By Justin Mikulka, is a freelance writer, audio and video producer living in Trumansburg, NY. Originally published at DeSmogBlog.
In the climactic final scene in There Will Be Blood — arguably the greatest movie about the oil industry — the main character played by Daniel Day Lewis explains how he sucked the oil from a neighbor’s land by using horizontal drilling. To help his neighbor understand what has happened, he explains it by saying he took a very long straw and “Drank your milkshake!”
Well guess what is happening with the fracking revolution that is built on the concept of horizontal drilling? Not only are oil producers drinking each other’s milkshakes, they are drinking their own, and in the process losing even more money and raising the odds of dangerous environmental risks.
And unlike in the movie where the main character knew what he was doing, the modern fracking industry really has no clue what to do about the problems caused by the combination of horizontal drilling and greed.
Frac Hits, aka Child Wells
The first thing to understand is that this is simply a problem of the industry being greedy. The oil producers are drilling too many wells in close proximity to one another, and when they frack the newer wells — known as child wells — those “bash” or “hit” the older wells and cause problems.
In a typical frack site, the production begins with a first test well, which is known as the parent well. The wells drilled in proximity to the parent well are called child wells.
What is happening is that not only are the child wells cannibalizing the production of the existing parent well, but when the child wells are fracked they can create “frac hits” that damage the parent well. These frac hits can reduce the pressure in the parent well leading to lower production, they can damage the parent well to the point of it being a “dead” well and, of course, they can lead to spills and environmental contamination.
Claudio Virues, a senior reservoir engineer with the oil and gas company Nexen, explained the basic problem of frac hits in the Journal of Petroleum Technology.
“You usually have two scenarios,” Virues said. “One may be that you have a temporary loss of production, but you will recover to the trend that you had before. The other will be really bad for your production and reserves.”
Bob Barree, who runs the Petroleum engineering consulting firm Barree Associates, explains the “really bad” scenario.
“You put the well back on production and you’ve lost your pressure, the velocity, the inflow capacity, and the well is just dead,” Barree said.
And that means the fracking industry loses even more money.
In another article in the Journal of Petroleum Technology, titled “Frac Hits Reveal Well Spacing May be Too Tight, Completion Volumes Too Large,” the author references a technical paper by engineers at Shell that estimates that if a “producer has an inventory of 2,000 640-acre drilling sections, and each new well costs $5 million, then adding just a single unneeded well to each section would cost the operator $10 billion.”
The reality is that the potential costs of frac hits and tight well spacing aren’t currently known by the industry, but there is no doubt that frac hits are costing the industry money and contributing to production declines.
Industry Experts Admit They Don’t Know What They Are Doing
The industry has certainly acknowledged frac hits are a major problem — one the industry currently has no idea how to solve.
Energy industry research and consulting group Wood Mackenzie has studied the issue of frac hits and child wells and concluded the following:
“Closely spaced child well performance presents not only a risk to the viability of the ongoing drilling recovery but also to the industry’s long-term prospects.Virtually every operator believes child well performance is a material issue, but there is no consensus on how to best address it.”
A risk to the viability of the industry’s long-term prospects — for an industry that has never made money — isn’t a very positive outlook.
But that is the situation in 2018 for the oil fracking industry. In early 2018, members of the industry gathered in Texas to talk about the issue. As the Midland Reporter and Telegram reported, Dick Leonard, one of the panelists at the conference explained that when it came to mitigating the impacts of frac hits that “…no one has the answers yet.”
Another panelist, Lance Robertson of Endeavor Energy Resources echoed this sentiment saying, “We’re in the early phases and still have a long way to go. We and the industry have a lot to learn.
How long can the fracking industry continue to lose money while trying to learn what they are actually doing?
Frac Hits Increase Environmental Damage
The risks of fracking operations contaminating the air, drinking water and land are well known. Even when wells are operating independently without having been “hit” by another frack job. Now due to the closer well spacing and frac hits, the risk of environmental damage is increasing.
In Oklahoma, horizontal wells are bashing through existing conventional wells and causing spills. Mike Cantrell is a small operator of conventional oil wells in Oklahoma who is speaking out about the large fracking companies that are damaging wells like his. “They know they’re going to ruin your well and they don’t care,” Cantrell told E&E News.
The state of Oklahoma acknowledges that spills have occurred but disputes claims that any groundwater has been contaminated — the standard industry line about fracking.
And yet on the website of Eagleford Training under the topic of “What are frac hits?” the issue of environmental risks is detailed including a section titled “Loss of Well Control.” Potential issues listed when well control is lost include “a blowout of either frac fluids or charged reservoir fluids.”
Additional risks include the release of deadly Hydrogen Sulfide gas and the fact that “Offset well releases will release reservoir fluids, which tend to be extremely flammable,” according to the site.
So, while the industry likes to claim that fracking poses little risk to the environment, the issue of frac hits appears to raise a whole new set of environmental risks.
Frac Hits May Be Deadly Financial Hit to Money-Losing Industry
It is well established that the fracking industry has been a money losing proposition for the past decade. In a recent Oilprice.com article that detailed the industry’s bad luck making financial hedging bets, this is acknowledged with the statement that “Shale drilling has historically been a loss-making proposition.”
Now this historically money-losing industry is facing a major challenge that could prove to be a fatal flaw in the already failing fracking business model.
If producers try to pack in wells too close to each other, the wells will damage one another and production will decline or even stop for some wells. If producers have to resort to much larger distances for well spacing, the lower number of wells will also likely decrease overall production numbers.
How will this turn out? Don’t ask the industry experts because they admit they have no idea — which can’t be comforting for investors who continue to lose money while waiting for the fracking revolution to finally pay off.
25 comments
Comments are closed.
Actually putting aside my eco-nazi hat for a moment, what the (family blog) is going on in our so-called capitalist economy?
>— for an industry that has never made money —
Fracking doesn’t make money. Uber doesn’t make money. Amazon only recently started making money and I expect that to be short-lived. And so on and so on.
It seems like making money is the opposite of what you want to do anymore. It allows people to measure you and nobody wants that, I guess.
A young relative of mine with a successful start-up put it this way: ‘Nobody actually makes money running a business. The rich make money selling a business’.
It used to be called pump and dump, now its just good business practice.
Whom do the rich make money selling a business to? And how did the people or entities who bought the business get the money to buy the business? Where is this money coming from that is allowing people to buy businesses which were never designed to make any money themselves?
They sell to big marks who haven’t gotten the latest memo on what hip, edge-lord businesses are actually crap, and the purchases are financed by the banks that raise the money from smaller marks in cash-for-trash offerings.
It seems that we, as a nation, are not allocating capital very well (see also today’s story on Uber). Perhaps we need to introduce more democracy into the process.
Boy is that an understatement. When the oil and money are gone, and the Commons destroyed (thinking in particular of the water pollution), what
then?
People who were able to transform their cities and towns into Power Down Transition Towns will have a chance of survival. People living in rural subsistence zones will have a chance to survive, especially if they are living in places with zero frackable gas or oil underneath them or upstream or up-plume from them. The Rich and the SuperRich plan to survive in their Jackpot Survival shelters and bunkers.
As to the rest . . . its Jackpot Time!
More democracy? How about we introduce more ‘classic capitalism’ into the process. The one where if you weren’t making money you went out of business and let somebody else have a go using the bits and pieces of that failed business.
My running joke at the money losing business I work at is that the product is not the product. The share price is the product.
Not to worry. It will all be money good when oil spikes to $200 per barrel in 18 months from now.
This is likely to be solved the way most innovation challenges are solved: the original small innovators go out of business (bankruptcy or sale) and the large corporations take it over.
The small companies are reliant on the junk bond market etc. for funding. They need to maximize short-term production to keep the cash flow rolling as they do not have the available capital to look at this in a multi-decade fashion. The next big oil price decline and/or financial crash will likely clean out many of these companies and junk bonds.
The big players (e.g. Shell, cited in the article) are diversified with long-term capital available, so they can figure out how to optimize a field for production over many years or decades. They also have deep pockets and will likely be in business a couple of decades from now (unlike an LLC, Master Partnership, etc.) and so will be concerned about RCRA and CERCLA liability that could boomerang in years to come from spills, groundwater contamination etc. The majors are currently doing remediation on old oil and gas drilling sites around the country under those programs. The small companies went out of business and the states and USEPA are left holding the bag on those abandoned wells, like the abandoned mines including the infamous one that turned a river orange a few years ago.
It will be interesting to see if the states have been forcing the small companies to set aside escrow accounts or other financial assurance for future abandonment of their sites. My suspicion is that these programs will likely be grossly underfunded in the rush to get short-term royalties. One of the reasons that the waste industry has largely disappeared as a major environmental problem is because Subtitle C and D put the small operators out of business 25 years ago and USEPA/states require significant financial assurance for each ton of waste that comes into a landfill. So there are very few new orphan or poorly managed hazardous and solid waste sites being created.
There are two very big issues with this, eluded to, but not mentioned in the article:
1. The ‘parent’ wells are invariably in the centre of the ‘sweet spot’ of the gas or oil generating body. This leads to an inevitable tendency to cluster around a high productivity well – drillers start as close as possible, radiating outwards in order to minimise the risk of drilling a dud. As the geologist Arthur Berman has often pointed out, assuming that the parent well represents an ‘average’ rather than a ‘likely maximum’ has led to constant over-estimates of reserves by economists – but geologists and oil drillers rarely make that mistake (unless they are trying to impress investors).
2. The biggest environmental issue for fracking may not actually occur during production. It is in the long term, from poorly sealed wells leaking gas into the air and other substances into upper geology and aquifers. Sealing wells properly is quite an expensive and technically complex process, so companies will do all they can to avoid it or just pretend by putting a cap in a few metres deep. When frac wells overlap, this greatly increases the potential for long term emissions for decades or even centuries if even one of the well seals fails.
Another factor which must be considered is the leak rate of conventional and fracking well. In this video Anthony Ingraffea shows that over time the leak rate, even for the most modern wells is upward to 30%. The analysys came from data that was teased from statistics from Pennsylvania which in which fracking has a history.
https://www.youtube.com/watch?v=Dxis-vYGM_M
Even better video based on PA. data showing leak rate over time.
https://www.youtube.com/watch?v=Dxis-vYGM_M&list=RDZEM3y79kYJg&index=2
Another important factor is a leak rate of wells over time. It’s about 30% even for the most modern wells for fracking wells that are undisturbed.
https://www.youtube.com/watch?v=ZEM3y79kYJg
The greatest movie about the oil industry, in this viewer’s opinion, is Francesco Rosi’s MATTEI AFFAIR, starring Gian Maria Volonte. Made in 1971, it’s the story of Enrico Mattei, who saved ENI after WW2 and made Italy an industrial powerhouse, for all the good it’s done them.
Good luck trying to see it! The rights are owned by Paramount and the film has entirely disappeared. Like all Rosi’s films its politics are left wing and it contains considerable speculation as to the circumstances of Mattei’s violent death.
It’s a wonderfully made film, probably Rosi’s best. And it’s Volonte’s best performance.
Between this post and the post on the Uber IPO I am starting to wonder whether we misnamed our species.
i’m going to be a bit contrary on this one, because all of the descriptions and well log data i’ve seen on the output from adjacent wells after fracking a new well has shown that output of existing wells gets a boost right after the new well is fracked…this is not to say that there isn’t long term damage to production and more importantly the potential for long term environmental damage when a large field of wells are co-joined in the shale layer, but it does seem like there is usually an initial spurt of production in the older well when it happens…
note that it’s called “the halo effect”
Production curve is a parabolic sawtooth. The first frack greatly increases yield for a period of time (weeks to months), while each subsequent frack increases yields in smaller amounts, all played out along a declining yield curve.
Compare that to opiates- over time it takes progressively more to have almost the same effects as the first hit. Fracking is essentially the same curve. Various treatments in screened water wells also follow that curve.
I work in the oil industry, as a lower-level onsite geologist. >90% of the projects on which I work are horizontal wells with a shale as the zone of interest that is going to be extensively pressure-fractured to enable oil flow. These wells commonly have lateral sections in the ZOI of at least 5000′, with some of them extending horizontally as far as 10,000′ (I’m on one of them now, going from about 12,000′ to somewhere past 21,000′ total well bore length.)
I hold 2 geology degrees, and have been doing this work for about 13 years. So, I know a little bit about it.
1) The production figures from many of these wells are absolutely phenomenal. It’s not unknown for them to pay back their entire drilling cost ten times over. Given that horizontal wells can have multiple hundreds of times as much footage in a productive strata as older-style purely vertical wells, this really shouldn’t be surprising.
2) The oil companies are actually VERY methodical in how they lay out horizontal wells. A common pattern is to put in 3 or at most 4 horizontal wells from the same wellpad, at 120 or 90 degrees to each other, with no other well ever drilled closer than a mile (often much farther) away.
3) I have heard of cases where one frack job has resulted in some proppant (the sand component of water used for pressure fracking) invading another wellbore, but have never seen it happen.
4) I have never seen a horizontal well drilled with the kickoff point (where the vertical part stops, and the curve and then horizontal sections start) shallower than about 7300′, usually at least 9000′ deep. Wells drilled for drinking water are typically only in the hundreds of feet deep at most, with VERY few even 1000′ deep. There are innumerable essentially impermeable strata between those depths; most shale (sedimentary rock formed originally from clay) is naturally impermeable, and about 70% of sedimentary rock (we don’t drill in much else) is shale. Oh, and when you get deep enough, all water is undrinkably saline.
A lot of lies get told about how these modern oil wells work. I’d be happy to try to dispel a few of them, if anyone wants to ask me something I might be able to answer.
Sounds like you are in the Bakken. Marcellus play out east is much different and much shallower (including oil and gas seeps at the surface).
Starting in real time and continuing for over ten years now, Naked Capitalism and its proprietess have IMO been the go-to source for one of the most important stories in US politics and finance: What the bankers did, and how they got away with it. Absolutely necessary work, and first-class.
Outside the domain that is their wheelhouse, in subject matters such as oil and gas production, not so much. There is a puzzling eagerness among the bloggers and commentariat to suspend disbelief and buy into the sort of propaganda that you mention in your last paragraph. Maybe it’s a tribal thing among progressives – they just don’t like oil and gas guys. If so, they have their reasons. I doubt many here are old enough to remember Bob Kerr, but I’m sure there are plenty who well remember Aubrey McClendon financing the GOP Swift-boat operation against John Kerry.
All the same, there’s a thought experiment that people should do before signing up for the various anti-fracking, anti-pipeline jihads. Picture the state of the US middle class in a US economy that is producing 4 million bbl/day of its own crude oil, rather than 10 million plus – which is where we are courtesy of George Mitchell. Not to mention natural gas in the $8 – 10 range, instead of the $2 ballpark your employer is currently realizing on a good day. Is that really what progressives should want?
If the only way to have a sane energy policy is to re-elect Trump, we’re in a helluva fix. But as of today, it looks like that’s where we are.
No, redleg, I’ve been working almost exclusively in West Texas and Oklahoma the past 2 years (one Wyoming well 7 months ago). I haven’t done a Bakken well (that’s mainly in NW North Dakota for those who don’t know) since late 2014.
Luke, what to you think about fracking being undertaken near relatively highly populated areas? And where the well is not extremely deep?
Hi, Larry. Fracking is nearly always done at depths where there are a plethora of sufficiently mechanically-competent, essentially (e.g., over nongeologic-length time) impermeable thick strata (mostly shale) between the fracking and where humans care about anything non-oil-industry that goes on. I have never seen fracking done shallow enough that the wellsite being near any particular location would matter. I have heard of ONE wellbore contamination from fracking, and it was only some sand getting into the wellbore from another well.