By now, investors are likely to be acutely aware of the hype surrounding the US “shale boom” with all of the attendant promises of a soon-to-be era of American energy independence.
Indeed, so well-known is this narrative these days that its flipside is also starting to leak into the larger discourse. After a fairly constant deluge of breathlessness devoted to the technological breakthroughs in seismic imaging, directional drilling, and hydraulic fracturing that have contributed to the unlocking of shale reserves across the country; an objective look at the obstacles the E&P scene is currently facing is definitely long overdue.
In any event, it’s the least we can do if we aren’t going to consider the potential social and political consequences of being the world’s number-one energy producer (a distinction, after all, that puts us squarely in the company of other much-vaunted democracies like the Russian Federation, or those freedom-loving OPEC nations, like the Kingdom of the Saudi royal family).
The reality is, however, that shale reserves diminish at a much greater rate than traditional oil and gas finds. While production at the average traditional well declines by about 50 percent after two years, production at horizontally drilled wells tends to decline by far more than that, around 60 to 70 percent, and in half the time. Add to this the fact that most unconventional production in the US is still devoted to natural gas, which sells at a massive discount to crude oil, and you’ve got an industry that could find itself too expensive for its own existence.
Thankfully, the oil and gas industry’s built-in obsession with efficiency and cost cutting is perhaps the best example of a market-driven mechanism for dealing with such pressures. In terms of the exploration and production space, this has taken many forms. Directional/horizontal drilling gets better and better, with innovations allowing for more and better data to be collected through the drill-line itself. Fracturing is also becoming more efficient, with companies like, but by no means limited to, Emerge Energy Services (EMES) figuring out how to do more with less frac-sand and waste-water.
As for seismic imaging, there have also been breakthroughs, and one in particular that has not garnered nearly enough attention given its potential to drastically cut down on exploration costs.
The transition from 2D to 3D imaging technology in recent years has been an expensive one, and whether this is done on land or at sea, requires a great deal of heavy equipment and manpower. A Canadian company by the name of NXT Energy Solutions, however, has been working on a solution that is has been touting for a couple years now called Stress Field Detection (SFD).
The company claims that its airborne imaging technology can cover several times as much territory and without the environmental footprint of the more traditional seismic testing methods. According to NXT’s website, SFD “represents a new generation of airborne geophysical surveys that can identify areas of reservoir potential within the sedimentary column,” whereas 2D information is not very helpful in providing information about a given reservoir and is inherently limited in the mapping data it provides.
It is important to note that SFD technology cannot of itself replace the 2D imagine processes currently in use, as the data culled from overflights is not capable of providing crucial information such as telling the difference between water and hydrocarbons, nor can it give exact depth information for reservoirs. What it can do is help explorers more judiciously decide where to set up 2D seismic imaging equipment, and that alone could greatly reduce exploration costs as well as enhance success rates.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer