New Prices, Challenges, and Opportunities in the Next Wave of Unconventional Resource Development

Hans-Christian Freitag, Vice President of Integrated Technology, Baker Hughes

Copyright 2015, Society of Petroleum Engineers. Reprinted from the Journal of Petroleum Technology with permission.

A few months ago, discussions about sustainability in the oil and gas industry focused on the environmental effects of shale oil and gas development. While technology had enabled the “first wave” of the unconventional resource revolution that swept North America and propelled it toward energy independence, concerns about the usage of water and chemicals and the environmental effect of large numbers of wells signaled the need for new thinking to address these concerns.

How quickly times have changed! While safety and environmental sustainability remain at the top of operational considerations, the precipitous drop in global oil prices has added another key question to the mix: At what price do unconventional plays cease to be economically sustainable? Basin-related, break-even prices are now top agenda items at planning and budgeting meetings. No longer are we discussing efficient well delivery, improving completion effectiveness and fracturing designs, and increasing estimated ultimate recovery as changes we should make. These are changes we now must make to boost production, ensure sustainable cash flow, and increase booked reserves during the “next wave” of unconventional resource development.

The high oil prices of the past several years shielded the industry from inefficiencies that were “built in” to the first wave of unconventional development. Of the hundreds of thousands of shale wells that have been drilled and hydraulically fractured, many have been significantly less productive than expected, delivering typical recovery factors below 10%. Despite these less-than-optimal recovery factors, efficiency remained our industry’s key focus of innovation in the unconventional plays. In fact, factory drilling of a large number of wells and geometric fracturing along the lateral continues to represent the most popular approach to developing unconventional assets. But with oil prices below USD 50/bbl, is drilling and stimulating more wells at lower cost really the solution for long-term economic sustainability of unconventional plays?

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