The Shale Gale Also Brings a Data Blizzard Author: Jim Crompton, Subject Matter Expert Times, they are a-changing. The U.S. is the closest it has been in almost 20 years to achieving energy self-sufficiency, a goal the nation has been pursuing since the 1973 Arab oil embargo. Domestic oil has achieved its highest output in nine years. Production forecasts for the Bakkan play in North Dakota predict over a 1MMBOpd target with equally impressive results from the Eagle Ford in south Texas and the Wolfcamp in the Permian Basin of west Texas. The U.S. is producing so much natural gas that the price has fallen by two-thirds since 2008, less than $4/mcf, and where the U.S. government warned four years ago of a critical need to boost imports, it now has approved four licenses to export LNG. Since 2011, 128 new industrial plants have been announced in the Gulf Coast region alone with a combined value of $114 billion. Methanex Corp, the world s biggest methanol maker, said it will dismantle a factory in Chile and reassemble it in Louisiana to take advantage of low natural gas prices. Along with slow economic growth, higher mileage standards and federally mandated ethanol use have curbed demand for hydrocarbons. The result: the U.S. has reversed a two-decade-long decline in energy independence, increasing the proportion of demand met from domestic sources over the last six years to an estimated 81% through the first 10 months of 2011, according to data compiled by Bloomberg from the U.S. Department of Energy. That is the highest level since 1992. Electricity production has been transformed as well, with gas-fired power stations built to replace coal-fired plants. This has contributed to a 10% fall in the greenhouse gas emissions from American power generation between 2010 and 2012. The transformation, which could see the country become the world s top energy producer by 2020, has implications for the economy and national security boosting household incomes, jobs, and government revenue; cutting the trade deficit; enhancing manufacturers competitiveness; and allowing greater flexibility in dealing with geopolitical unrest in the Middle East and other producing regions.
The Rise of Unconventional Resources The key factor in this energy supply turnaround is unconventional oil and gas. Many of Noah Consulting s clients are at the forefront of this exciting new development, so we thought it might be of interest to talk a little bit more about unconventional hydrocarbons. The energy industry has long known about huge oil and gas reserves trapped in these deep formations, such as the Marcellus under Pennsylvania and neighboring states, the Eagle Ford in south Texas, the Bakkan in North Dakota, the Barnett in north Texas, and the Duvaney in Alberta and British Columbia, but the complex reservoir properties of these formations have left this energy source largely beyond reach of traditional production and drilling practices. However, during the past decade, the combination of two established technologies horizontal drilling and hydraulic fracturing has dramatically altered the U.S. energy supply picture and looks to likely become an international play as well. Unconventional oil and natural gas is distinguished from conventional hydrocarbons because of the types of reservoirs in which it is found. In a conventional reservoir, natural gas has migrated from a source rock into a trap that is capped by an impermeable layer of rock, or the seal. A well is drilled into the reservoir to allow the oil and natural gas to flow into the wellbore and then to the surface. Unconventional natural gas production techniques allow recovery of oil and natural gas that remains trapped in the source rock, unable to migrate into a reservoir because of the low permeability of the source rock. The most prominent types of unconventional natural gas are coal bed methane (CBM), gas from tight sands, and shale oil and gas. Two of the most important properties that determine a rock formation s suitability as a reservoir are its porosity and permeability. These are related concepts. Porosity refers to the amount of empty space (pores) between the granular material that makes up a rock. Permeability measures how easily fluids can flow between the pores. A porous rock may not be very permeable if the void spaces are not highly interconnected. Sandstone is typically a porous rock with high permeability. Tight sands are porous sandstones with low permeability. Shale is an example of a non-porous rock with low permeability. Thus, the first is a source of conventional oil and natural gas, whereas the latter two yield unconventional hydrocarbons resources and require some kind of stimulation to flow at commercially viable rates. Noah Consulting, LLC copyright reserved page 2
The use of horizontal wells and hydraulic fracturing is so effective that is has been called disruptive. That is, it threatens the profitability and continued development of other energy sources, because it is much less expensive and far more reliable. Not only that, but compared with coal, natural gas produces only half the carbon dioxide and almost no sulfur, nitrous oxides, or mercury. Hydraulic fracturing and horizontal wells are not new tools for the oil and gas industry. The first fracturing experiment took place in 1947, and the process was commercial by 1950. The first horizontal well was envisioned in the 1930s, and horizontal wells were common by the late 1970s. Millions of fractures have been pumped, and tens of thousands of horizontal wells have been drilled worldwide during the past 60 years. Still, public opinion in many communities is unfamiliar with these production techniques. The recovery of shale gas is not new, either especially from the Devonian shales in western Pennsylvania. This is, after all, where Edwin Drake, exploring the area s natural seeps of oil and gas, drilled the first U.S. oil well in 1859 to a grand total of 69 feet deep. In fact, native North Americans gathered oil and tar from natural seeps more than 1,500 years ago. And the first shale gas well was Noah Consulting, LLC copyright reserved page 3
drilled in Fredonia, New York, in 1821. Concentrated shale fracturing research was funded by a U.S. Department of Energy grant in the 1970s. A new state-by-state study estimates total unconventional oil and gas production in the Lower 48 contributed $63 billion in federal, state, and local tax revenues in 2012 with contributions rising to nearly $113 billion by 2020, according to IHS. Nearly $238 billion was contributed to U.S. gross domestic product in 2012, with an expected increase to more than $380 to $690 billion by 2020, or two to four percentage points to the national GDP, creating $1.7 million permanent jobs. This is a big deal, but to properly exploit this new resource, operators and suppliers will have to make a few changes. The value chain from basin evaluation, leasing, permitting, preparing the pad, drilling the horizontal well, completing the well through a multi-stage fracturing procedure, hooking up the new production to a midstream gas line or selling and transporting the oil to market through a new pipeline or by rail car or barge, operating the new wells and dealing with the rapid early production declines to meeting the required safety, and environmental regulations moves fast. Instead of a few well drilling programs, an operator may have 40 rigs in a basin and drill a well every few weeks and several hundred a year. The data being collected from all of these operations comes in fast and furious and requires new capabilities to insure the operator and service provider are making the best decisions on where to drill next, how to complete the well, and how to keep production up. Noah Consulting, LLC copyright reserved page 4
With all of this potential and the competitive nature of the industry, it is only logical that companies would focus on improving and optimizing the processes around the collection of unconventional oil and gas. Without a corresponding focus on improving the underlying data and information capabilities, companies will be hard-pressed to gain all of the value out of their new business processes. What does this mean for data management responsibilities? Noah Consulting s Fred Kunzinger has been looking into the consequences of the production of unconventional oil and gas. Here are a few of his conclusions. Data management success in the unconventional world hinges on three components: governance, integration, and analytics. Governance is an overused term, however data governance remains lacking in many companies. Implementing data governance does not mean creating a data-focused bureaucracy. It means translating business needs into adhered-to data management processes. Data governance also means understanding what data will be needed to make critical business decisions. In most companies, data integration means merging data from the production and accounting worlds. For the unconventional play, this level of integration falls woefully short. Because of the model-based nature of successful unconventional developments, the integration must span the entire value chain. The shale play is the new assembly line. Instead of drilling a few wells a year, companies now drill hundreds. After managing and integrating the data, the business can take operational efficiency to the next level through analytics. Analyzing drill bit performance, motor reliability, and mud composition can reduce trips and thereby reduce costs; analyzing multi-stage frack jobs can determine what technique works best for a particular region and reservoir and advanced analytics can optimize the entire well lifecycle. Shale plays are having a significant impact of the energy supply in the U.S. For these plays to be successful, energy companies need better data management capabilities to optimize their development and production efforts. Optimization depends on viewing the data as pieces of a much larger puzzle a puzzle that makes more sense when viewed holistically rather than individually. Noah Consulting, LLC copyright reserved page 5
About the author: Jim Crompton is a distinguished leader in E&P data management, spending the last 37 years at Chevron and stacking up a truly impressive list of accomplishments. One of the many highlights of Jim s work was leading one of the largest standardization projects at Chevron. Jim also led a study team for the IT Merger Integration Organization as part of the Chevron & Texaco merger and his team developed the IT organization structure and IT strategic direction for the corporation, for which he received a President's Award. In 2002, Jim was named a Chevron Fellow in acknowledgement of his contributions and he served as the chair of the Fellows Network from 2006-2008. Outside of his work for Chevron, Jim was elected chair of the general committee of Petroleum Industry Data Exchange (PIDX) where he was able to influence the direction of the standards setting activities towards emerging technologies, such as XML, and advanced electronic business models to complement the established EDI practices in the industry. He was selected to participate in the SPE Distinguished Lecturer Program for 2009-2010. Jim resides in Colorado, with his wife, and enjoys writing. Noah Consulting, LLC copyright reserved page 6