossil fuel resources. They will always exploit the cheapest resources first and, ex-US, tight oil and shale gas are not the cheapest resources in their inventories.”
Shale technology still has a long way to develop and it is going to require a lot more integration, engineering and data science, according to Leveille “That is going to set the playing field for companies which have the size and scale to bring all types of expertise to bear. This year, we are seeing a big differentiation between the companies with both good acreage and capabilities and other companies that do not have all these elements. I am not surprised rig counts are going down—from our perspective that reflects the future of the industry.”
The speakers appeared at Oil & Money in London in October