Drilling Ahead: Let’s not shoot ourselves in the foot over shales

By Mike Killalea, editor & publisher

Amid a seemingly endless barrage of negative press, demonstrations and moratoriums, I was heartened to see the United Kingdom return to the path of sanity by firmly approving resumption of hydraulic fracturing. Unfortunately, just across the Channel, France continues its stubborn ban, even as it closes nuclear plants due to post-Fukushima safety concerns. Absent action, electricity shortages are expected by 2015.

Gallic handwringing aside, shale development is moving ahead. In the US, there’s a walloping gas surplus – enough to export, if we could. A new Department of Energy-sponsored study determined that, across all scenarios studied, LNG exports would reap the US “net economic benefits.”

Also, it has been widely reported that, thanks to shales, the US is poised to rival Saudi Arabia as an oil producer. Meanwhile, shale plays outside North America are also heating up. Some non-NAM shale plays, notably those in China, the Middle East and Argentina, “dwarf”  those of the US, according to Barclays Capital.

The majors are wasting little time. In addition to an existing joint venture between Shell and China National Petroleum Corp, ConocoPhillips announced at year end a deal with Sinopec to study unconventionals in the Sichuan Basin. Baker Hughes and Honghua Group plan to jointly develop a research center for unconventional energy, also in Sichuan.

The shale boom is key in driving a step-change in drilling equipment. Last year, some 125 new AC-powered land rigs entered the fleet, while more than 100 veteran mechanical units were put out to pasture, according to Barclays. High-spec rigs have become the new norm. AC rigs now account for about 35% of the fleet, up sharply from about 25% a year ago, according to Barclays.

“Many operators don’t care to discuss anything but an AC rig,” explained Jay Minmier, president of Nomac Drilling,  in an interview with DC managing editor Linda Hsieh in this issue’s Critical Issues in Drilling and Completions (p.30). “However, there’s a large segment of operators who will pick up, perhaps even prefer, an SCR rig that has been upgraded to tier-1 specifications. Some would argue that if a rig has a big top drive, big mud pumps, a walking system and fast-moving capabilities, its performance will depend primarily on crew strength, not whether it is an AC or SCR rig.”

Take Oxy as an example. John Willis, Oxy’s chief of drilling, explains in Critical Issues (p.56) that nearly 60% of its rigs are “advanced,” up from 25% prior to 2008. Higher-quality rigs have translated to better performance, lower costs and improved safety, which were Oxy’s goals. “It’s enabled us to increase our PDC bit percentage from 40% to over 70% of our footage,” he said.

BHP Billiton Petroleum, the top operator in the Eagle Ford, also values advanced rigs. “We have features on our land rigs that we don’t have on our fifth-generation deepwater rigs,” says BHP vice president of drilling Derek Cardno, also in Critical Issues (p.78). “This shows some great willingness from drilling contractors to develop equipment that will improve our well efficiency.”

As always, there is a dark cloud surrounding the silver shale lining. The first is, with our enviable efficiency, will we drill ourselves out of business? Already in North America, we have driven natural gas prices to near-historic lows. Still, these trends are generally self-correcting. The cure for low gas prices is higher demand and drilling cutbacks, which inevitably correct the pricing conundrum, in the great economic roller coaster.

A greater threat is that we will continue to shoot ourselves in the foot in the court of public opinion. We must recognize the difference between multi-well shale development in crowded environs and the comparatively remote locations we’re used to.

“Because of the shale boom and the activity levels, we are working in people’s backyards,” pointed out Kevin Lacy, senior vice president of global drilling and completion for Talisman Energy in his Critical Issues remarks (p.20). “That is a very different situation than we’ve been accustomed to before.”

Making the case for sanity is even tougher, with Hollywood-land ilk such as “Promised Land” making the rounds.

“That (fracturing) has minimal risk or exposure is very difficult for the public to understand,” Mr Lacy added, “because the average person will basically take the view that zero risk is the right answer.”