Trying to stay ahead of the next oil crisis
At the sprawling Permian field in Texas, drilling continues without a break
workers are harder and harder to find, and training newbies adds to expenses. The quality of work can suffer, too, erasing efficiency gains, Pruett said.
Elevation Resources recently had a fracking job that was supposed to take seven days but lasted nine because unschooled roughnecks caused some equipment malfunctions. By this point, “we’ve given up all of our profit margin,” he said. “We’re over-capitalised, we’re over-drilling and, if prices don’t rise, we might be facing a double dip in drilling.”
Pruett’s hands are tied: He’s working on University of Texas land and the lease requires development, so he has to keep boring drill bits into the ground. But other companies are slowing down or putting plans on hold as they assess whether what they’re spending will bear enough fruit.
Nobody wants this play to die out — and certainly not due to stupid boom-happy decisions that will flood the market and spur another crash. “It’s important that we try, during these periods that look pretty volatile to us, to pace,” said Al Walker, CEO of Anadarko Petroleum Corp.
Anadarko is one of several large energy companies — Chevron and Occidental Petroleum among them — that have expanded operations in the Permian. It covers 75,000 square miles in west Texas and southeastern New Mexico. By some estimates, there are 50 billion barrels of recoverable crude trapped in the fine-grained sedimentary rock, more than in all but 10 of the oil-producing countries in the world.
Special case
Other US shale patches have petered out, but this one is special, blessed with unusually thick bands of the mudstones, 10 to 15 times the diameter of those in the Eagle Ford just down the road in southern Texas. Oil- and gas-soaked layers are stacked on top of each other like a tiramisu, bearing names such as Spraberry, Wolfcamp, Bone Spring and Avalon.
Those weren’t worth a whole lot until the 1980s, when the industry began perfecting fracking, a method of coaxing petroleum out of shale. It uses directional bores to carve out horizontal holes and blasts the tunnels with high-pressure bursts of water, chemicals and sand. That creates millions of tiny cracks, vastly expanding the areas for escape.
The process isn’t cheap, which didn’t matter when crude was commanding so much in the early part of this decade. That’s when the Permian and other shale fields helped the US reverse decades of declining output.
The American surge was a reason for the glut in 2014 — the benchmark price went from $140 to $30 in six months — and there were more than a few obituaries written for high-cost shale. But the Permian roared back within two years, thanks to a combination of more intense fracking and the use of technology to mark more precise plotting for drilling targets.
The number of active rigs has more than doubled since May 2016. In August, Permian output exceeded that of eight of the 13 members of Opec. The flow is projected to rise to a record 2.63 million barrels a day in October, which would account for more than a quarter of the total from the US.
To Nate Steadmon, who runs the Midland branch of W-B Supply Co., those are just statistics. He knows from behaviour which way the wind is blowing. When times are good, drillers want equipment as fast as possible. When it’s bad, they want it as cheap as possible.
“In the last couple of months, they’ve started asking how quickly we can do it again,” Steadmon said. “Now time is more of the issue, not money.”
That is one of those danger signs. But companies are constantly coming up with workarounds to rein in costs, like the hub being set up in a New Mexico pasture. A herd of cows feasted on hay on a recent afternoon, staring through a fence as dump trucks, bulldozers and backhoes kicked up a fog of dust. Occidental Petroleum Corp. is building a logistics-and-maintenance centre that will host fracking pumps, steel pipes, sand and other materials by next year.
Right now, all that has to be hauled in from Odessa, some 120 miles away. Oxy, which spends about $6.6 million on a well, hopes to slice off from $500,000 to $750,000 of that total. “This will be a game-changer,” said Jody Elliott, president of the domestic oil and gas division.
Maybe the experts will figure it out, and this one will last. But it’s so reminiscent of the last boom that went bust that it has folks on edge. Curtis Helms, a geologist, was amazed when he drove through the little Texas town of Ora, near the New Mexico border.
“Holy cow,” said Helms, director of the Petroleum Professionals Development Center at Midland College. “There’s man camps, RV parks, food trucks. You have to be careful not to get blown off the road by the tanker trucks whooshing by. It is crazy.”