Reports of the death of the oil industry are greatly exaggerated

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Joel Dyer | Boulder Weekly

A year ago, a lot of green- washed Luddites were wondering out loud about whether the global collapse of oil prices would accomplish what their hyper-ventilating activism and political theatre has failed to do — end drilling and fracking in Weld County.
Dream on.

Last month the two biggest players in Weld County’s Wattenberg Field — Noble Energy and Anadarko Petroleum — reported that their over-all crude oil production in 2015 was up, not down. And both pointed to productivity gains in their Colorado operations as a big part of the reason why — notwithstanding the fact that the price of crude oil has dropped to under $40 a barrel from over $100 a barrel in the last 18 months.

In a Dec. 9 presentation to a Wells Fargo Energy Symposium, Noble Executive Vice-President and CFO Ken Fisher said that company-wide oil output increased from an average of about 300,000 barrels a day in 2014 to more than 400,000 barrels a day in 2015.

Fisher said Noble’s 2016 over-all capital spending would be $1.6 to $1.7 billion, less than half what it was a couple years ago — and “the lion’s share” of that would be spent on its operations in
the Wattenberg field. The company has been spending a billion dollars or more a year on developing those leases since 2012. In other words, Noble is essentially doubling down on its Wattenberg investment at a time when it is cutting back on capital expenditures all over the world.

The reason it can stay and grow is that its productivity gains in the Wattenberg Field are spectacular. For example, during 2014 the company operated an average of 10 drilling rigs on its holdings. During 2015 it operated an average of 3.5 — yet it was able to drill 70 percent of the “lateral feet” that it drilled in 2014 with 10 rigs. In short, Noble was using one-third as many rigs to drill two-thirds as many lateral feet of pay as it had a year earlier — essentially a 100 percent improvement in drilling productivity.
A lateral is the portion of a well drilled horizontally in the “pay,” the layer of rock where the oil is. It’s in the lateral that the fracking takes place. Generally speaking, the longer the lat- eral of a well, the more productive a well will be. Noble didn’t drill as many wells in 2015 as it had in 2014, but the ones it did drill had longer laterals — 7,200 feet versus 5,200.

Drilling longer laterals is just one of the ways an oil company can increase productivity. Another is to use modern, highly automated drilling rigs, which among other things can handle 90-foot lengths of pipe at a time instead of the traditional 30-foot lengths, which slashes the time it takes to replace a drill bit or perform other down-hole tasks.

Modern rigs can also be moved from drilling location to drilling location without being disassembled and reassembled, a process that can take several days. (Some are equipped with legs that can be raised, extended and lowered, allowing them to walk.) If the wells are clustered on pads, the rigs can be moved in a matter of hours.

The savings these sorts of innovations can generate are shown by some numbers included in Anadarko Petroleum’s operations report for the third quarter of 2015.

In 2012, when the shale boom was experiencing explosive growth, it took Anadarko an average of 13.5 days to drill a Wattenberg well, at a cost of $175 a foot. (Wells in the Wattenberg, including their laterals, can extend 15,000 feet or longer.) The comparable figures for the third quarter of this year were 4.7 days and $73 a foot.

There have been major improvements in the fracking process as well as the drilling process. Laterals are usually fracked in stages. Originally these were 500-feet long. Today, each stage can be as short as 100 feet and the number of perforations in each stage (holes in the well casing through which the fracking fluid is driven into the rock) is also increasing. Using different types of fracking fluids and concentrations of sand used to prop open the millimeter- sized fractures can also increase the initial and ultimate production from a well.

Noble hasn’t announced what sort of increases in oil production its latest Wattenberg wells have registered yet, but Fisher said technology developed in the Wattenberg was recently used on a Noble lease in Texas with spectacular results.

Last month Noble reported the initial output of three wells drilled in the Eagle Ford Shale in Southwest Texas.

The average 30-day initial output for each of the three was 4,885 barrels of oil equivalent per day (Boe/d), 6,050 Boe/d, and 6,300 Boe/d. A decade ago wells drilled in shale were considered successful if they had an initial output of a few hundred barrels a day.

Productivity and output gains of this sort are usually associated with the semiconductor industry and Moore’s Law. They are almost unheard of in legacy industries like oil and gas.
Some analysts have estimated that the most efficient U.S. producers can now break even with oil prices as low as $25 a barrel.

In other words, Weld County oil patch isn’t going to shut down anytime soon. Learn to live with it.

This opinion column does not reflect the views of Boulder Weekly.