How Tight Oil and Technology Are Boosting Your Bottom Line

Justin Christensen |

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Domestic oil production increased from 5 million barrels per day in 2008 to 7.4 million bpd in 2013, largely due to tight oil. It accounted for about 35% of the oil produced, and projections only expect that percentage to rise.

We have horizontal drilling to thank. In combination with hydraulic fracturing, the evolution of this remarkable technology has enabled producers to extract oil 2.5 to 7 times faster than conventional drilling. With very flexible coil tubing and steerable drill bits and sensors, drillers can find more oil that conventional drilling in the same amount of space.

To put it in perspective, if you used this technology to drill through a 100-foot shale formation, you would be able to contact 5,200 feet of rock – compared to the 100 feet you’d reach with conventional vertical drilling.

A Boom in Benefits

Horizontal drilling can cost as much as 10 to 20 times more than vertical drilling, but the benefits seem to justify the price.

In addition to reducing the industry’s carbon footprint – horizontal drilling requires fewer wells to produce the same volume of oil – increased productivity and a steady flow is putting more money into everyone’s pockets.

Producers maximize their returns on each well, mineral rights owners enjoy higher royalties, local and state authorities gain increased tax revenue, and refiners, wholesalers, retailers, and consumers all save money with lower prices.

With price advantaged crude oil going to refineries in the Pacific Northwest, we’re seeing the benefits the last 1 1/2 years as the regional diesel basis has evaporated from an average of .2500 to .3000 cents over the Heating Oil futures this time of year to .0500 cents. Seasonal price moves have decreased from an average of $1 to around 15 or 20 cents, reducing much of the price risk in this market.

A more stable market has also changed end users’ need for price protection and fixed-price strategies. It’s easier to budget for fuel costs when the potential for supply disruption isn’t as much of an issue.

Buried Treasure

From a national perspective, the tight oil boom is helping put the U.S. on its path to oil independence. With a greater domestic supply, the need for imports becomes less.

Just how much of this buried treasure is laying beneath our feet? There are several reports that talk about billions and trillions of barrels of U.S. oil. However, it’s important to note that different sources produce different products, and “resources” are not the same as “reserves.”

Resources are the total amount of oil in place, most of which cannot be recovered. Reserves, on the other hand, are the oil that is recoverable and can be produced using current technology.

Tight oil, which is different from shale oil, is acquired by hydraulic fracturing of shale formations. The Energy Information Administration (EIA) estimates the U.S. has approximately 48 billion barrels of tight oil in reserve. With current consumption rates of 1 billion barrels of oil every 52 days, that supply won’t last long.

However, with total resources estimated to be significantly higher, there is still more testing to be done, and the reserves could grow.

The oil and gas industry is a fast-moving, but your fuel distributor can keep you on top of all the changes – and help you find ways to grow your business using all the money you’re saving in fuel costs.