“Pete” Stark and Bob Fryklund America's Energy Future Reshaped

APRIL 2018 The “Better Business” Publication Serving the Exploration / Drilling / Production Industry America’s Energy Future Reshaped By Oil, Gas Supplies From Tight Rock Formations By Philip H. “Pete” Stark and Bob Fryklund HOUSTON–Ten years ago, the United States was producing 63 billion cubic feet of natural gas and 5 million barrels of oil a day, with only a slight percentage of total supplies flowing from “tight rocks.” Jump forward to 2018 and America has been recast as a global energy superpower, on track to produce more than 80 Bcf of gas and 10 MMbbl/d of oil–both all-time highs, and both enabled almost entirely by soaring output from resource plays. What the U.S. energy industry–led by independent oil and gas companies with corporate logos few of the consumers benefitting from their efforts would recognize–has accomplished is nothing short of astonishing. The laws of nature and physics, not to mention petroleum engineering, dictate that a finite resource will deplete over time. Instead, after more than a century of producing oil and gas, U.S. reserve estimates and production volumes for both oil and gas abruptly and dramatically reversed course with the development of shale gas and tight oil. Given the magnitude of the swing from world’s largest energy importer to potentially one of the world’s largest exporters, it is hard to think of a single historic corollary. Reproduced for IHS Markit with permission from The American Oil & Gas Reporter www.aogr.com AMERICA : T HE ENERGY SUPERPOWER Certainly, there never has been anything sustainable and affordable energy. That We are witnessing a new way of thinking like it among countries in the Organization is why horizontal resource plays have about rocks and the volumes of potential for Economic Cooperation and Develop - massively changed the game. hydrocarbons trapped in their three-di - ment. In fact, the amount of oil production The United States can be confident mensional spaces. We know there are a growth that the United States experienced that it not only possesses plentiful energy lot more alternatives to accessing those between 2012 and 2014 was the largest supplies to power the domestic economy, hydrocarbons, whether conventional continual year-over-year increase in his - but also can export a portion of those stratigraphic and structural traps or source tory, exceeding even the best years of supplies to allies overseas. Already the rocks and basin centers. This is a para - production growth in Saudi Arabia. globe’s top exporter of liquefied propane digm shift away from what geologists The same meteoric rise also occurred gas and among the top five exporters of were learning in college classrooms 15 in natural gas, with the United States refined crude products, now America years ago. adding nearly 1 trillion cubic feet of new consistently is exporting 1 MMbbl/d of production each year between 2009 and crude oil and soon will be one of the Downturn Upside 2013 to become the world’s largest pro - largest liquefied natural gas exporters. The first decade of the shale revolution ducer seemingly overnight. That provides security advantages almost was characterized by proving up the eco - As a result, the nation has been able beyond measure, and enables much greater nomics, securing leaseholds and drilling. to completely reshape its energy fortunes. flexibility in international affairs and That came to a screeching halt in late Gone are worries about economy-crippling policy making. 2014, when one of the most severe down - shortages and price shocks, concerns Then, of course, are all the economic turns in the industry’s history interrupted about dependencies on foreign supplies, benefits (such as more than 1.6 million the party. Taking the long view, however, and fears of inadequate feedstocks for newly created jobs). The results are evident for all the pain the down cycle caused, high-value domestic industries such as everywhere, whether in Oklahoma and the U.S. industry accomplished a remark - petrochemical manufacturing and steel - North Dakota, where tight oil has led to able feat. Out of sheer necessity, operators making. America has gone from being a economic rebirths, or Pennsylvania and and service and supply companies swiftly major demand center dependent on high- West Virginia, which are benefitting from turned erstwhile high-cost shale gas and cost imports to being a major new supply growing shale gas production even as tight oil into some of the world’s lowest- epicenter with low-cost resources abundant their coal industries decline. Texas is cost energy supplies. enough to share with the world. now the number one state for oil, gas and It could be argued, in fact, that the Resource plays have not only hit the wind energy production. Major new trans - past three years’ efficiency gains, pro - reset button on U.S. oil and natural gas portation, storage, refining and petro - ductivity enhancements and structural supplies at the same time, but also have chemical infrastructure is being built in cost improvements constituted the most transformed the global market. The United regions across the country, creating jobs rapid transformation in industry history. States has a new function: crude oil, and boosting tax revenues. Without the extreme pressure to prevail refined oil products, natural gas and In only two short decades since U.S. in the low-commodity price environment, natural gas liquids supplier to the world. operators opened a new class of hydro - these stunning improvements may not The benefits are nearly as extraordinary carbon reservoirs, oil and gas production have materialized for a decade or two. It as the story of the U.S. unconventional volumes have climbed to historic peaks was made possible by innovative thinking revolution itself. Consider the difference and America is positioned to become a about how to apply technology to better in world economies today if, as forecast top energy exporter. Where does the shale understand tight rock formations and op - 10 years ago, oil was trading at $125/bbl gas and tight oil revolution go from here, timize well construction operations. and natural gas was selling for $12/MMB - and what will U.S. independents–the pi - The break-even cost in the best tight tu. The U.S. economy would be limping oneering companies that set this profound oil projects has dropped from $60-$65 to along, as would the economies of many cycle of disruptive change in motion–do $25-$30 a barrel. While productivity and other countries. for an encore? cost probably will not improve as rapidly The industry has come a long way in during the next three years, experience Historic Achievement a short time, but there is still much more suggests additional breakthroughs await When scientists look back in 60 years to learn. We have discovered so much to nudge costs downward and recovery at what technologies or innovations about the rocks themselves. It is clear factors upward, while opening additional changed the way people lived, the shale that the wrong development approach resources for economic recovery. revolution will rank among the greatest can render a good rock bad, and that no The industry also has learned how to advancements of this century. U.S. re - approach can make a bad rock good, but take greater advantage of the data it source plays have altered the energy mar - operators are challenging that dictum to already has. During the downturn, oil kets forever, similar to how the smart some degree by moving outside the fair - and gas professionals had more time to phone and Internet have changed how ways to investigate what it takes to make dig deeper into data. Companies began we communicate with and relate to our shale basins’ second- and third-tier areas using sophisticated algorithms and ana - world. The number one factor that makes profitable. lytical tools to mine datasets and gain societies economically competitive and It also is fair to say that the shale new insights into geology, operational ensures a high quality of life is access to revolution is reinventing geology itself. workflows and engineering designs. That VISION 2020 has led to much better wells at much era of experimentation to figure out the Moreover, with so much associated lower costs. optimal drilling and completion designs, gas in tight oil plays, oil activity will Data analysis also directly factors into and getting it right may prove a struggle start to function as a governor of gas one of the key contributors to resource in some areas. supply, especially in the Permian. Some plays’ economic success: speeding decision The single biggest challenge going companies may find themselves “caught making and field activities. Drilling forward is increasing EURs. This is an in the middle” to some extent between Bakken and Eagle Ford wells once took extremely important driver on which al - the Permian and Appalachian superbasins, 45-60 days. Now, these wells are reaching most every company is working. There but again, that is not to suggest that total depth in only six or seven days, is a lot of room to run. The very best re - players in the Eagle Ford, Bakken, even with significantly longer laterals. covery factors in the very best tight oil SCOOP, STACK, Niobrara and other Every well drilled on a pad is a new in - wells are in the 10-15 percent range. basins outside the Permian and Appalachi - formation center, and operators are feeding That is better than five years ago, but an will not thrive. that information back into the decision still not good enough. During the next The big question is whether any plays making process for the next well.

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