By Paul Wiseman, Midland Reporter-Telegram Contributor
With the complex issues facing today’s producers, business is just not as simple as concentrating solely on finding and producing oil and gas. Challenges with water, the amount of reserves and new drilling methods are all in play.
A number of area producers recently responded to questions regarding these topics to shed light on the industry’s current state.
THE EMERGENCE OF HORIZONTAL AND PAD DRILLING
The majority of companies surveyed report migrating to horizontal and pad drilling.
Bold Energy III LLC said the company was “designed to be a horizontal driller. Our approach is to utilize three-well pads to drill our laterals. This allows economies of scale and efficiency.”
With technology improving industrywide, David H. Arrington Oil & Gas has switched exclusively to horizontal drilling and focuses on 1 1/2-mile laterals.
Some companies, like Elevation Resources, have moved almost completely to horizontal drilling, except for three disposal SWD wells.
Adventure Exploration is drilling both horizontal and vertical wells, and pad drilling is not on the immediate horizon.
This is also the case for Diamondback Energy, which shifted from two verticals and no horizontals as recently as 2011, to five horizontals and just one vertical this year. The company started pad drilling in late 2013 and plans to have approximately 50 percent of their wells on pads in 2014.
“Horizontal wells deliver (a) higher internal rate of returns, require lower development costs and lead to better capital efficiency,” according to a statement from Diamondback Energy.
ExL Petroleum is looking at more horizontal wells in the Wolfcamp, the Delaware Basin and in the Midland Basin.
“We will ultimately try multiple wells from a single pad with hopes of decreasing costs 5 to 15 percent,” according to a statement from ExL Petroleum.
Tommy Taylor, director of oil and gas development for Fasken Oil and Ranch points out that 80 percent of all drilling in the United States at this time is being done horizontally. “Horizontal drilling and the use of fracturing technology has proven to be very successful in producing oil and gas from shale and other hydrocarbon bearing rocks that would have not otherwise been recovered,” he said.
Clayton Williams Energy is drilling both horizontally and vertically and projects that pad drilling will become common in the industry, although not necessarily this year.
Elevation plans to use pad drilling on a limited basis in 2014 but expects that to increase.
ConocoPhillips looks at the pad drilling concept as an environmental issue and said it plans “to reduce environmental impact through the use of multi-well technology. We will use horizontal and directional well technology when the technology is compatible with reservoir characteristics to minimize the environmental impact of our operations.”
“Benefits of multi-well pads include fewer pieces of surface equipment, less traffic on local roads and reduced infrastructure required to develop an area,” according to a statement from the company.
Fasken reports it is currently drilling multiple horizontal wells from a single pad in the Eagle Ford shale plan in South Texas. Taylor said the drilling technique works particularly well when the lateral well spacings are close together and the wells will not need artificial lift in the near future. This type of drilling will also allow operators to recover oil and gas from inaccessible surface locations, he said.
Reducing the environmental footprint and simplifying tank battery construction are two reasons Great Western Drilling is moving toward pad drilling. The company also is planning a few horizontals but is not committed to a complete move in that direction.
Legacy Reserves, Lime Rock Resources and Reliance Energy all noted general plans to migrate toward at least horizontal drilling, with Reliance stating, “… we are evaluating multiple well pads as multiple horizons prove themselves economical in our area.”
One exception is Summit Petroleum, which said it hasn’t seen horizontal economics that can compete with the company’s vertical program.
“I think pad drilling has tremendous merit in urban areas or in scenarios where rig mobilization may be unusually expensive; however, absent those constraints, I’m not sure it is the most cost effective,” said Matt Johnson, Summit Petroleum’s president and COO.
This year, local giant Pioneer Natural Resources plans to transition from a horizontal appraisal program to a horizontal development program.
In the first quarter of 2013, Pioneer had eight horizontal rigs running in the Permian Basin. By the end of the first quarter this year, Pioneer expects to have 24 horizontal rigs running.
“Our vertical rig count is 11 rigs at year end 2013, and these numbers will continue to decline as we increase our horizontal rig count,” the company reported.
“Pioneer will be utilizing three-well pads for most of the horizontal drilling program. There are two main advantages of multi-well pads. The first is the decreased impact to the surface land. This comes in the form of less well pads constructed, fewer roads and pipelines to access pad sites and the centralization of facilities such as storage tanks. These advances also reduce traffic, which benefits the community,” Pioneer reported.
The second advantage of pad drilling is in drilling and completion efficiencies. Pioneer utilizes technological advances in rig mobility that reduces the time it takes to move between well locations.”
EXPLORING WATER CONSERVATION
With the proliferation of hydraulic fracturing — a process that requires millions of barrels of water for each well — water availability and reuse have become real issues, as producers compete with municipal and agricultural interests for a resource that is in dwindling supply in drought conditions.
Costs of water are rising, and costs of treatment are falling, so reusing produced water has become at least as economical as using fresh water, if not more so. Falling treatment costs have also allowed more producers to look into use of brackish water from the Santa Rosa and other deeper formations, with the idea that municipalities would not be using this water.
Fasken says it does not use fresh water in its hydraulic fracturing operations, instead recycling produced water and treating Santa Rosa brackish water for its Wolfberry wells northwest of Midland.
Some, like Clayton Williams Energy, are drilling their own water wells and turning them over to landowners after the well is completed. There is “plenty of water in the Delaware,” the company said.
Others, like Bold Energy III, are designing ways to cut their water use and recycle water when feasible.
Adventure Exploration, David H. Arrington, Legacy Reserves and Reliance Energy all said they are recycling produced water for fracturing whenever feasible or at least evaluating systems that would do that. Diamondback Energy reported that it currently is recycling 10 to 15 percent of the flowback water, with plans to increase that percentage this year.
Lime Rock Resources is studying the use of produced water “as we transition from gel fracs to slick water fracs.”
Summit Petroleum is evaluating different types of recycling technology and constructed an “extensive produced water gathering and source water distribution network of piping.”
Those looking into the use of brackish water include Elevation Resources and Great Western Drilling.
ConocoPhillips and Pioneer are looking into conservation methods.
ConocoPhillips has funded research aimed at reducing freshwater consumption and seeks to increase reuse of water.
“In the Permian Basin, we have piloted projects that involve treating and reusing produced water from well sites for fracturing operations,” according to ConocoPhillips representatives.
Pioneer Natural Resources acknowledges there is “no immediate, economically viable solution that completely eliminates the use of fresh water in the production of oil and natural gas,” but the company has implemented several initiatives to decrease its fresh-water usage.
In addition to recycling water, using brackish, non-drinkable groundwater when possible and purchasing effluent water from multiple sources in Texas, Pioneer is installing covers on selected water storage ponds at well sites to prevent evaporation.
THE BOOM’S LIFESPAN
Some industry experts are beginning to cast doubt on the longevity of the shale boom, saying it could be over in as little as two years. That belief is not accepted by area producers, whose responses are typified by Adventure Exploration CEO Paul Lucas’ declaration: “The analysts aren’t looking at the same shale boom I am.”
Officials at Bold Energy III said, “Analysts predicting oil prices and the demise of the shale boom in 2015 might as well be predicting the weather in 2015. They would be wrong on all counts.”
David H. Arrington offered a practical barometer, saying, “The price of oil will determine how long the boom lasts — $70 oil will slow things down.”
Taylor with Fasken agreed that it comes down to the price of oil and gas. “Maybe they have a crystal ball we don’t have,” he said.
Officials at Elevation Resources said shale drilling will continue for decades in the Permian Basin because of multiple layers of reservoirs to develop.
“The ability for our industry to utilize technology to continue to improve recoveries from oil-laden areas such as the Permian Basin will continue for some time in the future,” said Reliance Energy in a statement.
Pioneer plans to more than double its 2013 Permian Basin production levels by 2018, adding, “The Permian Basin is still in the early innings, and we believe it will continue to grow for several decades.”
There were a few companies that, while optimistic, issued a note of caution. Legacy Reserves said there are “lots of fairway here. (It is) easy to see excess supply coming, but (the) Permian is one of the lowest-cost basins, so (it) should hit here last.”
Representatives from Summit Petroleum believe the shale boom will continue as long as public and private equity-backed companies can take debt and cash flow and turn them into production growth.