Report warns higher tight oil recovery rates needed

6th February 2015

Barney Scott

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With oil prices dipping to $50 per barrel, and new capital spending on upstream oil and gas expected to fall by nearly a third to $436m in 2015, the future health of tight oil producers depends on their ability to improve recovery, says a report recently published by analyst Lux Research. Tight oil is trapped deep underground, in low-permeability shale and sandstone rock layers.

The extraction process of drilling and injecting fluid into the ground at a high pressure, namely hydraulic fracturing, or fracking, has caused controversy in recent years due to its extensive water use, as well as the inclusion of carcinogens and other harmful chemicals in fracking fluid. Leftover fracking fluid and methane can seep into and contaminate nearby groundwater, resulting in potential health hazards for those who live nearby.

In order to increase the efficiency of this method, Lux Research suggests that more effort needs to be put into improving the amount of oil that can be recovered from each fracture. An alternative solution would be reconsidering the use of finite resources in an era in which many would argue that we should only be moving towards sustainable, benign energy solutions.

Optimising recovery requires careful planning, beginning with completions - choosing and inserting optimal equipment, designed to maximise production, into a fully evaluated oil well. Strategies include placing monitoring solutions downhole, monitoring fractures from the surface, and additives for improving the fracs themselves.

Lux Research analysts evaluated the short-term impact of falling oil prices and emerging technologies that have the potential to raise recovery rates. Due to falling oil prices, Lux projects global capital spending to drop from $600bn in 2014 to $436bn in 2015. However, total production from key players like the U.S. and Canada will continue to increase as projects planned in past years come online.

A thorough understanding of the reservoir is key to improving recovery, and Lux suggests three companies to watch closely. Microseismic provides critical information about the completion process, such as stimulated reservoir volume and a fracture’s azimuth. Ziebel and BaseTrace allow operators to determine the productivity of different sections of the well.

Many technologies to improve recovery rates are in their early stages. But companies acting soon will enjoy first-mover advantage in an environment when simply drilling a new well has become unviable, says Lux. Developers to watch include NaturaFrac, UT-Austin, Terves, and Texas Tech.

“Tight oil production in the United States has tripled since 2011 to 4.07m barrels per day but recovery rates range between 1% and 9%, compared with up to 70% for conventional oil,” said Daniel Choi, Analyst, Lux Research, and the lead author of the report titled, ‘Pushing Today’s Boundaries of Tight Oil Recovery.’