U.S. shale oil's Achilles heel shows signs of mending

Fri Jul 1, 2016 5:18am EDT
 
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By Ernest Scheyder and Terry Wade

HOUSTON (Reuters) - Since the beginning of the U.S. fracking revolution, oil producers have struggled with a vexing problem: after an initial burst, crude output from new shale wells falls much faster than from conventional wells.

However, those well decline rates have been slowing across the United States over the past few years, according to data analysis provided exclusively to Reuters.

The trend, if sustained, would help ameliorate the industry’s most glaring weakness and cement its importance for worldwide production in years to come. It also helps explain shale drillers' resilience throughout the oil market's two-year slump.

While shale oil production revolutionized the oil industry over the past decade, bringing abundance of global oil supplies, high costs and rapid production declines have been its Achilles heel. That is beginning to change thanks to technological innovation and producers' focusing less on maximizing output and more on improving efficiency and productivity.

According to data compiled and analyzed by oilfield analytics firm NavPort for Reuters, output from the average new well in the Permian Basin of West Texas, the top U.S. oilfield, declined 18 percent from peak production through the fourth month of its life in 2015. That is much slower than the 31 percent drop seen for the same time frame in 2012 and the 28 percent decline in 2013, when the oil price crash started.

The change was even more dramatic in North Dakota's Bakken shale, where four-month decline rates for new wells fell to 16 percent in 2015 from almost 31 percent in 2012. (Graphic:tmsnrt.rs/292ScGY)

A slower decline means producers need to drill fewer new wells to sustain output, said Mukul Sharma, professor of petroleum engineering at the University of Texas at Austin.

"You can have cash flow without having to expend a lot of capital."   Continued...

 
A pumpjack brings oil to the surface in the Monterey Shale, California, U.S.  April 29, 2013.  REUTERS/Lucy Nicholson/File Photo