Recent technological advancements are enabling U.S. shale oil and gas companies to counteract years of declining productivity. However, the necessity to frontload costs by drilling a larger number of wells is dissuading certain companies from fully embracing these innovations.
Despite overall output reaching record levels, the amount of oil recovered per foot drilled in the Permian Basin of Texas, the primary U.S. shale formation, experienced a 15% decline from 2020 to 2023, returning to levels seen a decade ago, according to energy researcher Enverus. This decline is attributed to the diminishing efficiency of fracking, the extraction method that emerged in the mid-2000s, where water, sand, and chemicals are injected at high pressure underground to release trapped resources.
The interference with underground pressure caused by two decades of drilling wells in close proximity, resulting in hundreds of thousands of wells, has made oil extraction more challenging.
Dane Gregoris, managing director at Enverus Intelligence Research firm, expressed concern, stating, “Wells are deteriorating, and this trend is expected to continue.”
Nevertheless, recent oilfield innovations, implemented more extensively since last year, have facilitated faster, more cost-effective, and higher-yielding fracking. These innovations include the ability to double the length of lateral wells to three miles and the introduction of equipment capable of simultaneously fracking two or three wells. Additionally, electric pumps have the potential to replace high-cost, high-maintenance diesel equipment.
According to Betty Jiang, an oil analyst with Barclays, companies can now complete fracking operations more rapidly and affordably.
However, the drawback of the new simultaneous fracking technology, also known as simul-frac, is the requirement for companies to have numerous wells drilled and prepared for simultaneous fracking before proceeding. This interconnected system necessitates the simultaneous injection of fluids into and extraction of oil and gas from two or three wells, rather than just one. Despite the potential cost savings, companies have not deployed enough drill rigs to fully capitalize on these innovations, as emphasized by Mike Oestmann, CEO of Tall City Exploration.
The decreased number of active drilling rigs in the U.S. this month, down nearly 18% from a year ago, further highlights the impact of these challenges on the industry.
Thomas Jacob, senior vice president of supply chain at researcher Rystad Energy, estimates that simul-fracking can reduce well costs by 5%-10% apiece, translating to between $200,000 and $400,000 in savings per well.