Technological progress in big data analytics could create Shale 2.0 and bring US oil costs to $5-20 per barrel

The Oil-price collapse was caused by the astonishing, unexpected growth in U.S. shale output, responsible for three-fourths of new global oil supply since 2008. And as lower prices roil operators and investors, the shale skeptics’ case may seem vindicated. But their history is false: the shale revolution, “Shale 1.0,” was sparked not by high prices—it began when prices were at today’s low levels—but by the invention of new technologies. Now, the skeptics’ forecasts are likely to be as flawed as their history.

The information here is from a paper called “Shale 2.0: Technology and the Coming Big-Data Revolution in America’s Shale Oil Fields” was released in May by Mark P. Mills, senior fellow for the Manhattan Institute and faculty fellow at Northwestern’s McCormick School of Engineering and Applied Sciences

Technological progress, particularly in big-data analytics, has the U.S. shale industry poised for another, longer boom, a “Shale 2.0.”

We’re not at the end of this shale era, we’re at the very beginning.

The shale industry is unlike any other conventional hydrocarbon or alternative energy sector, in that it shares a growth trajectory far more similar to that of Silicon Valley’s tech firms. In less than a decade, U.S. shale oil revenues have soared, from nearly zero to more than $70 billion annually (even after accounting for the recent price plunge). Such growth is 600 percent greater than that experienced by America’s heavily subsidized solar industry over the same period

The transition to Shale 2.0 will take the following steps:

1. Oil from Shale 1.0 will be sold from the oversupply currently filling up storage tanks.
2. More oil will be unleashed from the surplus of shale wells already drilled but not in production.
3. Companies will “high-grade” shale assets, replacing older techniques with the newest, most productive technologies
in the richest parts of the fields.
4. As the shale industry begins to embrace big-data analytics, Shale 2.0 begins.

Shale companies now produce more oil with two rigs than they did just a few years ago with three rigs, sometimes even spending less overall. At $55 per barrel, at least one of the big players in the Texas Eagle Ford shale reports a 70 percent financial rate of return. If world prices rise , to $65 per barrel, some of the more efficient shale oil operators today would enjoy a higher rate of return than when oil stood at $95 per barrel in 2012.

The “walking rig” is one technological advance that has contributed greatly to gains in rig productivity. Rather than drill a single well from a well-pad, a walking rig can move around the pad, drilling multiple wells (sometimes dozens)

Sand used per well has risen, from 5 million to 15 million pounds, on average; the additional sand adds 2 percent to completion costs but boosts output by 40 percent.

Even more oil supply is now, de facto, being stored underground. As noted, production begins with the distinct second stage of well construction. Once a shale site is mapped and long horizontal wells completed, operators can delay the expensive step of fracking. Since the latter constitutes 50–60 percent of total costs, significant spending can be deferred with no loss of the core asset. The oil is simply left stored, in situ, until markets and prices make retrieval more attractive.

In January 2016, there are probably over 5000 wells awaiting completion.

It takes only a few months to complete a well, such wells, once completed, could swiftly add 2–3 million barrels per day to U.S. supply.

Incremental and dramatic improvements will continue in all aspects of the many technologies used in shale production: logistics, planning, seismic imaging, well-spacing, fluid and sand handling, chemistry, drilling speed, pumping efficiency, instrumentation, sensors, and high-power lasers. Shale fields will increasingly be developed using advanced automation, mobile computing, robotics, and industrial drones. At present, barely 10 percent of projects use fully automated drilling and pressure-control systems, for example.

Big Data can make oil fracking 4 times more efficient

Many companies are keeping their big-data projects proprietary, some information is publicly available. Halliburton reports that its analytic tools achieved a 40 percent reduction in the cost of delivering a barrel of oil. Baker Hughes says that analytics have helped it double output in older wells.

At present, each long horizontal well is typically stimulated in 24–36 stages, with, on average, only one-fourth to one-third of those stages productive. At present, in other words, about 20 percent of stages generate 80 percent of output.

The current state of stimulation technology means that, on average, at least 300–400 percent more oil is not extracted. Bringing analytics to bear on the complexities of shale geology, geophysics, stimulation, and operations to optimize the production process would potentially double the number of effective stages—thereby doubling output per well and cutting the cost of oil in half.

SOURCES – Shale 2.0: Technology and the Coming Big-Data Revolution in America’s Shale Oil Fields by Mark P. Mills