Tight Oil - "sure does give some cracker jack new ways to destroy the planet"t

“This is the absolute desperation move that is a total environmental destroyer, a net-energy user, and a consumer of fresh water on a scale unseen yet. 

It cannot support anything and won't replace conventional oil. 

But it sure does give some cracker jack new ways to destroy the planet. “-- MCR

Tight oil rises to front of mind

Financial Post,

29 December, 2011

Just when it seemed the Earth was serving up its last drops of oil, squeezing from tough spots such as the oil sands in northern Alberta and the deepest seas offshore Brazil, a new oil age is emerging.

Tight oil, a catch-all for oil trapped in shale, carbonate or sand formations recoverable with the type of drilling methods that revolutionized the natural-gas side of the business, is reviving the oil sector on a scale that only a couple of years ago would have been unthinkable.

“It turns out there are a lot of big piles of oil in North America,” said Denver-based John Schopp, vice-president for the North Rockies and new ventures at Encana Corp., one of the companies in a hurry to turn it into new revenue.

Calgary-based Encana, a pure natural-gas producer that is feeling the pinch of low gas prices, hopes its new oil thrust will make it a more balanced gas/oil producer.

“With shale gas it took a few years to get it to work for everybody,” Mr. Schopp said. “With oil, obviously we are in an earlier inning than we are with gas, but the rate of change is quicker because of all the tricks that we have learned.”

The full potential of tight oil is not yet known. What is known is that the sector is repositioning itself to make the most of it, encouraged by the performance of fields such as the Bakken straddling North Dakota and Saskatchewan, one of the continent’s most significant sources of oil. If new plays such as the Niobrara in Colorado, the Eagle Ford in Texas, the Cardium in Alberta or the Viking in Saskatchewan have similar encores, and if the same pattern is repeated around the world, oil could be with us for a long time yet.

“We are finding oil in a lot of places that frankly, we knew it was there, we just didn’t know how to get it out,” said John Richels, president and CEO of Oklahoma City-based Devon Energy Corp. “Taking this new technology … and applying it to many of these areas is opening some new doors. In a world scene where we are producing 86 million barrels a day, it probably doesn’t have the same kind of impact as it did in the natural gas business, which was more of a North American market, but it certainly has some big potential in the right areas.” Devon, previously a natural gas focused company, directed 90% of its capital to oil and natural-gas liquids targets in 2011.

Tight oil’s rise happened at uncharacteristic speed for the oil patch. For example, it took decades for the oil sands to catch on as an economic resource. But the oil community started converting to tight oil in a big way barely two to three years ago, with smaller companies in Canada and the United States leading the way.

What prompted it all? Natural gas prices were low and oil prices were high, said Dan Themig, president of Packers Plus Energy Services Inc. It helped that horizontal drilling/hydraulic fracturing technologies were performing well on tight oil, and that producers could squeeze oil or natural gas liquids from lands such as the Montney they had acquired to produce gas.

“And then it was up to a bunch of engineers coming up with crazy ideas like our system,” Mr. Themig said.

The Calgary-based private company helped fuel the revolution with technological advances such as its ‘ball drop.’

Mr. Themig, a professional engineer, invented it after leaving an international oil services company a dozen years ago.

The technology involves launching a ceramic ball the size of an orange with fluid into a horizontal well. When the ball reaches the bottom it activates a port and opens a sleeve. Sand is pumped down at high pressure to fracture the rock. When the fracturing is completed, another ball is launched to fracture the next stage. The same process is repeated at high speed multiple times, resulting in what is known as multi-stage fracking.

“It started with shale gas, and then it went to shale oil, then it went to some really tight oil plays like the Cardium, and now the most recent trend is the liquids rich gas,” Mr. Themig said.

“The thing that has really put the fuel on the fire is the liquids rich gas. It’s redefined why we would drill a gas well. We don’t drill a gas well any more for the gas. It’s the liquids that are making those wells economic and are going to continue to bring capital in the industry.”

Packers Plus now has 600 employees all over the world. Its tools are being deployed in Russia, China, Argentina, Saudi Arabia and elsewhere, providing a measure of how quickly the search for tight oil is spreading.

This month it completed 60 fractures in a well in the Marcellus shale, its largest number yet, an approach that is increasing recoveries from tight oil reservoirs. With oil prices at US$100 a barrel, technology is evolving quickly.

“We are working on heavier oil areas, and we think at some point we will be in some of the oil sands areas, with more futuristic technology that will significantly change recovery factors there,” Mr. Themig said.

Like other industry players, Encana is in the process of assembling large expanses of lands in such plays as the Duvernay in Alberta, the Collingwood in Michigan, the Tuscaloosa Marine in Louisiana as well as the Niobrara.

While Encana’s production from tight oil is small, the company says it has a long history of re-inventing itself as new opportunities arise.

“The reason we are so excited about this is the high price of oil, coupled with Encana’s experience on execution of tight gas,” Mr. Schopp said.

“It’s what we do and we have a reputation of doing this quite well. It’s almost exactly the same process and it’s fairly easy to transition across from gas to oil.”

The transition to tight oil is blurring the line between oil and natural gas.

Historically, companies were targeting one or the other. Now, industry players are finding plays have a range of fluid composition, ranging from natural gas in the deepest part of the play where it has been cooked more because it’s closer to the centre of the earth, to oil at the shallowest end.

“You can drill for gas, gas with natural gas liquids, gas with condensate which is like gasoline, or has a mixture of oil and gas, or even oil,” Mr. Schopp said. “What you see happening in industry is that in some of these plays the rigs are running on exactly the part of the fluid spectrum that has the most profitability today.”

Marvin Brittenham, Encana’s Team Lead, New Ventures USA, said the technology used to unlock tight oil is essentially the same as the one used to unlock tight gas, but because tight oil is at the beginning of the learning curve, operators are still searching for the optimum solution.

The trends are solid enough that Exxon Mobil Corp. predicts in its 2012 energy outlook that tight oil will contribute about 5% of the world’s liquid fuels by 2040. The International Energy Agency expects the search to yield a 20% increase in liquids production in the U.S. to reach 9.6 million barrels a day in 2016, about 0.7 million b/d more than in its June estimate.

Meanwhile, some are worried. Saudi Arabia frets it could mean the end of its dominance over world oil markets. For the oil sands industry, it could present new competition. While it may not yield the same volumes, tight oil’s costs are lower, it tends to be located near markets, and because it’s lighter it gets a better price.

For the climate change movement, it throws a wrench into strategies, such as targeting oil sands pipelines, to expedite the sunset of fossil fuels to pave the way for renewable energy.

It also challenges peak oil theories that were so prevalent in the past decade and that contributed to rising oil prices.

“We can almost declare this the end of the Hubbert’s curve,” said Michal Moore, a professor of energy economics at the University of Calgary’s school of public policy.

According to U.S. geophysicist M. King Hubbert’s theory, oil is finite and its production declines after hitting a peak.

Hubbert’s Peak was supposed to have arrived in the continental U.S. in the early 1970s, when oil production peaked at 10.2 million barrels per day. According to his disciples, the earth’s overall oil production would peak in the last decade.

Tight oil may not restore those peak levels, but it’s very significant that U.S. production is increasing again after four decades of declines, said Ward Polzin, managing director in Denver at Tudor Pickering Holt & Co., a specialist in mergers and acquisitions in oil and gas shale for the oil and gas investment bank.

He’s seeing a rise in acquisition activity, a lot of it involving oil majors acquiring smaller trailblazers with large land positions or joint ventures involving international companies teaming up with North American players to learn the business.

“It’s hard to stem the tide,” Mr. Polzin said. “But the fact that we are keeping it flat and turning it up slightly is dramatic. That is something we didn’t think we could ever do.”