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US shale producers surprise themselves as tweaks keep adding barrels

US shale

With oilfield services costs as low as they can go, US shale producers have had to cut costs and increase production by developing technological improvements internally.  Pioneer Natural Resources photo.

Better well designs, techniques increase US shale producers’ gains

By Terry Wade and Ernest Scheyder

HOUSTON, Aug 3 (Reuters) – Nimble US shale producers continue to show an uncanny ability to squeeze more and more crude from new wells, allowing them to do more with less as they try to weather another dip in oil prices to $40 a barrel.

Comments from Noble Energy, Devon Energy and Occidental Petroleum on Wednesday were significant because only six months ago many analysts were fretting that shale producers had hit a wall after slashing costs and lifting well output by as much as 50 percent since the steepest price crash in a generation started in mid-2014.

Now, while acknowledging that most oilfield services costs cannot fall further, these US shale companies say they are still seeing output gains from improved well designs and fracking techniques.

The rising well output means they can produce more oil with each dollar spent. This could help them survive the latest slump in oil prices back to multi-year lows after a partial recovery brought crude back up to about $50 a barrel.

“It’s a bit surprising to me how we continue to still see improvements,” Noble Energy Chief Executive Dave Stover said of operations in Colorado, where second-quarter productivity gains were 4 percent.

“My feeling is we’re not at the end of that game yet,” he said on its second-quarter results call.

Initially, Noble expected to get 390,000 barrels of oil equivalent per day (boe/d) this year on spending of $1.5 billion. Now it expects to spend less and produce 415,000 boe/d.

Part of the productivity gains come with added costs. Lately the company has experimented with fracking wells using 3,000 pounds of sand per foot, several orders of magnitude greater than frack jobs a decade ago. Companies have also been fracking even more parts of rock around a wellbore, boosting output.

At Occidental, Chief Executive Vicki Hollub said 2016 production would now be at the high end of its forecast for a 4 to 6 percent increase from 2015 levels of 652,000 boe/d – without raising budgeted spending of $3 billion.

She cited technological improvements developed internally, not cheaper contracts from Halliburton Co, Schlumberger NV, and other oilfield service providers.

“It is important to note that most of our cost reductions are due to our own efficiency gains, not service company unit cost reductions,” Hollub said on a conference call.

Oxy, the fourth-largest U.S.-based oil producer, has cut its cost to produce a barrel of oil in part by linking executive compensation to it, Hollub said.

A QUICKENING PACE

The pace of innovation is increasing. Pioneer Natural Resources said it was introducing its third generation of well completion techniques, called version 3.0, using even more sand and water than the super-sized volumes introduced as version 2.0 earlier in the price crash to pull more oil out of rock.

Wells fracked using version 2.0 have produced about 2,000 barrels per day in their early days, double the production of earlier wells.

Devon Energy Corp has cut costs to drill and complete new wells by 40 percent and plans to cut $1 billion in costs this year, Chief Executive Dave Hager said on Wednesday.

Roughly half the lower well costs are due to internal technology and efficiency gains, he said, with the rest due to renegotiated contracted with service providers.

“We believe a lot of the wins still left to get are just through attention to detail and through designing changes and through managing our business even better than we have in the past,” Hager said.

(Reporting By Terry Wade and Ernest Scheyder; Editing by David Gregorio)

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Ph: 432-978-5096 Website: www.mapleleafmarketinginc.com 

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