US shale producers tackle sharp decline rates

Nearly a decade since independent oil firms ushered in the US unconventional oil boom with advances in hydraulic fracturing, a key challenge remains — how to stem sharp decline rates at shale wells without burning through budgets.

US oil production is forecast to rise by 1.3mn b/d to a record 10.7mn b/d this year and hit 11.5mn b/d in 2019, driven by growth in tight oil output from the Permian basin and other shale formations, according to the Energy Information Administration (EIA). UK bank Barclays predicts tight oil output to increase by around 1mn b/d a year to 13.2mn b/d by 2025 from 5.6mn b/d last year.

But growth will depend on how well companies succeed in slowing the steep decline rates of as much as 70pc that tight oil reservoirs exhibit in the first 2-3 years following start-up. The initial response has been to drill longer lateral wells and pump more proppant, or sand, and water. But there are limits to the amount of water or sand that can be injected and the length that a well can be drilled to, leaving companies searching for longer-term fixes. "We have yet to understand how reservoir conditions and well productivity change as we continue to inject billions of pounds of proppant and billions of gallons of water into the ground each year," oil service firm Schlumberger chief executive Paal Kibsgaard says.

A growing concern is the impact of secondary wells on output and on primary wells as more producers switch to pad drilling to lower their barrel of oil equivalent costs. If the spacing between wells is too close, it can lead to less than expected production, and more importantly, reduce pressure in the primary well, creating so-called pressure sinks. The percentage of secondary wells in the Eagle Ford has reached 70pc, Schlumberger says, and in the three-year period since the level has breached the 50pc mark there has been a steady reduction in unit well productivity.

The industry needs to better understand the subsurface and fluid technologies it uses, Kibsgaard says. But that increases costs, going against producers' priorities as they deal with investor pressure to spend within cash flows and improve returns. "Deploying these technologies requires a significant mindset change throughout the industry, and a willingness to increase investments," he says.

Parental guidance

The industry is at an "inflection point" and whoever successfully addresses the challenge of having pressure sinks that create the "parent-child relationship" between wells "is going to be a value creator", Concho chief executive Tim Leach says. The key lies in the sequencing of the zones and the timing between drilling the wells, according to Leach. The right mix "optimizes recoveries, optimizes economics and reduces stranded wells," he says.

Beyond secondary well challenges, producers and service providers are touting other technological advances. EOG Resources has developed a predictive algorithm to make better and quicker decisions. "We are able to produce both high returns and high growth and we are able to do it organically," chief executive Bill Thomas says. And service giant Halliburton has just launched its Prodigi intelligent fracturing service, with adaptive and automated controls that respond in real time to changes in the formation. The company is also working with Microsoft and Accenture to develop digital technology.

Barclays views innovation as key to sustaining output growth. Some companies have reported that reservoir performance has been slipping in key basins, Barclays says, but it doesn't agree with the idea that industry may be reaching the end of the efficiency gains cycle. "We believe that, on balance, industry innovation will keep inevitable productivity declines in check," it says.