Shale drillers squeeze costs as era of exploration ends

Rising Earnings

Chesapeake, which reported on May 1 a first-quarter profit of 30 cents a share excluding one-time items, is expected to see adjusted income of 43 cents a share in the comparable period next year and 49 cents a share in the fourth quarter of 2014. At Range, analysts estimate per-share adjusted earnings may almost double to 63 cents in the fourth quarter of next year, compared with 33 cents in the first three months of 2013.

Newfield’s average 12-month target price from analysts’ estimates compiled by Bloomberg is $33.75, 48% more than the closing price yesterday. Denbury’s target price is $23.71, a 30% increase from yesterday’s closing price.

Energy producers and the oilfield-services companies they hire to help drill wells have continued to refine their techniques and equipment to increase the amount of oil and gas that can be squeezed from shale and other unconventional formations. Drilling sideways through the length of a field puts the well in contact with a larger section of oil-soaked rocks than a traditional vertical well.

Longer, Cheaper

Newfield is now drilling lateral wells as much as two miles long, 10 times the length of the horizontal bores used at the dawn of the shale revolution during the last decade, Clay Gaspar, a vice president at The Woodlands, Texas-based company, said in a telephone interview. In the last 18 months, the company cut the cost of drilling sideways by more than half to about $1,000 a foot, he said.

In Oklahoma’s Cana Woodford region, new techniques and improved materials are giving Newfield’s crews better access to the well bore, allowing them to isolate smaller zones to target fracturing more precisely. Newfield crews are shattering the rock two or three times more frequently in wells with twice the lateral length of the 5,000-foot wells they were drilling just 18 months ago, Gaspar said. That equates to clusters of fractures approximately every 300 feet compared to more than 400 feet before.

“The world we live in today is all about manufacturing and it’s trying to get to the point where that experiment that we do becomes repeatable,” Gaspar said. “We’re using a lot of the same efficiency techniques that other manufacturing organizations have used over the years.”

Saving Time

Chesapeake has reduced the time it takes to drill wells in the Eagle Ford shale to 18 days from 25 days a year ago, according to a presentation published on the company’s website on May 13. Chesapeake is aiming to eventually lower that to 13 days. The Eagle Ford will account for 35% of Chesapeake’s capital spending this year, more than any other single region, the presentation showed.

In Ohio’s Utica Shale, Chesapeake has lowered its cost to drill wells to $5.9 million each from $8.5 million, a 30% decline, according to the presentation. The company has 14 rigs drilling in the Utica region.

Noble Energy Inc. is drilling wells in Colorado’s Denver-Julesburg Basin with 9,000-foot horizontal bores that the company’s engineers estimate will ultimately produce the equivalent of 1 million barrels each, Chief Operating Officer David Stover said during an April 25 conference call with analysts. That’s compared to the 40,000 barrels per well that the company was targeting three years ago with traditional vertical wells.

Prime Targets

Producers are searching for ways to boost efficiency and curb costs before drill bits even begin chewing into rocks to start a new well, said Gregory Powers, vice president of technology at Halliburton Co., the world’s largest provider of hydraulic fracturing.

Three-dimensional modeling of subterranean formations help oil producers predict the nature, location and permeability of crude-rich reservoirs, Powers said during a meeting with reporters at Halliburton’s Technology Center in Houston on May 9. Prospectors also are taking advantage of better technology in steering drill bits to precise locations deep underground.

“How much better is it?” Powers said. “It’s immensely better than just 10 years ago.”

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