Refracking Remains A Boutique Technique Without More Money, Innovation

With the once mighty North American shale revolution slowing down due to the collapse in crude oil prices, many industry players are betting on the same action—recompletions of horizontal wells.

The technique—commonly referred to as refracking—has a long way to go before it can become the next chapter in the shale revolution, said Christopher Robart, managing director, unconventional resources at IHS Energy. So far, limited refracking results offer solid but somewhat skewed initial production (IP) rates, gentler declines in production and variable costs.

Refracking has been met with enthusiasm and skepticism due to significant technical and financial hurdles, Robart said. Refracking technologies will likely remain a niche market in the U.S. until those concerns are addressed.

For refracking to take hold, the industry needs a large-scale program and someone willing to foot the bill, Robart said.

"What refracturing needs now is a new innovator to step up, invest capital and take risks to refine the technologies and lower costs," he said. "For refracturing to advance significantly, we need the next George Mitchell to come forward."

Halliburton Co. (HAL), which owns a recompletion line, estimates 50,000 wells in the U.S. are refracking candidates, according to a Bloomberg report. Only a small share, about 1-2%, of shale wells today have been refracked, however. IHS predicts that by 2020 refracked wells will account for as much as 11% of horizontal wells fractured in the U.S.

Mixed Results

IHS identified nearly 600 horizontal wells that have been refracked since 2000, most of which are in plays with the oldest wells. The Bakken has the largest number of refracked wells in the U.S., followed by the Barnett and Marcellus.

Refracked well’s IP rates are mixed when compared to the original rates, IHS said.

Of the refracked wells studied by IHS, most have have lower IP rates except for the Bakken.

The IP rates of refractured wells are distorted because of over-performing or outlier wells in the Bakken and Eagle Ford. The rate for refractured wells averages 98% of original IPs. The Bakken high results are likely due to older or inferior technologies originally used for completions, IHS said.

Decline rates appear more promising. Refracked wells had slightly better 12-month declines than original well completions. Refracked wells declined at a rate of 56% compared to 64% for original well completions, IHS said.

While Robart said lower costs are necessary for refracking to progress, costs vary widely by method and job size. Even large cap E&Ps interested in the technology are taking it slow as a result. According to IHS analysis, three refracking techniques—diversion, coiled tubing (CT) and mechanical isolation—were most often employed.

The diversion method offered the lowest cost, but with limited control. Mechanical isolation was the most costly of the three due to increases in surface and downhole costs.

Different Stages

Refacking activity has been focused in the gas-rich Barnett and Haynesville shales and the oil-rich Eagle Ford. The refracking movement is hit or miss among operators with some seeing no advantage and others considering the technique a way to resurrect production.

Bloomberg analyst Peter Pulikkan said E&Ps are at different phases of investigating refracking. Some are executing pilot programs while others are waiting for technology improvements.

“Refracking offers operators the possibility to add production with minimal cost while improving ultimate recovery and extending the life of wells,” Pulikkan said.

Experimentation in the field is lacking for the most part. E&Ps will remain wary of investing significant capital until they see more positive results from others first, Robart said.

“The companies with superior acreage for new well development are not presently the prime candidates for refracturing,” he said. “Operators with less attractive assets will likely be more interested in advancing this technology in the near-term.”

Both EOG Resources Inc. (EOG) and Pioneer Natural Resources Co. (PXD) said they see limited to no opportunities for refracking wells in 2015.

EOG hasn’t tried any refracks and doesn’t plan to, said Bill Thomas, the company’s chairman and CEO, according to a Seeking Alpha transcript of the company’s first-quarter earnings call.

Thomas said he believes the company is better off starting fresh and drilling a new well. “We just think that the upside on the completion will be much greater than if you try to refrack the well,” he said.

Pioneer COO Timothy L. Dove said refracking in the Permian Basin doesn’t make a lot of sense, according to a Seeking Alpha transcript of the company’s first-quarter earnings call.

However, Dove sees a handful of refracking candidates in the Eagle Ford.

“I think there’s a total of four wells in the Eagle Ford we’re going to refrack this year,” he said. “So [there are] just not a lot of opportunities that come to mind where it’s a no-brainer.”

Unlike its peers, Chesapeake Energy Corp. (CHK) executives believe recompletions offer considerable opportunities. The company is currently evaluating refrack options in the Barnett and Haynesville.

In total, the company considers 4,600 wells drilled prior to 2012 as ideal candidates for refracking, said Mikell J. Pigott, executive vice president of operations, southern division, at Chesapeake, according to a Seeking Alpha transcript of the company’s first-quarter earnings call.

As of May, Chesapeake had tested nine wells in the Barnett with two techniques, resulting in a production increase of nearly 10 million cubic feet per day (MMcf/d), Pigott said.

“These results are promising, but challenged by this price environment,” he said. “However, we continue to high grade the opportunity set because the prize is significant.”

Additionally, the Oklahoma City-based company is looking into the best way to recover incremental reserves in the Haynesville, either by an offset drilling program or refracks.

“We have seen production responses in the Haynesville that indicate a refrack program should be successful in achieving incremental production,” Pigott said.

Also in the Haynesville, Comstock Resources Inc. (CRK) is aiming to almost double its returns in the shale play with refracking.

During the first quarter, the company implemented a refrack program that could potentially add additional production and reserves from its 186 producing Haynesville and Bossier wells. The Frisco, Texas-based company has plans to refrack 14 wells in the Haynesville and Bossier shales this year.

Refracking the company’s existing wells has a rate of return that varies between 40-60%, said Mack D. Good, Comstock’s COO, according to a Seeking Alpha transcript of the company’s first-quarter earnings call.

“The Haynesville makes sense for us because we have an extensive inventory of drilling and recompletion opportunities that we can execute with positive economic benefit within a low price environment,” Good said.

Irresistible Opportunity

Service companies such as oilfield giant Schlumberger Ltd. (SLB) see recompletions as a way to recoup revenue lost since the industry downturn. Refracking could help service companies offset the 20-30% drop in completion costs from peak levels, Pulikkan said.

Schlumberger has said it’s interested in getting more involved with refracking services.

Schlumberger would use risk-based contracts for refracking services. Under such a contract Schlumberger would help operators determine which wells should be refracked and provide the technology and equipment.

The initiative could result in revenue from refracking services reaching billions of dollars, according to the company’s chairman and CEO, Paal Kibsgard.

"I think the key here is that we are so confident in our ability to identify the right candidates and execute the refracturing work that we are preparted to... foot the entire bill for the refracturing work and then get paid back in production." Kibsgarrd said in a first-quarter earnings call, according to Bloomberg.

Though the feelings towards refracking are generally mixed, one sentiment remains consistent—when it works, it is phenomenal.

"When refracks work, they are among the most profitable opportunities for energy producers and the large inventory of potentially refrackable wells presents an irresistible opportunity," Pulikkan said.

Contact the author, Emily Moser, at emoser@hartenergy.com.

More on refracking:

Does Refracking Add Value Or Bore Into Wishing Wells?

E&Ps Face Opportunities, Challenges With Refracking

Refracking Presents Opportunity For Shale Plays