American Oil and Gas Reporter - August 2022 - 64

SpecialReport: Hydraulic Fracturing Tech
With hydraulic fracturing equipment
shortfalls becoming increasingly pervasive
in the U.S. market, the activity ceiling
that emerged last year as industry activity
began recovering remains firmly in place.
Reviewing available fracturing fleet horsepower,
there are roughly 325 usable
spreads in the United States-with the last
15 of those spreads being far below optimal,
but possibly available for shallow
or less intense work. With full acknowledgement
that we are preaching to the
choir, supply chains, logistics challenges
and rising costs have hindered the solely
needed build-out and repair of both new
and used frac fleet equipment.
There were 295 spreads operating in
U.S. basins as July came to a close, with
projections of 300 active completion
crews the first week of August. There
will be some upside flexiblity, but it will
not remain for long because the swing
capacity will be in smaller basins. Many
of the large drivers such as the Permian
Basin and Eagle Ford are reaching maximum
utilization. Meanwhile, the loss of
the Freeport liquefied natural gas export
terminal caps total natural gas basin
activity in the near term.
The price of hydrocarbons, current
spreads and available storage capacity
support our view that U.S. oil production
will exit 2022 at a rate of 12.2 million
barrels a day, with additional upside to
natural gas and natural gas liquids production.
Pricing in the market will stay
accretive because of a limited supply response
and the " miles per ton " of cargoes
increasing as Russia sends more product
to Asia (most notably India and China).
Because Russian flows remain limited,
Europe is pulling harder on the LNG
market, shifting demand structures as
Central Asia and emerging markets in
general struggle to source natural gas.
This moves them down the cost curve
from LNG to diesel, and some even
further down to high-sulfur fuel oil. The
middle distillate market remains highly
competitive as global storage levels are
either at or near all-time lows.
The shortages are keeping the natural
64 THE AMERICAN OIL & GAS REPORTER
gas liquids market well bid-especially for
liquid petroleum gas, which is maintaining
U.S. exports at a record-breaking pace.
Domestic producers are in a unique position
to fill the growing demand for LPG and
LNG as countries address pollution concerns
and adopt long-term solutions. These
are not " bridge fuels " as many suggest,
but rather long-term solutions to a viable
basket approach of " green technology "
regarding electric generation, industrial
power and consumer consumption.
Answering The Call
We like to joke that the United States
is great at two things: arbitrage and inventing
things. When you look at the energy
market, arbitrage opportunities
abound, but we need to revisit some old
technology and find ways to improve it.
Refracs are poised to answer the call
with opportunities emerging in basins
across the country, most notably in Eagle
Ford and Permian tight oil plays and
Haynesville shale gas.
Oil and gas companies may define
the term a little differently according to
play type and objective, but for purposes
of this article, a refrac essentially refers
to moving a completion spread onto a location
to re-stimulate a previously completed
well by fracturing it again with a
mixture of proppant, fluid and chemicals.
Because the well already was producing,
the operator has ready access to existing
infrastructure, which helps limit costs
and maximize returns.
Before highlighting some new techniques
in greater detail, the footnotes of
well refracs include a sustainable step
up in estimated ultimate recovery and a
spike in production with total flows moving
up and to the right. The tighter cluster
spacing of a refrac treatment increases
the total return factor. Simply put, a
refrac boosts total reserves recovery while
giving the operator the ability to capture
today's higher commodity prices without
having to direct large amounts of capital
to new drilling.
Although a certain amount of drilling
and primary completion activity are vital
to maintaining oil and gas output in U.S.
resource plays, refracturing is an effective
option for capitalizing on high wellhead
prices by leveraging existing portfolios
of producing assets and infrastructure to
maximize value creation. Thousands upon
thousands of wells have been drilled and
completed in shale basins during the past
decade, and a large percentage of them
were stimulated with early-generation
frac designs that now are recognized as
far from ideal. Completion designs and
techniques have evolved quickly, creating
opportunities to implement state-of-theart
designs in older horizontal wells to
restore daily flow rates, reset the decline
curve and increase total EUR.
Moreover, although companies still
must secure frac sand, fluid, chemicals
and downhole tools, they are subject to
less supply chain pressure with a refrac
than a primary well completion, since
new casing (vertical section), tubing,
pumps and surface facilities are unnecessary.
Refracs are also a more sustainable
process for ESG goals and prudent capital
allocation.
Numerous headlines predict global
consumption will soar past 100 million
barrels a day, but that key number calls
for an important distinction. Natural gas
liquid components account for almost
40% of the total demand, and we believe
that will be the biggest growth driver
during the next decade. For example,
even during COVID lockdowns, India
only saw one month of depressed LPG
demand. Petrochemical facilities are being
built around the world to meet growing
demand for plastics, of which electric
vehicles and green technology need significant
amounts. U.S. shale produces a
much lighter cut of crude and heavy
natural gas that can be split into its
different components.
Depending on location, refracs typically
yield a higher cut of liquids and natural
gas, which once was a detriment. But
now, as NGLs, naphtha (condensate) and
natural gas see more global adoption,
their share of the demand pie is only
going to keep growing.
American Oil and Gas Reporter - August 2022

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