U.S. Shale-Oil Boom May Not Last as Fracking Wells Lack Staying Power

In November 2012, SandRidge Energy (SD) cut its reserve predictions to the equivalent of 422,000 barrels per well from 456,000 barrels. Five months later, the estimate was cut again, to 369,000 barrels, company records show. SandRidge has since made a small adjustment upward to 380,000 barrels. The early forecasts were based on a small number of high-performing wells, which led the company to overestimate performance for its other acreage, says Duane Grubert, SandRidge’s executive vice president for investor relations and strategy.

The company now has more than 1,100 wells and has improved its drilling. It is confident that current estimates are reliable. “Nobody knew that until we actually ground-truthed the field by drilling it,” Grubert says. “What we came up with was, hmm, that initial estimate was a little high.”

SM Energy (SM) of Denver suffered a similar setback this year when its wells in the Eagle Ford shale in Texas fell short of forecasts. The company on Feb. 18 cut its prediction in one area to the equivalent of 475,000 barrels per well from 602,000. Estimating future production from early data is a challenge, says Brent Collins, a company spokesman. “This is especially true when you are trying to estimate an average from a limited number of wells.” Both SandRidge and SM Energy use variations of the Arps method, company records show.

Tapping shale formations differs from the drilling in Arps’s day, says Dean Rietz, an executive vice president in charge of reservoir simulation at Ryder Scott. In 1945, oil production meant drilling straight down to hit pockets of oil and gas that had become trapped after migrating upward from deep layers of rock. Today’s drilling targets those deep layers, boring through thousands of feet of the earth’s crust, then turning sideways to chew for a mile or more through layers harder and less porous than a granite countertop. The rock is shattered by a jet of water, sand, and chemicals to create a network of small cracks to allow the oil and gas to escape. These fractured wells seem to follow a different decline trajectory than the wells Arps studied, says Lee.

Culled from Bloomberg.com