The size of the North American oil and gas prize—and what it means

Allen Gilmer, Mark Nibbelink, Drillinginfo January 27, 2017

In the span of 50 years we’ve had at least two paradigm shifting events in oil and gas geology. First--recognition of and understanding of plate tectonics as the dominant tectonic force that shapes our world, and second, understanding that we can exploit reserves from shale source beds and other various rocks that were thought to be too impermeable to produce either gas or oil.

We have become so successful in finding and adding oil and gas to our production mix through unconventional methodologies that, instead of freezing in the dark as Hubbert’s peak oil model suggested would happen, we have cratered the price of both oil and gas to 20 year lows…and, depending upon how you look at it, threatened our existence as an industry in the process and have completely upended the historical power balance between the U.S. and foreign government owned NGO’s.

As the old saying goes…. “Be careful what you wish for.” And the ancient Chinese double-edged wish-...“may you live in interesting times…” has been fulfilled in spades.

Yet, here we are, with a somewhat stable $55 WTI price, and Permian mania gobbling up M&A frenzy dollars from both seasoned operators and newly minted PE firms.

The Eagle Ford play contains between 3 Bbbl and 22 Bbbl of remaining recoverable oil--depending upon your information source (USGS, UT BEG, Texas A&M , Drilling Info). The USGS announced that the Permian holds an additional 20 Bbbl of recoverable reserves, with Apache estimating that their Alpine High play area alone contains about 3.5 Bbbl of recoverable oil (Drilling Info’s own work suggests recoverable oil at between half a trillion and two trillion barrels in the Permian). Privately held Caelus Energy’s Alaskan Smith Bay tests could add a billion plus barrels of recoverable reserves to our domestic energy picture. The Utah hinge line play that Wolverine started in 2004 has only 23 wells yet has produced over 23 MMbbl of oil—a sparsely drilled play of enormous potential.

We, as an industry, show a somewhat eerie ability to continue to find and produce what no one thought that we would find. The U.S. oil patch has managed, over the last 50 years, to produce and replace its forward reserves every 9-15 years. Generations of prospect generators have innumerable ideas about the next great play tucked in their brains—the down-dip offset well with good show sand that was never tested on the other side of a fault block, the unrecognized angular unconformity that seismic showed but which was never tested because the data was shot when oil prices were way down, the un-reviewed old logs on a salt dome that could contain new, untested pay—the list goes on and on.

We are a perplexing mix of great optimism and of great conservatism—we continuously and massively understate the proved reserves of new discoveries, yet we can envision enormous potential for sometimes barely defined exploration fairways that often contain nothing at all.

When we get our teeth into a play, we continually assess and experiment to drive well-over-well improvements to both AFE cost reductions and higher recoverable EURs.

We’ve seen year over year improvements in actual production and EUR numbers from every unconventional play. We’ve seen operators continue to learn from their failures and successes to wring more and more improvements from their operations to expand their margins.

One of the great hidden assets that has been created from  all of this unconventional activity is a massive collection of new data on the character and new potential of shallower, “traditional” reservoirs—Wilcox, Yegua, Canyon, Olmos, Minnelusa, Hunton, Trenton, Medina, Rose Run…the list is huge.

The number of wells drilled in the U.S. is just over 4 million. The number of these that have been drilled below 15,000’ is about 12,000—or less than 1%. What does this imply for the untapped potential of even mature basins?

So what’s the size of the prize? If you factor in grit, persistence, the availability of willing capital, and the proven ability of the industry to innovate and adapt the answer is: more than we can imagine. We cannot produce all our recoverable hydrocarbons during what remains of the hydrocarbon age.

What does this mean for those of us who call this industry ours? Continued viability for one of the most dynamic industry’s on the face of the earth? Potential job security for recent graduates stepping into the shoes of the generation leaving the business due to the Great Crew Change?

Of course, it’s all of that—and more.

MOST importantly, it’s a guarantee that this great nation—which has been protected by two great oceans, the rule of law, and which has prospered due to an abundance of resources—can continue to be a global player in the battle for what’s good and right in a tumultuous and fragmented world.

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