Technological advancements in oil and gas drilling have rejuvenated the US and Canadian onshore oil and gas sectors, but above-ground risks may impede rapid production growth.
Widespread use of drilling techniques such as horizontal drilling and hydraulic fracturing in shales and other geologic formations have shifted the outlook for North American natural gas supply, and proved more applicable to onshore oil production, as well.
This is resulting in a “tight oil renaissance” in North America, according to IHS vice-president of research Pete Stark, speaking at the IHS Herold Pacesetters Energy Conference on 26 September.
“We think we are looking at a huge production revival through 2020 with tight oil leading the way,” said Stark. He defined a tight oil reservoir as one from which production is not economic without hydraulic fracturing, horizontal drilling, or other advanced techniques.
The fear of fracking — it’s a very difficult and insidious problem for the industry to deal with.
At the high end of estimates, the US could be producing as much as 3 million barrels per day from the combined tight oil plays by 2020, said Stark. Steven Guidry, vice-president of business development for oil firm Marathon, cited a forecast from consultancy Wood MacKenzie that 12 key liquids-bearing plays in the US could produce 2.2 million barrels per day in 2020, up from 700,000 barrels per day now.
Conference speakers pointed to the Bakken shale, which stretches across parts of North Dakota, Montana, and Saskatchewan in Canada, as a good example of how advanced drilling techniques can dramatically lift oil production.
Oil production in North Dakota exceeded 420,000 barrels per day in July. The state’s output averaged around 309,000 barrels per day in 2010, up from less than 100,000 barrels per day as recently as 2005. The North Dakota Industrial Commission’s most recent update on activity in the state’s oil sector indicate that more than 95% of drilling activity is targeting the Bakken shale and the Three Forks formation, which lies below the Bakken.
The Bakken shale is “helping to reverse the decline of oil production in the United States,” said senior vice-president of exploration for independent Continental Resources Jack Stark. “The reason this field exists is because of the advances that have been made in technology in horizontal drilling,” he said.
Continental estimates that the Bakken may hold up to 24 billion barrels of oil equivalent — 20 billion barrels of oil, and 4 billion oil-equivalent barrels of natural gas — recoverable with existing technologies. That figure is more than twice the US Energy Information Administration’s current estimates. Read more: Disputing Natural Gas Reserves In Congress.
Conference speakers highlighted that in addition to dramatically increasing supply, enhanced yield per well can also mean enhanced profitability.
“You’re getting more production than you have in a long time with basically not that much more in the way of rigs,” said R. Dean Foreman, chief economist, planning and commercial for independent Talisman Energy.
But conference speakers noted that while new techniques have found below-ground solutions for accessing more oil and natural gas, above-ground risks may impede production growth.
Rising costs can upset the economics of drilling by eroding margins. Conference speakers highlighted the rising cost of wells and acreage, as well as a tight market for the skilled labor that shale drilling requires.
Political challenges to onshore oil and gas development include a shift in energy policy priorities from the previous to the current presidential administration. In five Rocky Mountain states, land rights issued for oil and gas averaged almost 2,000 per year in 2004-2008, but have totaled just 46 in the first six months of this year, said Pete Stark.
Fear Of Fracking
And concerns about the environmental impact of hydraulic fracturing may prove an even bigger hurdle for oil and gas producers.
“The fear of fracking — it’s a very difficult and insidious problem for the industry to deal with,” Pete Stark said.
Conference speakers maintained that hydraulic fracturing can be done without harming the environment, but must be done correctly.
“One bad thing within the industry could ruin it for everybody,” said Foreman. “If the industry is held to high standards, and does it right, this industry can move forward,” he said.
Photo Caption: Oil pumps in operation at an oilfield near central Los Angeles on February 2, 2011.