Horizontal drilling and fracking have opened new opportunities for investing in domestic energy, whether for pure-play explorers in developing shales, producers in mature areas, or service companies opening up the monster wells. Oil and Gas Investor Editor-in-Chief Leslie Haines has been following the revolution for nine years, and agreed to share with readers of The Energy Report the names of some beneficiaries of new technology's multiplier effect.
The Energy Report: As editor-in-chief of Oil and Gas Investor, based in Houston, you follow the development of U.S. shale closely. Is the U.S. really on track to energy independence, or will depletion rates cut this boom short? What are the production numbers telling you?
Leslie Haines: I have been covering shale development since 2005, and it looks like we are on track for energy independence by 2020 or so. However, we're never going to stop importing oil because supply diversity is prudent.
Depletion rates are significant in every shale play. Some of the depletion rates are quite steep in the early years of a play, but wells tend to produce for 20 years or so at a lower rate, so overall production rates are still growing.
The monthly U.S. Energy Information Administration (EIA) reports show that in H1/14, U.S. gas natural production alone increased by more than 4 billion cubic feet a day (4 Bcf/d). The bulk is coming from the Northeast, from the Marcellus and Utica plays in Pennsylvania, Ohio and West Virginia.
Also, a lot of new natural gas is coming on, in association with oil production in West Texas, in the Permian Basin, and in south Texas, in the Eagle Ford play. While some gas areas might be declining, we're getting enough new natural gas to offset that decline. In fact, both oil and natural gas production in this country are the highest they've been in about 35 years.
Natural gas in storage was down last year, and now we're refilling. Every summer and fall, you refill storage to prepare for winter. It looks like we're going to have a lot of gas in storage. We've had a fairly mild summer and haven't had a huge call for natural gas for air conditioning, compared to what it could have been. Between the production and the weather factors, it looks like we'll have plenty of gas in storage for the fall.
TER: How will the development of monster wells, as they're being called, impact that balance?
LH: When we say monster well, we are referring to an above-average initial flow. We're seeing this happen in the Utica play in West Virginia and southern Ohio. Some very large dry-gas wells are being reported with initial flows of 20–25 million cubic feet of gas a day (20–25 MMcf/d). That's a huge gas well by anybody's measure. It is just one more example of U.S. production surging due to horizontal drilling and fracking. Those two techniques combined have revolutionized everything in this country and allowed us to recover a lot more of the underground reservoir.
TER: The techniques continue to develop as more environmentally friendly and efficient methods are discovered. What are some new techniques you are seeing?
LH: The size of the average frack is getting quite a bit bigger. It used to be that the horizontal leg might only go out 1,000–2,000 feet (1,000–2,000 ft). Now, it's going out as far as 5,000–7,000 ft horizontally, so the well bore is exposed to more of the reservoir. The size of the fracks has also gotten bigger, with 20 or 30 frack stages along a lateral. That has increased production.
In one basin, you may find the number of formations that can be tapped is quite numerous. In the Permian Basin of West Texas, for example, more than 5,000 vertical feet of pay can be tapped. If you sink three horizontal legs into that well, three different horizons can be fracked and produce from one well. It triples the effect of that well and acreage.