It was 75 years ago when oil was initially detected in the Bakken shale of North Dakota. Some 60 years later, the technology finally caught up to the oil and gas risk assessment criteria. Horizontal drilling and hydraulic fracturing were combined to harvest the oil from the shale. At that time, oil was peaking at over $100 per barrel, which was a sufficient incentive for companies to drill costly shale wells.
After the price of oil dropped below $50 per barrel, more than a few analysts theorized that the shale boom would die due to the high cost of drilling into shale. However, that turned out to be untrue. Subsequent oil and gas cost engineering and drilling innovations have lowered the costs of shale drilling. The industry may have slowed, but it has not been halted. Cost-saving advances in shale drilling have not only kept the industry alive, they have enabled it to continue despite the lower oil prices that experts predicted would make such enterprises unprofitable.
It is well known that the major cost of fracking was drilling the shale wells. In the recent past, it was routine for a well to be drilled that produced no oil whatsoever. That is a rarity now. The technology to find the reserves has improved along with the way the wells are drilled.
You are probably aware of the basic techniques involved in horizontal drilling and fracking. Tight shale formations can be reached a mile or more away from the well head. Once the shale has been reached, it is fractured to release the trapped natural gas and oil.
Multi-pad drilling has proven to save time and money for oil and gas producers because the drilling rig only has to be moved less than 10 yards before another well can be drilled into the same reservoir. By reducing the need for new roads, more pipelines and worker facilities, millions of dollars are saved and hundreds of man-hours are eliminated. If these features only have to be set up one time for every four wells, the reduction in labor and expenses is enormous.
Speed is a second factor that is decreasing the cost of drilling. More efficient rigs and a more experienced labor force mean greater savings. The average time it takes to drill a well for Chesapeake Energy’s Powder River Basin Project dropped from 35 days to 14 in the last two years. The cost has plummeted from $4.5 million to $2.6 million. The average drill cost per foot was lowered from $245 to $143. That means drilling costs have been reduced for Chesapeake by about 42 percent, which offsets the drop in the commodity cost.
Other companies have reported cost reductions from 2014 to 2015. Bakken well costs dropped from $7.1 million to $5.9 million. Eagle Ford wells went from $7.6 million to $6.5 million. Marcellus wells were reduced from $6.6 million to $6.1 million. Midland Basin wells fell from $7.7 million to $7.2 million and Delaware Basin well costs were lowered from $6.6 million to $5.2 million.
Older wells are also being refracked at a savings of 75 percent over drilling a new well. There are more than 50,000 old wells in the United States that could be refracked. The only thing preventing refracking from taking off is the uncertainty of where to target the fracking fluid. However, new software combined with petroleum economics courses are removing the hit-or-miss nature of refracking wells and making them cost-effective.
Oil giant Halliburton recently received $500 million in financing from Blackrock Inc. to refrack the wells of their customers. Its president Jeffrey Miller says that the relatively small market for refracking could expand significantly in the future. This would not have been possible without the strides made in analytical software and new theories regarding petroleum economics. As the science of fracking and refracking marches forward, the costs keep coming down, which enables a healthy profit despite the overall decline in the price of oil due to the overproduction by Saudi Arabia and other oil-producing countries.