Is Peak Permian Only 3 Years Away?

Authored by Tsvetana Paraskova via OilPrice.com,

The world’s hottest shale basin, the Permian, is leading the second U.S. wave of tight oil production growth and will continue to do so for years to come, all analysts say.   

However, signs have started to emerge that the relentless intensification of drilling leads to diminishing returns, Simon Flowers, Chairman and Chief Analyst at Wood Mackenzie, said in an article this week. Pumping twice as much sand as usual into Permian wells and drilling longer laterals doesn’t deliver commensurate volumes of oil, Flowers notes.

“Drilling costs rise exponentially with depth, and there’s a suspicion that longer wells are hitting a cost efficiency ceiling,” WoodMac’s chief analyst writes.

Moreover, after the early production-exuberance stage, drillers are now much more focused on delivering profits and higher profit margins. They now favor quality over quantity, and value over volumes.

Might the Permian be reaching the limits of well size and design? Maybe - as Star Trek’s Scotty might observe of an underwhelming high intensity completion ‘you cannae change the laws of physics, Jim’,” Flowers says. But WoodMac suggests that drillers could ‘change the laws of physics’ and that these signs of setbacks may actually be growing pains.

The energy consultancy’s Director of L48 Research, Rob Clarke, argues that there are two basic and very sound reasons that the fading lateral drilling and proppant metrics might be just growing pains. One is much more advanced proppant placement, and the other is the oil majors’ move into the Permian, set to change things.

“Now, pinpoint frac technology can place the proppant exactly where it’s wanted. Science is also being applied to identify the most effective proppant grain size and shape as well as drill bit design and fluid chemistry, all with the aim of boosting EUR,” according to WoodMac.

In addition, ExxonMobil significantly boosted its Permian position earlier this year, and Exxon has “global expertise in extra-long laterals—including a 39,000 footer in Russia,” WoodMac says.

ExxonMobil has already drilled a 12,500-foot well in the Permian and “will no doubt ramp up longer still to test the diminishing returns theory,” Clarke noted.  

Now the next challenge will be to deliver an effective completion of such a long well.

“The application of the Majors’ capital and industrial approach will test whether the thousands of wells to be drilled in the future enable the Permian to deliver on the bold growth targets,” WoodMac said.

Two months ago, Wood Mackenzie warned that as drillers are set to continuously develop the hottest U.S. shale play, they may soon start to test the region’s geological limits. And if E&P companies can’t overcome the geological constraints with tech breakthroughs, Permian production could peak in 2021, putting more than 1.5 million bpd of future production in question, and potentially significantly influencing oil prices.

Apart from geological constraints, other factors that could affect Permian growth are increasing service costs and potentially persistently low oil prices.

While oil service margins have increased for oil field service providers such Schlumberger and Halliburton, oil producers, on the other hand, face cost pressure, and “higher well costs may force additional discussion on capital discipline going into 2018, which could be a good thing for the overall supply and demand balance,” BTU Analytics said earlier this month.

At the end of September, Moody’s warned that even if average drilling and completion costs have declined significantly in the past two years, “drillers will be hard pressed to further reduce drill-bit finding and development costs, since drilling efficiencies may be offset by higher service costs.” North American oil producers will need WTI at over $50 a barrel in order to achieve “meaningful capital efficiency”, Moody’s said.

Pioneer Natural Resources, for example, continues to believe in the Permian, but it thinks that the U.S. shale patch is heading toward hitting the ceiling of efficiency gains from larger frackings.

“In the U.S., we are essentially using a sledgehammer approach. We are using larger volumes or sand and fluids and pumping at higher rates,” Pioneer’s CEO Tim Dove said at the Oil & Money conference in London, as quoted by Platts.

 

“At some point you reach a peak on logistics, limits on sand, water volumes... that’s where we are getting to, [although] we’re not quite there as an industry,” Dove noted.

Still, the expertise of the majors, as well as science and tech breakthroughs in proppant use, may help the Permian outgrow its growing pains faster than expected. 

Comments

Zip_the_Zap viator Mon, 11/13/2017 - 14:14 Permalink

:-) Hello Pinkie Oilando, have not heard from you in awhile, what is up?Pinkie Oilando: Well, you know we are reaching peek oil again and our cililization is going to collapse.Guy: Pinkie you have been saying this since 1970, that is, for 47 years, do you think this time is different and should I soil my pants?Pinkie: Yes deffinately!

In reply to by viator

Winston Churchill Mon, 11/13/2017 - 14:06 Permalink

Peak net energy,plenty of oil left but it costs more energy to extract than it provides.You can manipulate fiat all you want,but in the end thats all that counts.Our free lunch is over.

phaedrus1952 Winston Churchill Mon, 11/13/2017 - 16:12 Permalink

WinstonThe writers for oil price.com are not highly regarded for technical expertise.Right now, there is an increasing useage of ultra tiny micro proppants that enter, scour, and enable larger (#100 mesh) proppants to hold fissures open.CEO of Core Labs projects a tenfold increase in the size of the reservoir that can be stimulated.Pilot projects to re-inject gas into these formations to boost output (EOR type work) is just getting started.Small outfit in Canada - Granite Oil - has been successfully doing this for a few years in a somewhat comparable setting.Over 90% of the oil is still remaining under current procedures.These guys will figure out a way to capture much of that in the coming years.

In reply to by Winston Churchill

Sapere aude phaedrus1952 Mon, 11/13/2017 - 17:24 Permalink

So you stimulate and get a tenfold increase....what do you get....even greater decline rates.You seem to have very little knowledge about tight oil, which is what shale is?In shale there is no real reservoir characteristic, becuase its tight geology, so you can't increase the size of a reservoir because shale is based on fraccing tight geology, and keeping the fissures fracced open by proppants which allow the oil trapped in the tight geology to be produced.Sometimes if you don't now about shale, its best not to write about it.

In reply to by phaedrus1952

phaedrus1952 Sapere aude Mon, 11/13/2017 - 17:56 Permalink

SRV ... Stimulated Reservoir Volume is the term thousands of engineers, papers, operators use when describing the formation that has been effectively fractured.The highly complex fissures now being created and propped via micro proppants has a LOWER decline rate than earlier wells - as is shown in the last 15 months' production profiles - due to the added distance to the wellbore (extreme fracturing, not additional half length), along with ultra tiny path flows.The effective use of diversionary products and processes - both near wellbore and far field - has enabled Mark Papa's vision of near-autonomous RESERVOIR characteristics to be achieved in unconventional development.

In reply to by Sapere aude

Benjamin123 Mon, 11/13/2017 - 14:26 Permalink

All fossil fuels together will last at least another 200 years, enough for our lifetimes so infinite in practice, act like its infinite and you wont notice the difference. This is a problem for future people.For future people the problem wont be running out of fossil fuel, but not being the last to run out. The army in control of the last oil field will control the world.

D503 Benjamin123 Mon, 11/13/2017 - 14:40 Permalink

As an engineer, I argue "wrong." I submit as evidence the order of magnitude higher energy cost in extracting and refining tar sands, sour crude, and shale oil, coupled with the major non state producers in constant decline since '06-'09 and the unaccounted externalities on the costs of unconventional extraction such as aquifer depletion and damage to state sponsored infrastructure. Further, we know that the post carbon Institute bought the data rights on the major shale plays and confirmed their postulations repeatedly. Of course, I trust you have some quantifiable evidence backing your case other than "can't happen because current year."

In reply to by Benjamin123

Benjamin123 D503 Mon, 11/13/2017 - 15:07 Permalink

I dont care about those externalities. The fact is that all fossil fuels will outlast our own lives, if not oil for sure coal, and you can power everything on coal alone including internal combustion engines. So its a non issue for us living people in current year. You wont notice after death.All these externalities regarding the "true cost" of producing energy, EROEI and such are bullshit. Nobody can trace them, is a fudge factor that no one actually calculates but it is used to make political points.

In reply to by D503

D503 Benjamin123 Mon, 11/13/2017 - 15:48 Permalink

Obviously you don't care to establish definitive quantifiable values. I can easily "trace" them with one simple proof of concept alla Popper's falsifiability principle: Can the fuel attained, power the extraction of itself, and have a positive net energy that economically satisfies its production?You claim "coal" can do so, then erect the infrastructure to power coal mining from the resource it claims to have a net gain upon. The Nazis were wasting tons of coal converting it to liquid fuels, I'm sure we can do so "better" now, so power the mining, extraction, refining, and distribution of "coal" using only "coal."Why would the supposedly self sufficient coal industry need to rely on "externalities that are bullshit?" Let's see some fucking proof motherfucker.  

In reply to by Benjamin123

Benjamin123 D503 Mon, 11/13/2017 - 16:03 Permalink

Of course you cant trace it. You dont know the energy cost of producing oil. You would not even know how to start the calculation. All this talk about hard physics starting me in the face and you still cannot actually calculate the energy costs of producing energy.The nazis had bombs raining on them, its ridiculous to claim coal liquefaction doesnt work and put bombed plants as evidence, even if it doesnt work its stupid to use bombed plants as evidence of anything. This is pathetic.

In reply to by D503

D503 Benjamin123 Mon, 11/13/2017 - 16:09 Permalink

You seem to fail to understand the experiment. Internalizing the energy cost eliminates the externalities. It's quite simple. Here, I'll provide a simpler example:Have you ever seen a solar powered factory that manufactures solar panels?Here's another:The world's first ethanol powered farm that produces overunity on ethanol. What? No fucking examples that contradict my theory? No one has any clue why you're running the tangential "bombs raining on them" or "bomb plants." What the fuck are you on about?Show me the fuel industry outside of conventional crude that powers its own production. Show me some evidence you uneducated contrarian. 

In reply to by Benjamin123

Benjamin123 D503 Mon, 11/13/2017 - 16:31 Permalink

You are full of shit pal, do you expect oil companies to smelt their own iron ore and manufacture their own steel pipes and trucks, with their own resources, to prove you anything? So unless they do so they dont produce net energy... because fucking Popper? And unless i, personally, erect a worldwide economy based purely on coal my argument is invalid???No, no solar plant runs on solar power alone, no ethanol plant runs on ethanol. The total energy costs cannot be traced. EROEI simply cannot be calculated. Nonsensical websites like olduvai often quote numbers like "EROEI is 10, EROEI is 27" like the actually ran mathematical calculations and came at a number. These numbers are all made up.To calculate EROEI youd have to account for everything in an oil field. Theres a truck on the field? Well calculate the energy required to make the truck. Calculate the energy required to smelt the iron ore that became the engine. If the iron ore miners had lunch you have to calculate the energy it took to grow and ship their food, and the energy to cook it... Go ahead, calculate EROEI, it never ends, no one ever calculated EROEI and you are a clown.The thing about bombed plants is because you started bawling about nazis and liquifuied coal, like it means anything. Coal can power everything, and that has nothing to do with nazis, which you brought here.

In reply to by D503

D503 Benjamin123 Mon, 11/13/2017 - 16:46 Permalink

Again, your erroneous claim that we cannot calculate the embedded energy cost in the production of variable x, such as steel production, cncing machinery, or refining fuel source x, into the usable state it would need to be in to power its own production is demonstrably wrong from decades worth of astm data sheets available to the public now for decades that are reproduced annually from independent firms. The reference to Nazis was a concise allusion to the wasteful practice of turning coal into liquid fuels for their tanks and bombers as it was rather revolutionary at the time. There is no bearing on the sorties, or conditions under which the facilities endured that are relevant to the science. You keep arguing that EROEI can't be calculated, but you sound as ignorant as someone claiming mpg can't be calculated, or that we don't understand the friction coefficients between asphalt and tire compounds. This is as simple for us as you calculating your hourly rate, or your monthly expenditures.The bottom line is that you cannot point to a single example of an "energy industry" that can internalize its own production outside of conventional oil. Even the Amish have the sun as an externality. If you have an overunity claim, I'm more than interested. Let's see some proof:

In reply to by Benjamin123

Benjamin123 D503 Mon, 11/13/2017 - 17:32 Permalink

If you can calculate EROEI do so, right here. Show us the calculations. Post them here or be exposed for a fraud.Im going to sleep now. I dont expect to find any calculations posted here by tomorrow. I already know you are a fraud and will not post any detailed mathematical calculations.

In reply to by D503

D503 Benjamin123 Mon, 11/13/2017 - 17:35 Permalink

Sure. Give me the definition for your fuel and I will define the eroei within the discernible bounds. E.g:Define the eroei for shale. Define the eroei for wind turbines. I will be more than happy to elucidate well beyond the expectations of a reasonable person the energy density and minimally necessary and sufficient demands for the fuel you choose. 

In reply to by Benjamin123

phaedrus1952 D503 Mon, 11/13/2017 - 16:27 Permalink

I challenge you, right now, to spend ten minutes to read the executive summary from "Drilling Deeper" and list anything that Hughes said that has been proven to be accurate.Marcellus figures?We have blown past them and CONTINUE to skyrocket upwards.Want a huge laugh?Read how he dismissed the Permian as having any future potential.Hubris? Delusional?  Read Hughes' one page dismissal of West Virginia's multi year long study of the Utica.You know the study that incorporated decades of work by states, academics, government researchers, etc.Pfft!! According to Hughes. Not worthy of serious consideration.Really, now. There is an ENORMOUS amount of recoverable gas (possibly 100 years' worth) in the US alone.Natgas will crowd out oil in coming years.Scarcity is fantasy.

In reply to by D503

D503 phaedrus1952 Mon, 11/13/2017 - 17:11 Permalink

This is actually a very simple myth to debunk. Natgas is a relatively short hydrocarbon chain, typically CH4. Its energy density is quite low and it runs efficiently  in low oxygen exposure at low temps at high efficiency. This basically means, as a fuel, it's a piece of shit for volume and difficult to control knocking (preignition). I'll brush up on the fact that alcohol fuels and propane (longer, better, but similar) are terribly inefficient to produce decent power outputs compared to gasoline for a variety of factors concerning the longevity of the operation of the machine (it destroys seals) and it requires larger storage containers more prone to ignition and explosion.On the upstream end, collecting natgas is a horribly inefficient effort. Much is lost when released, and it takes a great deal of energy to compress and safety distribute it. Natgas wells are 85% depleted in their first year and it takes over 5,000 cubic feet to equal one bbl of conventional crude. There is no reasonable model to expect a long production rate of this oil well byproduct and it is typically burned off.

In reply to by phaedrus1952

phaedrus1952 D503 Mon, 11/13/2017 - 18:36 Permalink

Hey, D5If natgas is bad as a transportation fuel, you might wanna tell all those buses, trash trucks, delivery vans that they are doing something wrong. In fact, the latest Adsorbed Natural Gas (ANG) technology has reached - in the lab - the Holy Trail status if sub 500 psi handling.Meaning?Houses that have a natgas supply will be able to fuel up their CNG vehicles right in their own driveway.17 GGE (Gallon of Gas Equivalent) tanks will provide long range, ultra cheap transportation. Upstream?Sorry, your ignorance here is simply astonishing.Whereas getting a viscuous fluid - oil - to flow sideways 2 miles and vertically 2 miles for 30 years is a daunting task,gas flows, bro, it just flows, boosted by compressors.There are century old producing gas wells in Pennsylvania today. Not trying to insult you, but the statements you made are wildly inaccurate and extremely easy to prove.

In reply to by D503

D503 phaedrus1952 Mon, 11/13/2017 - 21:53 Permalink

I said it was piss poor as an alternative, and it is. Nat gas doesn't flow controllably, it escapes any fissure it can. The claimed resources never resolve to production. EVs are shit efficiency as well. I see them on the road too. Helicopters are also in production, that doesn't make them scalable or efficient. Just because propane companies benefit from a small demand and a relative cost benefit advantage, the physics and efficiencies do not change. Try running on biofuels, or even talking to a mechanic. At the end of the day, you need 5,600 cubic feet of nat gas to match the energy equivalent of a barrel of oil.no matter how you write it.

In reply to by phaedrus1952

phaedrus1952 D503 Mon, 11/13/2017 - 18:42 Permalink

... Just had to add the PS to your 'oil well byproduct' comment. Do you have ANY familiarity with the Marcellus?Combined with the Utica, it is being referred to as the Appalachian Basin.Outside of the sparse oil/condensate in Ohio's oil window, you have 100% gas with associated NGLs.25 BILLION cubic feet a DAY!!! (Paging Post Carbon Institute, David Hughes. You guys fucked up bigly)

In reply to by D503

Sapere aude Benjamin123 Mon, 11/13/2017 - 17:29 Permalink

I would not be so sure of the 200 years supply!

If that were true the CIA would not have commissioned a report years ago about their concern at the U.S. not even being able to have enough hydrocarbons to sustain military!

Don't any of you realise that its not an oil glut, its an oil shortage sold as a glut to keep prices artificially low whilst rushing to convince us all to stop using it by any means, including the pseudo science of climate change, Co2 etc., etc., all hoping to bring in enough EVs to stop the oil price going above $200, so what better than fake news or a stupid system were the media tell the story they are told to tell, including a farcical situation where by buying more oil and increasing inventory the media can point to a higher inventory to lower the price of oil when in the real world if you didn't need the inventory why would you buy the extra oil!

Shale is a sign of that desperation

In reply to by Benjamin123

Magooo Mon, 11/13/2017 - 14:24 Permalink

HIGH PRICED OIL DESTROYS GROWTH According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices.  http://www.iea.org/textbase/npsum/high_oil04sum.pdf  OIL PRODUCERS NEED $100+ OILSteven Kopits from Douglas-Westwood said the productivity of new capital spending has fallen by a factor of five since 2000. “The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programmes. Nearly half of the industry needs more than $120,” he said http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11024845/Oil-and-gas-company-debt-soars-to-danger-levels-to-cover-shortfall-in-cash.html  THE PERFECT STORM (see p. 58 onwards)The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel. http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf