Fracking Industry Analysis

Only commercialized in the United States about five or six years ago, a new process of extracting natural gas has emerged called fracking. The natural gas that is extracted from the shale can be into the thousands of feet below the earth’s surface. This new process gives us the opportunity to extract gas that we thought was unreachable through relatively new technological advancements in the field.
The concept of horizontal drilling was part of how the United States got to the concept of fracking today. In 1993, the idea of horizontal drilling was fairly new; even the Energy Information Association (EIA) struggled to be able to put together a “widely accepted definition” of what horizontal drilling was. The EIA went on to publish a combination

of a few definitions of the process; they published in their publication, “Drilling Sideways—A review of Horizontal Well Technology and It’s Domestic Application”. They defined horizontal drilling as starting off with a drilled vertical bore that goes from the earth’s surface to “a subsurface location just abut the target oil or gas reservoir called the ‘kickoff point’”. From there, they would drill down at a lesser degree creating more of an arch until getting to the “entry point”. After the “entry point” the well would be drilled in a “near-horizontal” direction “tangent to the arch” then all the way through until they reached the “desired bottom”. This basic description of horizontal drilling from the 1993 EIA publication on horizontal drilling was the start and the platform that led to some of the technology and techniques used with fracking today. This technique was used as far back as the early nineties but like so many technologies it has been improved dramatically. The industry leader in both number of land rigs currently in use as well as the technologies used is Helmerich and Payne.
Twenty-two years after the EIA wrote that publication on horizontal drilling, companies like Helmerich & Payne have been able to take advantage of the available technology to make state of the art oil rigs.

These rigs have the capability of drilling down into the earth’s surface thousands of feet to then be able to drill horizontally. After they have drilled these horizontal pathways to the shale, then they are able to start fracking. Helmerich & Payne describes their new drill’s capabilities on the companies website by saying, “the AC drive and top drive operating system enables the drill string to be electronically controlled from a computer touch-screen in the driller’s cabin, resulting in drilling efficiencies for customers, particularly when drilling complex unconventional horizontal wells.” The technology in these rigs could be huge in the near future for the United States as we continue to lessen our reliance on the OPEC countries and especially Saudi Arabia for oil.
This top drive flexrig is a state of the art drilling rig that lets the operator not only drill horizontally thousands of feet below the surface, but you can drill many legs to the well that offer much greater production all coming through one wellhead. It's important to understand that the improved technologies will be a significant game changer in the long run because they will be able to drive down the cost of each barrel that is

recovered.

The Energy Information Administration reports that the US has produced a little over 200 billion barrels of oil since 1853 and that the US has proven conventional reserves of approximately 30 more billion barrels; however, that is only conventional oil production. According to Matt Badiali, editor of the S&A Resource Report and trained geologist, conventional oil wells are really an anomaly. Most of the oil in the world doesn't pool in to a reservoir that can be tapped by a conventional vertical drill. It has migrated there from shale rock but most of the oil stays in the shale.
If you assume that 80 to 90 percent of the oil stays trapped in the shale then you could conceivably have between 4 to 10 times more oil remaining in the ground than the 200 billion that has been produced since 1853; that would be over a trillion barrels of oil. No one can know for sure what that percentage is, but it is safe to say that far more oil is still trapped in the shale than has been produced to date.
Drillers are finding that they can improve the yields that they get from fracking by using more sand or proppants, which is a type of man-made material or treated sand.

Once metric was that the use of only 10 percent more sand per foot of drilling produced 60 percent more oil. In addition to using more sand and pressure there are other techniques that are being used to improve output. Two horizontal wells in close proximity have been show to yield twice the production because the lateral lines are only a few feet from one another so they work to help each other loosen the oil from the shale. Shale drillers in the Permian Basin and at the Eagle Ford Formation both in Texas as also using what they call stacked laterals where wells are drilled side by side and then move laterally underground creating multiple tiers; this is also done at the Bakken formation in North Dakota. Also according to geologist Mr. Badiali, some of these techniques have increased production as follows, 280% in the Niobrara Field in Colorado, 168% in the Marcellus Field in Pennsylvania, 140% Eagle Ford in Texas, 137% in the Bakken in North Dakota. This encouraging statistics are all from Mr. Badiali’s hardcopy newsletter "The Next Phase of The US Shale Boom" from the S&A

report.
Now taking a look at what some of the ramifications are of producing more and cheaper energy in the United States. According to data from the National Association of Manufactures, “one in six jobs is a manufacturing job” in the United States. It also says that in the United States, “$35.94 of GDP is produced every hour of work”. That output of GDP produced per hour ranks the United States as having “the highest productivity rate in the world”. Your first thought was how can the US maintain such high productivity? The first and really only place you need to look is at the cost of natural gas worldwide. The United States can produce lowest worldwide cost of natural gas at about $4.50 per thousand cubic foot; with that said, Japan, China, Germany and many countries the world over pay three to four times that for natural gas. Natural gas is very expensive to transport internationally because it has to be reduced to liquid and that means bringing its' temperature down to minus 230 degrees. The cost advantage a US manufacturer has over one overseas since they would have to pay three to four times for natural gas is huge. That cost differential is causing a renaissance in the manufacturing base of the US. All the jobs that were lost in the last thirty years to over seas manufacturers are starting to come back to the US.