Cracking the Shale Code

[Editor's note: A version of this story appears in the June 2020 edition of E&P. Subscribe to the magazine here.]  

Chaos is an apt descriptor for 2020, espe­cially for the last three months. In March, daily necessities like hand sanitizer became as precious as gold. For a few days in April, a bottle of beer cost more in a West Texas bar than a barrel of oil. May saw way too many in the oil and gas industry placed on an involuntary but necessary frac holiday.

When historians look back a decade from now, they’ll see that 339 rotary rigs were operat­ing in the U.S. for the week of May 15, accord­ing to the Baker Hughes Rig Count, down from 987 one year ago. They’ll see a drop in the number of started frac operations from 1,238 in February to fewer than 330 for May, accord­ing to a Rystad Energy analysis. And if an IHS Markit analysis holds, then they’ll see that as much as 17 MMbbl/d of liquids production cut for the period from April to June 2020.

They also will see that global crude demand started to show signs of recovery in early May as parts of the world began to ease mobility restrictions going into the summer months. If a careful reintroduction continues, then they’ll potentially see that demand grow exponentially and see how quickly the oil and gas industry moved to fill that demand.

RELATED CONTENT: Completions Lessons: Making the Case for Data Sharing

In preparing for that comeback, the U.S. shale producers have decades of experience and tech­nologies ready to deploy. The last 10 years, in particular, are rich with numerous innovations in digital, electrical, hydraulic and mechanical sys­tems that all contributed to substantially elevating production returns.

Oil and natural gas production in the U.S. has soared due to the technical and technological breakthroughs made in accessing the once inaccessible shale resources. Natural gas production rose from 546.1 Bcm in 2008 to 831.8 Bcm in 2018, while oil production broke new records increasing from 6.8 MMbbl/d to more than 15.3 MMbbl/d in 2018, according to the BP Statistical Review of World Energy.

Those advances also radically altered domestic and global energy markets. The U.S. attained the long-held goal of energy independence in 2019 when the country’s energy production (imports not included) was higher than its consumption for the first time in 62 years, according to the Institute of Energy Research (IER).

“One can thank the oil and gas industry, and its use of hydraulic fracturing and horizontal drilling, for that milestone, as production in those industries increased a combined 11% in 2019. Total U.S. energy production increased by 5.7% in 2019 while U.S. energy demand decreased by 0.9%,” the IER report stated.

And then the bottom dropped out in April, leaving many to ponder on the next steps and if comebacks were possible.
Sun Tzu, a noted military tactician and philosopher, provides some wisdom on staging a comeback in his highly regarded text on strategy, “The Art of War.” A few of his insights are presented here against recent industry activities to show how the data, observations and lessons learned in the past are invaluable in making a roaring comeback possible.

'In the midst of chaos, there also is opportunity’

The shale journey has been a marathon run at a sprinter’s pace. In that time, the industry has advanced its understanding of shale considerably. As of May 8, there have been 138,170 horizontal wells drilled and completed in U.S. shale plays since 2010, with 124,051 of those wells still considered active, according to Enverus data provided to E&P. There were 2,562 drilled but uncompleted (DUC) wells, according to the data. Only wells that have been drilled, but not completed, outside of the last six months are in the count.

In the beginning of the shale boom, the focus was on two simultaneous paths: operational efficiencies and completion designs, Reveal Energy Services CEO Sudhendu Kashikar told E&P.

As the industry learned more about shale and its many layers, it shifted from single-well to multiwell pad operations and more to become more efficient.

“The transition to multiwell pad operations and zipper fracking are two examples of how we gained operational efficiencies,” Kashikar said. “On the completions side, we’ve learned that we need to stimulate the rock much more than we thought we did a decade ago.

“Our stage lengths were too long, and the volumes of proppant and fluid being pumped were too low. Considerable experimentation went into determining the appropriate stage lengths, and higher volumes of fluid and proppant are necessary,” he said.

“With the transition to infill drilling, now we are learning what the different strategies are to work around fracture-driven interference,” he said. “We are working to understand how to mitigate damage to the producing well while ensuring that the production of the infill well is not impacted.”

As difficult as the past three months have been, it has provided a needed pause to become smarter about work processes and well performance and to re-strategize.

“In hard times, such as we are experiencing right now, the two important roles of management are first to sustain the business, and even more importantly, prepare it for a better future. Companies need to see this situation as an opportunity for their technical staff to do an in-depth analysis of past practices to identify areas in which what we are doing can be done faster, cheaper and more effectively in terms of higher production results,” Ali Daneshy, president of Daneshy Consulting International, shared with E&P.

Since the beginning of the year, capex among U.S. E&P companies has been revised down by $51 billion, according to James Jang, lead analyst with Westwood Global Energy Group, in a market outlook presented on May 8. A sub $30/bbl WTI environment will continue to push E&P companies to take cost reduction programs, he added.

The effects of those cost reduction programs are visible in the declining rig count numbers and the number of wells completed.

In a May 14 analysis, Rystad Energy estimated that the total number of started fracturing operations in the U.S. would end up at about 300 to 330 wells in May 2020, down from April’s 337 wells. Some activity is still going on, with 92 started frac operations observed so far in May on a standard-month basis.

“A modest recovery is expected in the third quarter of 2020, but stable WTI oil prices in the low- to mid-$30s are required to see this recovery in selected core acreage positions operated by producers with strong balance sheets,” said Artem Abramov, head of shale research for Rystad, in the report.

Fewer wells drilled and fewer DUCs mean there is less opportunity to test completion designs, according to Kashikar. Fewer test opportunities require greater attention to how the experiment is designed to ensure successful results.

“One thing we learned is the design of the experiment, which is knowing what we are testing and how,” Kashikar said. “The inventory of wells that we will have to test different parameters is going to be smaller for at least the next six to 18 months. It becomes even more critical that we design the right experiments and that we begin collecting data on many more wells than we have in the past. Then we use those data to drive those answers faster collectively.”

Experiments require an expensive commodity—time.

“The feedback loop has been a big challenge for the industry. We’ll install a particular completions design and then wait,” Scott Gale, global business strategy manager for Halliburton, told E&P. “It takes several months of production to determine if that design was successful and is based on the open metric of cumulative production over a designated time frame like 30 or 60 days.”

Data and time are interdependent commodities that are often at odds with each other. Too much of one and too little of another leaves questions unanswered. Too much of both can overwhelm a system with too many answers to unrelated problems. In the industry’s current situation, a critical question that arises is how to manage the process of improving operations, well completions and production. However, a team looking back on specific projects and asking the right questions of the data can find areas of improvement.

“I do not doubt that an in-depth analysis of the data and information that we have within each company will lead to changes and alterations in existing practices that will make it better and more efficient,” Daneshy said. “It also would allow technical staff to review and compare what they’re doing with what others have done and determine if there are better pieces of technology that could be borrowed and adapted from other companies that will help improve operations.”

'Plan for the difficult while it is easy,

do what is great when it is small’

The COVID-19 pandemic and low-oil price environ­ment will continue to present a challenging operational environment. When there is a reset in the markets like the one underway, old rules and plans are discarded, and new ones are made. Planning for the years ahead is improved through the use of digital systems to help make it possible to find and decode the small details that have limited production returns.

“We see the next decade as the ‘digital decade.’ There’s no doubt that the integration of datasets is going to be a key factor in integrating with different disciplines,” Gale said. “Incorporating exploration and drilling data into a completion design that is then tied to a well’s performance through production activities like artificial lift is vital. Enabling those integrated datasets into a cohesive decision-making application is an important part of where the industry goes more broadly.”

The challenge, he said, is getting beyond the “if you build it, they will come” mentality that occurs when all of the data are located in one place.

“If we have clarity about the problems trying to be solved and the outcomes trying to be achieved, then what data feeds are necessary to achieve those outcomes become clear,” he said.

The hundreds of billions, if not trillions, of datapoints from the 138,170 completed horizontal wells tell a story that requires intensive cleaning, sifting and sorting before reading. That is when the beauty of algorithms, the cloud and digitalization are most visible.

Data systems and optimization tools are programmed to analyze the numbers, to dig in and find the problems in a well faster and more efficiently than humanly possible, according to Chris Robart, chief commercial officer for Ambyint, a provider of artificial-intelligence-powered production optimization software.

“By the time you get to 20 or even 30 wells, humans don’t have the bandwidth to be able to ingest and ana­lyze all of the data generated,” Robart said, offering as an example the slugging and liquid loading in naturally flowing gas wells. “If you put a decent engineer on it that had the time go through all of their wells, then they’d be able to find the problem. But they just don’t have the time or the bandwidth to be able to review a time series for their wells and do the analysis that is needed to identify the problem.”

By continuing to prepare for the digital decade through the further digitalization of systems, shale producers will be able to survive and further elevate their successes.

Two E&P companies that have done just that are Birchcliff Energy and Parsley Energy. The companies use Cold Bore Technology’s SmartPAD to optimize their completions process. Billed as an operations system for well completions, the system uses valve positioning and pressure monitoring sensors bolted onto the wellheads to track operational data for all services, even those gen­erated by other service companies. All data are collected and processed into a single dataset in a standard format that is suitable for viewing on a single screen. The auto­mated collection of time-stamped data reduces workload while increasing accuracy, according to the company.

Calgary-based Birchcliff Energy has used SmartPAD since 2018, and it has realized significant efficiency gains in the two years since the system’s deployment.

“The system has really helped us get the non-pumping time per day down because we’re tracking the time between stages in real time, not just after the operation,” said Mike Zimmerman, completions superintendent for Birchcliff Energy. “A good day for us would be 16 to 18 stages pumped. In April, on our Pouce Coupe pad, we pumped 2,860 tons of sand and completed 25 stages in a single day. It was chasing the minutes between pumping stages or well swaps that made it possible for us to get those addi­tional stages.”

Zimmerman added that being able to see the com­pletions data wherever and whenever he needed was a significant advantage, helping to identify potential oper­ational issues early.

“About five years ago, we made efficiency a key word,” said Agustin De Fex, senior manager for completions with Parsley Energy. “We started keeping track of non­productive time and areas where we could make the operations safer and better. This was a manual process that, as we started to grow, would take several hours of work to track and write down data.”

In 2019 the Permian Basin operator began working with Cold Bore Technology’s SmartPAD system and noticed an immediate improvement in its operations.

“We can now look at the operations 1 minute at a time and focus on the operation, making it safer,” De Fex said.

'Do not repeat the tactics which have gained you one victory,

but let your methods be regulated by the infinite variety of circumstances’

Interpretation of data and the application of the anal­ysis are, in the end, only as good as the human reading the reports. Bias is an inescapable condition of being human, and it is reflected in all data that exist. In any type of work, there is a prejudice in favor of one’s prac­tices, making it difficult to see areas in need of change. External perspectives can challenge the status quo, bringing a variety of solutions to a difficult exercise.

“Generally, most of us, when we do engineering and technical work, we believe that we’re doing the best that can be done,” Daneshy said. “In a situation like we are in now, it may be advisable to have an external group take a look at what we’re doing and advise on if there could be improvements. The combination of outside and inside views is more likely to come up with improvements than an internal group only.”

Daneshy believes that the industry needs to look for ways of making the whole shale development process financially viable in a lower oil and gas price environ­ment. “Obviously, we cannot afford to spend millions and millions of dollars in a well and hope that we’re going to get good production. Because at the end of the day, it has to be a profitable venture,” he said.

Rather than request a larger budget, another option Daneshy suggested is to try to use more reliable comple­tion practices that will make it possible to produce the reservoir with fewer unnecessary expenses. “This is done not by beating up on the service companies, but with more efficient engineering,” he said.

For example, by reviewing past operations and identi­fying inefficiencies, an E&P company can shave time off its processes, reducing the number of days spent on a well site and deliver cost savings.

'As water retains no constant shape,

so in warfare there are no constant conditions’

Let data give peace in the knowledge that it provides. Historians will see in 10 years that the low-price oil envi­ronment of 2020 passed, just as it has multiple times before. The industry will get past this crisis and on to better times. Hiding is not a destination the oil and gas industry sails to.

From this storm, the industry will emerge stronger, said U.S. Secretary of Energy Dan Brouillette in a CERAWeek Conversations video with Daniel Yergin, IHS Markit vice chairman.

“I think you’re going to see the U.S. energy industry bounce right back. These are some very strong players and, importantly, they’re very innovative players,” he said, before going on to share a comment once made to him by an energy minister.

“He said that every time we do something like this, everybody thinks that the United States is going to leave the playing field, that the United States is dead or certain parts of the industry are dead—and that never really happens,” Brouillette recounted. “They take a small break and they come back stronger than ever. And I do think that’s going to happen again.”