Unconventional oil and gas resources in the United States have transformed the worldwide industry over the past decade, and more change could be on the way as these areas draw the interest of big players with large research and development budgets.
The importance of U.S. shale was the backdrop for a panel of experts at CERAWeek by IHS Markit in Houston on March 12. Shale has restored the country to its old position as the world's foremost oil and gas producer, and it continues to gain popularity as supermajors like Exxon Mobil Corp. and Chevron Corp. increasingly get involved. Like the smaller producers before them, the large players are attracted to U.S. shale because it is in a politically secure location and can be exploited fairly cheaply.
"It's the most pleasant oil resource in the world," Centennial Resources Development LLC Chairman and CEO Mark Papa said. "It's a very fast track, accessible resource. It's short cycle … Independents have known that, but now majors are diving in."
The rates of return remain a subject of close scrutiny, with only about 10% of shale oil currently produced through the combination of hydraulic fracturing and horizontal drilling. There is a near-universal expectation that some improvement in the process will occur, but even veterans can only guess how the game will go.
"We might be on the on-deck circle," said Haliburton Co. Vice President of Innovation Greg Powers, when asked what inning the shale technological revolution is in. "There's been a tremendous amount of money spent trying to figure out what was going on."
"The fundamentals of what's going on are yet to be elucidated ... The answer of how oil comes out and why it comes out remains a mystery," Powers said, but improving the technologies used in shale production will lead to much higher rates of return in the future.
Papa, who used to be CEO of EOG Resources Inc., was less enthusiastic about technology's potential. He said other elements of the equation will overshadow technology.
"The industry has pretty much maxed out its lateral length … It has maxed out its proppant intensity. It has refined its fracturing fluid," Papa said. "We're probably in the seventh inning. I'm not particularly optimistic that we'll see the year-over-year improvement and well recovery rates that we've seen over the last 10 years."
Papa said most of the best shale plays, such as the Permian Basin and Bakken Shale, have been leased out and are being exploited. Nearly everywhere, including the Permian, producers are seeing problems from "parent-child issues," where nearby wells produce less oil than the originals by 15% or more. The negatives the industry has encountered may overshadow the positives from technological improvements, Papa said.
"Against [new technologies] we have shale degrading, parent-child issues, and I would submit that will outweigh technology improvements over time," he said.
Powers, on the other hand, said there is more opportunity. Even the most prolific shale plays, he said, have been exploited largely through luck.
"I think we need to get a better understanding of the source rock," Power said. The drilling of wells up to this point was "done by trial and error," he said. "There's a lot of effort in trying to understand what's been done so far … There's a lot of information from 60,000 wells that have been drilled."
Papa conceded that the arrival of the supermajors in shale plays would speed up the rate of new technologies making their way into the field. "Once those big guys come in, you're going to see those R&D departments with a high priority to find out how to improve recoveries," he said. "The first 10 years, you didn't see those guys. They were AWOL. They're in there now."