Big data, more oil

July 6, 2015
Development of unconventional resources soon will enter a phase promising to lower the cost of producing oil from shale toward levels normally associated with Saudi Arabia.

Development of unconventional resources soon will enter a phase promising to lower the cost of producing oil from shale toward levels normally associated with Saudi Arabia.

That phase, according to Mark P. Mills, senior fellow at the Manhattan Institute, will use big-data analytics to amplify benefits of technologies now allowing operators to produce hydrocarbons from low-permeability reservoirs.

"Big-data analytics can already optimize the subsurface mapping of the best drilling locations; indicate how and where to steer the drillbit; determine, section by section, the best way to stimulate the shale; and ensure precise truck and rail operations," Mills writes in a May report. "Mobile computing, using app-centric analytics, can increase uptime, reduce maintenance, improve workforce productivity, reduce errors and rework, and enable low-cost compliance."

Industry not alone

In development of these abilities, of course, the industry that produces oil and gas from shale isn't alone. Other businesses are learning to profit from the burgeoning availability and collection of data from machines, services, and business operations, much of which remains "disparate and disorderly," according to Mills, who also is chief executive officer of Digital Power Group and faculty fellow at Northwestern University's McCormick School of Engineering and Applied Science. "The use of big-data analytics offers nearly all industries the potential for unprecedented insight, efficiency, and economic value."

For shale, the potential for improvement is especially intriguing.

"What distinguishes shale," according to Mills, "is its unique combination of youth, the diversity and scale of data associated with its operations, and the variety of environments in which operations occur."

And unproduced oil expands the potential.

Citing data from Schlumberger and Bernstein Research, Mills notes that each long horizontal well drilled into shale is typically fractured in 24-36 stages and that only one fourth to one third of those stages are productive. With current technology, about 20% of frac stages account for 80% of the output.

"Bringing analytics to bear on the complexities of shale geology, geophysics, stimulation, and operations to optimize the production process would potentially double the number of effective stages, thereby doubling output per well and cutting the cost of oil in half," Mills says.

He calculates that a doubling of well productivity would cut break-even costs of most US shale plays to $5-25/bbl and concludes, "America's shale fields would then be competitive in volume and in price with Saudi Arabia's vaunted ultralow-cost oil fields."

Mills expects adoption of big-data analytics to occur quickly and production from shale to be buoyant in the meantime.

Although the rig count has plummeted, productivity gains evident before last year's oil-price plunge, supplemented by withdrawals from hefty inventories, will sustain output. Returning to more-normal stock levels, Mills reckons, could mean nearly 500,000 b/d of oil from storage.

Supply also will come from wells awaiting completion, likely to total 5,000 by yearend. According to Mills, those wells could "swiftly" add 2-3 million b/d of oil to US supply.

Responding to the price drop, meanwhile, operators will progress from the repetitive, factory-drilling approach many of them employed-often sacrificing innovation and efficiency-while prices were above $100/bbl to a high-grading strategy requiring "analysis not only to modify techniques for each well but also to use the best tools and techniques in only the best parts of the shale."

This step, Mills says, will disprove conventional supply forecasts. Starting from historical averages based on the many low-performing wells drilled during the price boom, he explains, those predictions are too low.

Shale 2.0

While the high-grading strategy, leveraged by new technologies, will affect supply powerfully, however, it remains just a precursor to what Mills calls Shale 2.0, the emergence of which "comes not from individual technologies or digital connectivity but from the use of big data for radically better asset optimization and operations."

Someday, bytes thus might become a central metric in Oil & Gas Journal's Midyear Forecast. This year's report, beginning on p. 26, sticks with barrels, of which the market already has way too many.