Here Are 6 Ways Energy Companies Are Using Innovation to Endure Low Oil Prices

Apr 11, 2016 - 3:45pm

Senior Editor, Digital Content


An oil jack near Corpus Christi, Texas.

Even with almost two years of low oil prices, United States production hasn’t collapsed.

How can this be when services firm Baker Hughes reported that the number of oil and natural gas drilling rigs operating right now number 443, a multi-decade low?

The answer comes from an Energy Information Administration report showing that “costs in 2015 were 25% to 30% below their 2012 levels.”

Energy companies are enduring the oil prices slump by relying on innovation and technology to produce more energy for less.

Here are a few ways companies are doing this.

1. Finding the Sweet Spot

Companies are focusing their efforts on the wells with the highest potential oil and natural gas production, CNBC reports:

Most of the cost of a new well lies in drilling and fracking it, so producers are only spending money to bring new production online in places where they're reasonably certain they can extract oil on the cheap.

Not only are producers moving rigs to their best land, but they're also completing more fracking stages per well, Charles Cherington, co-founder of the energy-focused private equity firm Intervale Capital.

"That's caused the sort of rollover in U.S. production to happen more slowly than people might have anticipated," he told CNBC's "Squawk Box" on Monday.

2. Big Data Computes

Companies are finding these sweet spots by using Big Data processing power to analyze the massive amounts of data their sensors provide, as Technology Review explains:

Thanks to new sensing capabilities, the volume of data produced by a modern unconventional drilling operation is immense—up to one megabyte per foot drilled, according to [the Manhattan Institute’s Mark] Mills’s “Shale 2.0” report, or between one and 15 terabytes per well, depending on the length of the underground pipes. That flood of data can be used to optimize drill bit location, enhance subterranean mapping, improve overall production and transportation efficiencies—and predict where the next promising formation lies. Many oil companies are now investing as much in information technology and data analytics as in old-school exploration and production.

3. Walk on the Wild Side

When companies determine the best places to drill, they use drilling rigs that walk from drilling pad to drilling pad, instead of being taking apart and rebuilt over and over, as Bloomberg reports:

More efficient drilling rigs that cost a third less than just a year earlier are changing the face of the U.S. shale industry, helping boost per-rig output in the four largest fields by at least 40 percent since the crude price plunge began in 2014.

4. More, More, More

After drilling comes the fracking, and the innovation continues. As Reuters puts it, shale producers are pushing fracking technology to the limit.

One way is driving more water and sand into a well to create more cracks in the shale, releasing more oil and natural gas, CNBC reports:

For example, drillers are now adopting a hydraulic fracturing method pioneered by companies such as Liberty Resources and EOG Resources that uses larger amounts of water and minerals. While it's a more costly process, it has been shown to boost production rates in the first crucial year of a well's life, after which output drops off dramatically.

Processes such as these have reduced the break-even cost of producing a barrel of oil and kept profitable some acreage that drillers might otherwise have left idle.

The Manhattan Institute’s Mark Mills explains, “Sand used per well has risen, from 5 million to 15 million pounds, on average,” and “Operators, for example, increasingly use more powerful pumps to move the water-sand mixture faster and at higher pressures, greatly increasing the amount of sand used to keep shale cracks open.”

Another way is fracking a well again. Bloomberg reports that 80 wells in North Dakota’s Bakken region showed “30 percent more oil in the month after the refrack than they did after the original completion.”

5. Rethinking the Entire Production Process

Another approach is being taken by Liberty Resources in North Dakota. It is rethinking the entire process of producing energy from shale formations by maximizing operational efficiency and optimizing each part of the production process with a “massive centralized oil production facility in Tioga, North Dakota, called Stomping Horse.” The Wall Street Journal dubs it a 10,000 acre, 96-well “oil factory” [subscription required]:

The self-contained facility was designed with efficiency and cost savings in mind. It can process wastewater on site, obviating the need to run trucks to and from the drilling site, and wells were intended to be fracked 10 at a time, to improve the network of fractures.

One way Liberty Resources is squeezing out costs is by relying more on pipelines:

Notably absent were tanker trucks. Liberty Resources has spent $16.2 million building pipelines to deliver fresh water and send out natural gas and oil, greatly reducing the need for trucks. Another pipeline sends gas from its wells to drilling rigs and other machinery, cutting diesel consumption in half and reducing the number of fuel trucks required.

“Getting trucks off the road is one of the main drivers in controlling the costs,” says Chris Clark, the production manager. Trucking water for disposal, for example, can cost $1.75 a barrel, about 50 cents more than shipping water via pipeline, he says. Overall, pipeline usage helps Liberty make an additional $3 a barrel for oil, mostly from reduced costs but also because the company can more easily get its oil to locations where it brings in higher prices, he says. “We are spending more to make more,” Mr. Clark says.

6. Tech Applied After Fracking

Innovation doesn’t stop after fracking. The Manhattan Institute’s Mills notes how one company is successfully analyzing its well data to maximize energy output:

ConocoPhillips combined the latest sensors (which extract data by the minute rather than daily), wireless networks (often requiring building dedicated remote cell and Wi-Fi towers), and big-data analytics to boost output by 30 percent in existing wells.

Information Week added that ConocoPhillips jumped into the “Internet of Things” movement by building a network of radio and wi-fi towers to collect real-time natural gas well data and spot ones that aren’t producing efficiently.

In each step of the energy development process--from where to drill and how to drill to studying data after drilling—companies are using the latest technologies to get us the oil and natural gas that helps power the American economy.

Not sitting still, always innovating. That’s how companies are persisting in the low oil price environment.

More Articles On: 

About the Author

About the Author

Sean Hackbarth
Senior Editor, Digital Content

Sean writes about public policies affecting businesses including energy, health care, and regulations. When not battling those making it harder for free enterprise to succeed, he raves about all things Wisconsin (his home state) and religiously follows the Green Bay Packers.