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Horizontal Drilling: It’s Not Just About Natural Gas – Analysis

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(EIA) — Much attention has been focused on how the combination of horizontal drilling and hydraulic fracturing in the Nation’s shale formations has generated significant increases in natural gas production over the past several years. Operators are applying the same technologies to tap these formations’ crude oil and natural gas liquids resources.

Two of the more prominent formations from which oil production has registered major gains are the Bakken, straddling Montana and North Dakota, and the Eagle Ford, located in southern Texas. This article discusses recent activity in these two plays, and provides animations that demonstrate how expanding horizontal drilling programs in each have spurred considerable increases in oil production.

The Bakken Shale

Horizontal drilling in the Bakken formation began increasing in the late 1980s, resulting in a moderate but temporary rise in oil production. Since the early 2000s (and especially from 2004), significant increases in horizontal drilling and the addition of hydraulic fracturing have resulted in steady and substantial production increases. Oil production from the Bakken (according to data from HPDI, LLC), which averaged just over two thousand barrels per day (bbl/d) in 2000, surpassed 260 thousand bbl/d in 2010; horizontal wells accounted for nearly 90 percent of total volumes. Natural gas production has increased in step with oil, but volumes are comparatively modest on a barrel-of-oil-equivalent (boe) basis.

Montana’s Elm Coulee Field and North Dakota’s Parshall Field have made the Bakken formation one of the Nation’s more prominent oil resources. Based on 2009 proved reserves (the most recent year for which proved reserves data are available), Elm Coulee and Parshall were among the largest U.S. oil fields, ranking 27th and 36th, respectively, and each was among the top 25 with respect to estimated 2009 oil production. As the animation shows, the more productive Bakken oil wells were initially concentrated in Elm Coulee (see early increase in Montana wells on the graph), and then Parshall (later increase in North Dakota wells) as drilling activity intensified to the east. The greater productivity of horizontal wells, which in part justifies their typically higher cost, is reflected in the increasing size of the circular producing well markers.

As we noted in an earlier This Week in Petroleum, North Dakota has become the Nation’s fourth largest oil-producing State, trailing only Texas, Alaska, and California. Much of North Dakota’s production increases are associated with horizontal drilling in its portion of the Bakken. Further increases in the State’s oil production are expected as operators intensify development activity at the Bakken and underlying Sanish/Three Forks formation. Production has risen steadily in 2011; according to North Dakota’s Department of Mineral Resources Oil and Gas Division, the State’s oil production averaged 378 thousand bbl/d from January through August, and 445 thousand bbl/d in August alone.

Source: U.S. Energy Information Administration, based on data from HPDI, LLC. Note: Dot color is determined by the well's gas-oil production ratio, or the volume of natural gas produced relative to oil. The higher the ratio (from green to red), the more gas is being produced. Dot size represents the well's production volume: either gas measured in barrels of oil equivalent (BOE) or oil measured in barrels
Source: U.S. Energy Information Administration, based on data from HPDI, LLC. Note: Dot color is determined by the well's gas-oil production ratio, or the volume of natural gas produced relative to oil. The higher the ratio (from green to red), the more gas is being produced. Dot size represents the well's production volume: either gas measured in barrels of oil equivalent (BOE) or oil measured in barrels

The Eagle Ford Shale

As operators find it increasingly challenging to profitably produce shale gas due to low gas prices, there has been a shift in drilling focus to more liquids-rich areas within shale plays that have until recently been producing primarily natural gas. Because crude oil and natural gas liquids sell at a premium to natural gas, there is an economic incentive for operators to focus exploration and development activities on areas that have natural gas with high liquids content. This “liquids boost” is especially important in the development of shale gas plays in a low gas price environment due to the relatively high cost of drilling and completing horizontal wells.

The Eagle Ford shale formation serves as an example of the trend toward liquids. Extending about 400 miles across the southern portion of Texas from the Mexican border toward East Texas, the Eagle Ford has been producing relatively modest volumes of natural gas and liquids from conventional wells for many years. It has been only recently, however, that production of each has increased significantly, due to accelerated horizontal drilling programs combined with hydraulic fracturing.

As can be observed in the animation, the Eagle Ford shale comprises three “windows” (roughly parallel acreage swaths), production from which is increasingly liquids-rich moving generally from south to north (as the formation’s subsurface depth decreases). Operators have for the most part eschewed the dry gas window, instead focusing on the play’s wet gas/condensate and crude oil windows in order to take advantage of considerably higher prices (especially for crude) relative to natural gas. The circular yellow and green producing well markers signify the more “oily” wells, with the red markers representing gas wells. Production gains at Eagle Ford have been both rapid and dramatic. In 2007, total liquids production (crude oil and condensate) was less than 21 thousand barrels, none of which was from horizontal wells. In 2010, production averaged nearly 29 thousand barrels per day, and was approaching 60 thousand bbl/d by year’s end, according to data from HPDI, LLC; virtually all was from horizontal wells. Production continues to rise in 2011; according to the Railroad Commission of Texas, Eagle Ford crude oil and condensate production averaged 81 thousand bbl/d from January through August.

Natural gas production still exceeds liquids on a boe basis, but its share of total boe production is waning as operators sharpen their focus on liquids. Natural gas accounted for about 80 percent of total Eagle Ford production in mid-2009, reflecting the earlier contribution of horizontal gas wells. By the end of 2010, however, that share had dropped to about 60 percent. The relative speed with which Eagle Ford production has ramped up reflects, in part, experience gained from earlier horizontal drilling programs at other shale plays.

Source: U.S. Energy Information Administration, based on data from HPDI, LLC. Note: Dot color is determined by the well's gas-oil production ratio, or the volume of natural gas produced relative to oil. The higher the ratio (from green to red), the more gas is being produced. Dot size represents the well's production volume: either gas measured in barrels of oil equivalent per day (BOEPD) or oil measured in barrels. The lower right inset graph represents combined oil and natural gas production on a BOEPD basis.
Source: U.S. Energy Information Administration, based on data from HPDI, LLC. Note: Dot color is determined by the well's gas-oil production ratio, or the volume of natural gas produced relative to oil. The higher the ratio (from green to red), the more gas is being produced. Dot size represents the well's production volume: either gas measured in barrels of oil equivalent per day (BOEPD) or oil measured in barrels. The lower right inset graph represents combined oil and natural gas production on a BOEPD basis.

Higher quality versions of these animations may be found on EIA’s Maps: Exploration, Resources, Reserves, and Production webpage (Shale Play Development History Animations section).

Gasoline prices up a penny while diesel prices surge

The U.S. average retail price of regular gasoline added one cent per gallon to reach $3.44 per gallon. The average price is $0.54 per gallon higher than last year at this time. The Midwest saw the biggest increase this week, as prices in the region gained almost four cents per gallon. Average prices on both the East Coast and Gulf Coast gained about one cent per gallon last week, and the Gulf Coast average price remained the lowest in the country at $3.23 per gallon. The West Coast average price fell more than one cent per gallon but remained the highest regional price in the country at $3.76 per gallon. The Rocky Mountain average price dropped more than two cents per gallon on the week.

The national average diesel price gained a dime this week to hit $3.99 per gallon. This diesel price is $0.80 per gallon higher than last year at this time. Diesel prices were up across all the regions, with the biggest price increase occurring in the Midwest, where diesel prices added more than twelve cents to last week’s average. The Rocky Mountain average price followed closely behind, with an increase of almost 12 cents per gallon. Prices were almost nine cents per gallon higher on the East Coast and Gulf Coast, while prices on the West Coast posted an increase of six cents per gallon.

U.S. residential heating oil prices increase for fourth consecutive week

Residential heating oil prices increased during the period ending November 14, 2011. The average residential heating oil price rose $0.07 per gallon last week to reach $3.94 per gallon, an increase of $0.82 per gallon from the same time last year. The wholesale heating oil price increased by nearly $0.09 per gallon last week to $3.29 per gallon; $0.84 per gallon more than last year at this time.

The average residential propane price increased by less than 1 cent per gallon to almost $2.83 per gallon, which is $0.30 per gallon higher than last year. Prices increased in all regions and sub regions except the Lower Atlantic, where the average price fell by less than a penny per gallon. The wholesale propane price increased by $0.02 per gallon to $1.50 per gallon. This was an increase of $0.18 per gallon when compared with the November 15, 2010 price of $1.32 per gallon.

Propane stocks draw down for second week in a row
Total U.S. inventories of propane showed their largest decline of this heating season so far, dropping 0.6 million barrels to end at 59.6 million barrels in total. Most of the draw was experienced in the Midwest region, where stocks fell by 0.3 million barrels. The East Coast and Gulf Coast regions each drew about 0.1 million barrels of propane stocks, and the Rocky Mountain/West Coast regional inventories were also down slightly. Propylene non-fuel use inventories represented 6.5 percent of total propane inventories.

EIA

EIA

The U.S. Energy Information Administration (EIA) collects, analyzes, and disseminates independent and impartial energy information to promote sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment.

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