The last barrel

In 1982, I started working for a small independent that was making a living, drilling oil wells in the “mature” Seminole field of eastern Oklahoma. The company also operated several gas wells in the same general area that produced high-Btu wet gas that was selling for around $0.25/Mcf, when the low-pressure gathering system would take production. In western/southeastern Oklahoma, home of the mighty Morrow and Spiro gas wells, producers where selling their product for around $3.00 Mcf. But any sign of a warm winter would send HH benchmark prices crashing downward, along with the rig count. It seemed to me that the U.S. had more natural gas than we could use or export at that time, so why were authorities still building coal-fired electric generation facilities?

Casinghead gas creates new glut. Thanks to the shale boom, the U.S. is once again inundated with an ample supply of natural gas. In the Permian, operators are flaring enough gas to meet the residential demand across the whole of Texas. And similar to past oil booms, operators are electing to flare this “by-product” to avoid slowing oil production. “It’s a black eye for the Permian,” said Pioneer Natural Resources CEO Scott Sheffield. “The state, the pipeline companies and the producers— we all need to come together to figure out a way to stop the flaring.” The amount of gas flared in the Permian rose about 85% in 2018, reaching 553 MMcfd in the fourth quarter. “There will always be a mismatch between the amount of gas produced and pipeline capacity, so some flaring is inevitable,” said Ryan Sitton, one of the three Texas Railroad Commissioners. However, in August, a split vote by Texas regulators over flaring indicates a change in policy may be coming soon. Texas RRC Chairman Wayne Christian, said there’s too much gas being burned off out of convenience, rather than necessity.

Gas turns to trash. According to Moody’s, local gas prices that are hovering near zero will remain under stress until more pipelines come online. The surplus supply is so extreme, that natural gas prices at the Permian’s Waha hub reached a record low of minus $9.00/MMBtu in April, meaning producers had to pay pipelines to take their gas. About 4 Bcfgd of pipeline capacity is expected to come online next year, which will help alleviate some of the region’s oversupply problems.

Innovation to the rescue. Rather than flaring excess gas production, EOG Resources is experimenting with injecting highly-pressurized gas into marginal oil producers in the Eagle Ford. The wells are then shut-in to allow pressure to build and drive residual oil to the surface. Although this EOR method has been used in conventional wells with natural gas and CO₂ for years, it’s just now emerging in U.S. shale fields. The trapped gas is put to work, and there’s a 30% to 70% gain in oil output from older wells, according to EOG. “If widely adopted, and the formations behave as we expect, the method could utilize 25% of the associated gas produced,” said Professor Ramanan Krishnamoorti, head of the Energy Initiative at the University of Houston. “Although EOG was the primary company driving the process, we have seen four other producers do it, too, with remarkable results.” Injection can extend crude production in older wells by 18 to 24 months. “It also appears to be an attractive option in many parts of the Permian,” Krishnamoorti concluded.

Oxy’s Permian experiment. On the New Mexico side of the Permian, Occidental is injecting CO₂ and water in an EOR experiment, in a shale field near Hobbs. Although CO₂ EOR has been applied successfully in conventional fields, the company is trying to make it work commercially in shale reservoirs. However, to get the process to work, engineers need to determine the optimal temperature and pressure required to encourage CO₂ to mix with oil. An additional challenge is getting the gas/water mixture to move through the tight formation. While Oxy is testing the conventional method of different wells for injection/recovery, it’s also piloting a technique that uses one well for both injection and production.

Oxy told investors that it hopes to declare the Permian CO₂ EOR viable sometime this year and give its first commercial project the go-ahead in 2020. But CEO Vicki Hollub is confident it already works. “The pilot wells deliver more than what our model indicated they would, so it’s a success.” The process should improve recovery of oil-in-place “from 10% to 11% to 17% to 18%,” Hollub continued.” To do that will be amazing.”

Evolution of fracing. A remarkable feat of engineering has enabled OFS companies to use unwanted lease gas to generate electricity to power frac pumps in U.S. shale plays. The move cuts about $1 million a month in fuel costs for a typical frac setup, according to Wells Fargo, and it lessens the amount of gas flared at the wellsite. Still, there are hurdles to widespread adoption. OFS companies have a glut of fracing gear and are reluctant to shoulder the upfront cost of deploying e-fracing units, which cost about $55 million, compared with $35 million for diesel fleets.

Gas has benefits too! With all the negative press aimed at our industry, let’s review a “few” positives that natural gas development has delivered to the U.S. economy. With the exploitation of the Marcellus, Pennsylvania’s natural gas output was 10 times greater in 2018 than in 2010 and accounted for 20% of all U.S. production in 2018 (API). Pennsylvania’s shale revolution has spurred:

• 322,600 jobs supported by the natural gas and oil industry.
• Reduction in CO₂ emissions.
• Savings in consumer energy costs.
• Nearly $1.5 billion in tax revenues.

Bernie Sanders says our industry is “a criminal enterprise.” Joe Biden is vowing to take action against it. I challenge these, and the other Democratic candidates that are putting fossil fuels squarely in the crosshairs, to name another U.S. industry that can claim such benefits. The silence is deafening. WO

About the Authors

Craig Fleming

World Oil

Craig Fleming Craig.Fleming@WorldOil.com