By John Kemp
LONDON, April 11 Exponential growth in shale oil
production must slow because output from fractured wells
declines much more rapidly than conventional ones, and because
the most productive areas have been drilled first, according to
Shale production has been likened to Lewis Carroll's Red
Queen Race, in which more and more new wells will need to be
drilled just to offset rapidly declining output from existing
holes, according to one analyst at The Oil Drum ("Is shale oil
production from Bakken headed for a run with the Red Queen?" Sep
"It takes all the running you can do to keep in the same
place," the Red Queen warned Alice in "Through the Looking
But this problem is not new and not unique to shale wells.
High initial output followed by a rapid decline and a long taper
with many years of low production are a common feature of all
oil and gas wells, whether they are drilled vertically or
horizontally, conventional or fracked.
Rapid decline rates and the exhaustion of the most
productive sweet spots will not constrain shale output any more
than they have limited production from conventional oil fields.
Shale sceptics have focused on decline rates, when they
should be focusing on the amount of oil and gas ultimately
recovered from each well.
Even so, beating the Red Queen is likely to require both
continuous efficiency improvements and a substantial increase in
the size of the total drilling and fracturing fleet, as well as
associated equipment and crews.
Geologist Carl Beal identified the problem in a celebrated
monograph for the U.S. Bureau of Mines published in 1919: "The
limit of production in this country is being approached ... and
although new fields undoubtedly await discovery, the yearly
output must inevitably decline, because the maintenance of a
given output each year necessitates the drilling of an
increasing number of wells." ("The Decline and Ultimate
Production of Oil Wells")
"Such an increase becomes impossible after a certain point
is reached, not only because of a lack of (new) acreage to be
drilled, but because of the great number of wells that will
ultimately have to be drilled," Beal warned.
"Daily production per well each year has increased during
the last few years ... However this increase is abnormal ... the
average production per well will finally begin to decrease on
account of the lack of new pools to make up for the normal
decline in production of the old ones."
Beal was writing when the United States had already produced
around 4 billion barrels, and it was estimated the country would
ultimately produce 11 billion, so there were thought to be only
a little more than 7 billion barrels left.
"The country is facing a serious shortage of petroleum,"
which constituted "an emergency," Beal wrote. The Bureau
expected domestic oil production to run out within a decade.
Of course, the United States did not run out of oil. The
country has since produced another 201 billion barrels.
Production rose from 1 million barrels per day in 1919 to a peak
at 9.6 million barrels per day in 1970. Output is still running
at 6.5 million barrels per day and rising again, thanks to
By the end of 2010, the United States still had 7 billion
barrels of proved but not yet producing reserves, oil that has
already been found and can be produced by current technology at
current prices, according to the U.S. Energy Information
Proved reserves have doubled since 1996. The volume of
probable and possible reserves, let alone resources that might
become available in future as a result of changes in technology,
is even larger by several orders of magnitude.
Beal warned his readers "estimates for large areas if made
during early drilling have proved considerably above what the
district finally produced." In fact, the opposite has proved
true. Most oil fields in the United States have been far more
productive than originally predicted as extraction methods have
Shale sceptics point to the rapid declines in output from
fracked oil and gas wells after the initial surge, faster than
for conventional wells.
The average oil well drilled in the Bakken yields around
85,000 barrels during the first 12 months of production and then
experiences a year-over-year decline of about 40 percent,
according to an analysis of well data in the Oil Drum article.
Other analysts have pointed to the unusually high initial
productivity followed by rapid declines at both fracked oil and
gas wells in other shale formations (for example the gas-bearing
Barnett shale in Texas).
High initial output followed by rapid decline is one reason
that many analysts and forecasters have been surprised by how
quickly shale output has risen.
But it also explains why they predict output must soon taper
and why shale production is unusually sensitive to changes in
oil and gas prices, since anything that causes the rate of new
drilling to slow must soon translate into a drop in output as
old wells decline.
While all of this is true, it is important not to overstate
differences between shale wells and conventional ones.
In the same monograph, Beal presented the first systematic
study of the rate of decline rates from conventional oil wells
in Oklahoma, Kansas, Texas, Louisiana, Illinois and California
in the second decade of the 20th century.
Output at Oklahoma's prodigious Cushing field declined to
just 25-40 percent of the first year's production by the second
year. Drops at some fields, such as Bartlesville, were 30
percent after the first year.
But at other fields, the decline was far worse. Decline
curves for the Nowata field look like a jump off a cliff:
average production per well fell from 110 barrels per day in the
first year to 10 in the second.
Beal explained the clear connection between the initial
output and decline rates. Wells that have the greatest initial
output because of the easy flow of oil and the tremendous
pressure the formations are under show the steepest declines in
the second and subsequent years. Wells with a lower initial
output decline more gradually.
Overall, however, wells with a large initial output will
produce more oil (or gas) over their lifetimes, even though they
decline more rapidly.
Oil and gas producers prefer wells with a large initial
production and then a sharp decline rate, because the ultimate
amount of oil and gas recovered is likely to be larger, and
because a higher proportion will be recovered in the early
years, when the revenue is more valuable under a discounted cash
Shale sceptics have confused decline rates with ultimate
production. Shale wells are so attractive precisely because they
yield very large amounts of initial production that can be sold
immediately and because the total amount of petroleum recovered
tends to be high.
Initial production from wells drilled into the sweet spot of
shale fields is far higher than in other areas. In North Dakota,
the most productive parts of the Bakken have all been found in a
fairly small area covering just four counties (Mountrail, Dunn,
McKenzie and Williams) in the northeast corner of the state.
This has led some analysts to predict production will
plateau or even fall once drillers are forced to move into less
bountiful parts of the play. But again there is nothing new
about big variations in the output of individual wells or areas
across an oil field.
"The Bartlesville sand on the crest of one of the domes in
the northern part of the field furnished many wells of an
initial daily production between 5,000 and 10,000 barrels, but
in the southern part of the field few of the wells drilled into
this sand produced more than 3,000 barrels in the first 24
hours," Beal wrote, adding that some produced as little as 500
barrels the first day.
TECHNOLOGY AND INNOVATION
The Energy Information Administration presented a careful
analysis of the shale phenomenon recently, warning, "diminishing
returns to scale and the depletion of high productivity sweet
spots are expected to eventually slow the rate of growth in
tight oil production".
It added, "It is difficult to predict when that inflection
point will be reached, because it can be pushed farther into the
future by increases in the number of drilling rigs and further
Sustainable production will be determined by the size of the
drilling fleet (and associated crews) as well as the efficiency
with which it is used.
EIA highlighted changes made to increase efficiency and
fleet utilisation. Multiple wells are being drilled from a
single location ("pad"), and the horizontal sections
("laterals") of each well are being made longer. Production
companies are trading leases to amass larger contiguous
sections, so they spend less time moving rigs ("Key drivers for
EIA's short-term U.S. crude oil production outlook" Feb 14,
"Efficiency gains that have been achieved over the last few
years not only improve the well profitability of the tight
formation sweet spots but also turn portions of the formation
that were not previously profitable to produce into profitable
acreage. So the net effect of all these efficiency gains is to
increase the size of the economically recoverable tight resource
base," EIA explained.
The rate of efficiency improvements will nevertheless slow,
according to the EIA, and as the sweet spots are depleted
drilling will have to focus on less productive areas. "A slower
future rate of technological improvements, combined with
drilling activity that moves into less productive areas, will
require the dedication of more drilling rigs either to increase
or maintain tight oil production."
Hire rates for rigs and pressure pumping equipment have
softened recently in North America as the region copes with a
temporary oversupply of gas. But as gas drilling picks up and
the shale revolution goes international, demand for rigs,
completion equipment and other oil field services is set to
The rig and other equipment fleet will have to grow. In a
recent vote of confidence the sector will continue to grow,
General Electric announced this week it would acquire
pump maker Lufkin Industries as it seeks to bulk up its
It is almost a century since Beal predicted U.S. oil
production would soon peak and then run out. Experience since
then strongly suggests the industry will continue to win the Red
Queen's Race, provided only that prices remain just high enough
to keep capital moving into the sector.