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Technology Innovations to Unlock Abundant Domestic Fossil Fuel Supplies

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Did you know that in 2023, the U.S. increased its oil production by 266%, defying decades-old predictions of a decline1? Technological innovation made that possible in prior decades with enhanced oil recovery of conventional oil, expansion into deepwater and unlocking of trapped shale oil. Concerns about peak domestic oil are now beginning to resurface in the United States again after over 15 years of extraction in the major shale basins. What if the next breakthrough in shale oil extraction is lurking around the corner ready to transform the industry again such as the shale oil revolution transformed the industry?

In the oil industry it is critical to be constantly innovating to keep up with the challenge of replacing a depleting resource. This current geopolitical environment has the United States oil industry facing challenges finding new supplies in the Gulf of Mexico where federal acreage lease offerings in bidding rounds are offered once every 2 years. This is a reduction from the standard offshore leasing program prior to 2021, where the frequency of leasing rounds was offered on a bi-annual basis. Opportunities to expand in Alaska have been drastically reduced with the current administration cancelling leases in the Artic National Wild Refuge (ANWR) and blocking millions of new acres across the state.

The United States oil industry finds itself in a position where it must innovate again with shale oil or face the decline and become more reliant on foreign sources of oil. In contrast to federal acreage in the Gulf of Mexico and Alaska, shale oil is primarily developed on private acreage in areas where the oil is already discovered and there are fewer restrictions on development. Opinions on shale oil growth potential and peak output will vary throughout the industry. McKinsey & Company consulting firm notes predicts in the 2024 Outlook on Oil that “shale production could plateau in the mid-2020s” whereas ConocoPhillips CEO Ryan Lantz predicts that in a few years US output will peak and plateau between 14-15 million barrels per day, up from the current US output of 13 million barrels per day2. In a World with demand increasing at an annual rate between 1 – 2.5 million barrels per day, tightness in global oil markets can have a crushing effect on global economies from higher energy costs.   

Fortunately, the oil and gas industry have a history of innovating to adapt to different well and reservoir conditions, both in conventional oil fields and unconventional shale plays. Below are some examples of the past innovative methods developed to extend the life of conventional fields and more recently to make shale oil development commercial when previously believed to be unextractable.

  • Extending the life of conventional oil fields – In conventional oil fields, the application of water, thermal, surfactant, gas, or CO2 injections plays a pivotal role in extending their operational lifespan. These techniques, known collectively as waterflooding and enhanced oil recovery (EOR), are designed to maintain reservoir pressure and facilitate the displacement of oil that would otherwise remain trapped. Historically, these methods have boosted the oil recovery factor by 50-600% in such fields.3

Figure 1 – Cross-section illustrating of conventional oil reservoir gas or carbon dioxide and water can be used to flush residual oil from a subsurface rock formation between wells4.

  • Development of Tight Sands & Shale Oil & Gas – As conventional onshore oil and gas discoveries dwindled in the United States, the industry pivoted towards the development of shale oil and gas through innovative techniques. The adoption of horizontal drilling and multi-stage hydraulic fracturing became crucial in accessing tight reservoir rock sections. These methods, particularly hydraulic fracturing, which involves the injection of water and sand to keep the fractures open, revolutionized oil and gas extraction. Tight sands and shales, lacking the natural pore connectivity of conventional reservoirs, necessitate such interventions to facilitate flow. Over the last twenty years, the focus has been on refining hydraulic fracturing techniques, optimizing the balance of water and sand to enhance both well and reservoir performance, marking a significant shift in extraction strategies to harness these challenging resources effectively.

Figure 2 – Cross-section illustrating conventional vertical oil and gas wells vs hydraulically fractured tight oil & shale oil and gas horizontal well5

Current Challenges Facing the US Oil Industry

In the United States, the current daily oil production from shale oilfields across states like Texas, Oklahoma, New Mexico, Colorado, Wyoming, and North Dakota amounts to 9.7 million barrels. This production figure underscores the significant role shale plays in the country’s energy landscape. However, the extraction process, even with decades of refining hydraulic fracturing techniques, achieves only about a 6% recovery rate of the available oil. This low efficiency leaves nearly 94% of the oil unrecovered, trapped within the shale formations6. To address this challenge and enhance the amount of oil that can be extracted, the industry is exploring and implementing various innovative technologies. These technologies, which are in their early to middle stages of adoption, aim to improve the recovery factor by tapping into the vast reserves still locked within the shale matrix. 6 The following are some of the technologies in shale oil to boost recovery factor which in the early to mid-stages of implementation.

  • Refracs in Shale – In the field of shale oil and gas recovery, refracturing—or refracs—entails the hydraulic re-stimulation of partially depleted wells to enhance hydrocarbon extraction. This method promises substantial recovery improvements, with average increases between 47% and 78%. Despite its potential, refracs have sometimes led to reduced recovery, instilling a cautious approach within the industry. Many operators view new wells as safer investments, given their lower perceived risks and higher returns.

Contrary to this cautious stance, leading companies like ConocoPhillips and Devon Energy report a 95% success rate with refracs. A 2023 study by Triple R Energy Partners analyzed 24,453 active wells in the Eagle Ford Shale, identifying 14,912 as refrac candidates. Surprisingly, only 198 of these were refractured. This underutilization, predominantly by a handful of operators—who conducted 180 out of the 198 refracs—highlights a significant barrier: operator hesitancy. Overcoming this reluctance could significantly increase the industry’s ability to tap into remaining oil reserves via refracs, suggesting a need for a shift in perspective to recognize the value and feasibility of this approach in optimizing shale recovery.

Figure 3 – 2023 Eagle Ford Shale Refrac Study – Tripe R Energy Partners7

Casto Petroleum Engineering analyzed the reserves and economics of 114 Eagle Ford Shale wells that were re-fractured using cemented liner (typically 4” diameter steel pipe) provided by Nine Energy Services.  Each well had produced through their original completion for an average of eight years, until casing liners were run and cemented in place sealing off the original perforations (holes punched in the casing or liner of an oil well to connect it to the reservoir).  Each well was then refractured after new perforations were placed though the liner. For a horizontal well with a standard lateral length of 5000 feet, these re-fracs added an incremental estimated ultimate recovery (EUR) of 150,000 barrels to the original estimate of 250,000 barrels. Below in table 4 are the average IRRs at various oil prices and payouts assuming an average cost of $2.5 million dollars cost per refrac.

Table 1 – IRR and Payout of $2.5 million refracs8

  • Shale Enhanced Oil Recovery (EOR) –Shale EOR techniques, which have been successfully used in conventional reservoirs, are still in the early stages of being adapted for shale formations. Shale EOR faces additional geological challenges compared to conventional reservoirs due to factors like lower permeability and limited reservoir connectivity.  So far there have only been a few hundred wells with EOR implemented in the Eagle Ford where it was first tried in shale oil. Thirteen shale oil EOR tests have been conducted, or were planned in 2022, in other shale basins, such as the Permian, the Williston basin and the SCOOP, with limited success9. Gas Injection can improve oil recovery factors from 6 to 8.5% (42%) more than primary depletion but has had problems charging the fractures rather than entering the rock matrix to extract oil. The availability of an existing high pressured gas source from a compressor and pipeline can make this an attractive option which accounts for the majority of the project costs.
  • Super & Ultra Enhanced Oil Recovery (EOR) – Super & Ultra EOR is a new practice invented and patented by Shale Ingenuity, LLC of injecting a liquid solvent of a specified composition into the shale oil reservoir at a high rate and for an injection period of a few days, followed by flowback to a specific minimum wellbore pressure. After the solvent is recovered in the surface equipment it is recycled and reinjected into the reservoir. This solvent reduces the thickness of the crude oil in the reservoir thereby increasing the ability of the crude oil to flow to the producing well. The super EOR is the compositional reservoir simulation process used to model the process. Modeling from the computer simulator has been validated by field trials in early time well performance (1-2 years). Ultra EOR also adds a step at the start of the EOR process that generates a complex fracture network around the wellbore lateral, thereby increasing the contact of the solvent with the shale rock matrix. It can be seen in figures 4 & 5 below that the complex fracture network accesses greater volume of the reservoir than a simple planar fracture.  

Figure 4 Complex Fracture10          Figure 5 Simple Planar Fracture10

Laboratory tests on rock core samples showed Ultra EOR achieving a 90% recovery rate. Yet, in field conditions, preliminary trials aligned with the 18-30% forecasted by simulations. Despite this, field trials still unveiled additional benefits, indicating a promising but complex transition from lab to field.

  • Reported reduced breakeven price from ~$35 to $20 per barrel when implementing Super & Ultra EOR6.
  • Reduced scope 1 & scope 2 CO2 emissions in field operations by 75%. This reduction in emissions in scope 1 and scope 2 emissions is achieved by consuming substantially lower energy per barrel of oil recovered by injecting solvent than drilling wells and using the high horsepower frack pumps required in the initial fracture stimulation.

It’s important to note that solvent solutions often need to be customized for specific oilfields rather than being one-size-fits-all products. Fluid and rock compatibility often do not react well without lab testing and simulating specific oil & solvent on a specific reservoir rock. Below is a summary of the potential reserves increase per state assuming the 6% recovery factor is used for the primary recovery factor8.

StateEIA Reserve Estimates11(Billion bbls)Gas Injection(Billion bbls)Refracs(Billion bbls)Low Case Super/Ultra EOR(Billion bblsHigh Case Super/Ultra EOR(Billion bbls)
Assumed Recovery6%8.5%9%18%30%
Texas18.526.227.755.592.5
New Mexico5.07.17.51525
North Dakota4.25.96.312.621
Oklahoma2.13.03.26.310.5
Colorado1.92.72.95.79.5
Total31.744.947.695.1158.5

Table 2: Major Shale Oil States Reserve Estimates from EIA & Potential Reserves with Improved Technologies

Table 2 demonstrates that domestic oil companies investing heavily in enhanced oil recovery could have a monumental impact on the United States prosperity even in the event the high case of Super & Ultra EOR is not realized across each basin. The values of the ranging incremental 13.2 billion to 126.8 billion barrels of oil recovered seen in table 2 range from $1.1 trillion – $10.1 trillion dollars assuming $80 per barrel of oil. These volumes will supply the entire United States oil demand for ~2-20 years at the consumption rate of 7.2 billion barrels per year11.

The Casto Petroleum Engineering report underscores a critical observation: the sluggish adoption of shale Enhanced Oil Recovery (EOR) techniques and refracturing (refracs) in shale oilfields has signaled a potential need for investor intervention. Particularly, private equity firms and activist investors might have to ignite the initiative, pressing oil companies to push production limits beyond the modest yields typically expected from shale’s primary depletion phase. Devon Energy and ConocoPhillips have demonstrated a 95% success rate with refracs, challenging the prevalent hesitancy towards such methods.

Shale Ingenuity, LLC, a newcomer established in 2021, has ventured into pioneering Super & Ultra EOR techniques, albeit without the extensive field data characterizing refracs and gas injection. Nonetheless, these innovations have been tested across major shale basins, showing promising initial results. Notably, in Texas, a significant incentive exists for adopting such EOR strategies—a 50% severance tax reduction for the first twelve years of implementation, enhancing their appeal.

Convincing firms to venture beyond primary depletion is a formidable task, particularly for those with substantial future well inventories and ascending production trajectories. However, entities nearing the end of their inventory may view refracs and EOR as viable strategies to avert overall production decline. The dialogue between investors and oil companies should leverage early success stories, like the SuperEOR trial that amplified a low-producing Eagle Ford well from 13 barrels of oil per day (BOPD) to 391 BOPD, illustrating the substantial potential rewards. Such discussions are crucial for highlighting the significant opportunities that refracs and EOR strategies offer, urging a strategic shift towards their adoption in the shale oil sector. 9

Oil companies need to be prudent by reviewing their producing & undrilled well inventory screening for refracs and EOR methods. The screening process also involves reviewing nearby infrastructure available for various EOR methods such as gas pipelines for injection, solvent injection and availability frack pump availability for refracs. The future profitability of the United States oil companies, economic impact on human prosperity and impact on national security that additional domestic oil recoveries that can potentially recovered in table 2 are too large to squander. The economic impact on jobs, GDP of the domestic oil and gas industry is summarized in sections 4.7 & 4.8 of the FPC Energy Policy whitepaper12.

  • Invest in companies committed to extending production beyond primary depletion.Firms like ConocoPhillips (COP) and Devon (DVN), with their proven success rates of over 95% in refracturing (refracs), alongside EOG’s effective implementation of Enhanced Oil Recovery (EOR) in the Eagle Ford, demonstrate a robust capability to extend shale oil production beyond primary depletion. These companies have set a benchmark in the industry, showcasing the potential benefits of prolonging the operational life of oil wells through strategic interventions. Their success not only highlights their proficiency in enhancing well productivity but also positions them favorably in a market characterized by tightening oil supply and a consistent global demand growth of 1-2.5 million barrels per day, amidst a slowdown in U.S. production growth.

Significantly, these energy giants hold extensive acreage in the prolific Permian Basin, amplifying their strategic advantage. The role of leading oilfield service providers such as Schlumberger (SLB), Halliburton (HAL), Baker Hughes (BHR), Weatherford International (WFRD), and Nine Energy Services (NINE) is increasingly critical, offering specialized refracturing services essential for sustaining production levels. As drilling locations become scarcer, the expertise of these service companies in extending the lifespan of oilfields becomes indispensable for the continued success of the shale revolution. 

Note:To ensure that investment decisions are judiciously aligned with individual financial objectives and risk preferences, engaging with a professional investment advisor is strongly recommended. This guidance is crucial as the foregoing discussion provides an industry overview rather than specific investment advice. The nuances of personal financial situations and the dynamic nature of market conditions necessitate tailored advice from certified experts to navigate investment choices effectively.

“Ah Ha” Moment 

The skepticism and slow commercial adoption of innovative technologies in the oil and gas industry, particularly with the current advancements in shale oil well enhancements through refracturing (refracs) and Enhanced Oil Recovery (EOR) methods, echo past hesitations. Initially, shale gas was overlooked by major players and considered financially imprudent by engineers. Yet, after more than two decades of exploration and development, it emerged commercially viable in 2003 with the Barnett Shale in Texas, setting a precedent for the shale oil sector. This breakthrough led to replicating the technology across shale oil basins, catapulting the United States to the forefront of global oil and gas production. The exploration of refracs and various EOR techniques heralds a potential second shale revolution. By extending the lifespan of America’s prolific shale basins, this advancement not only promises to sustain the nation’s leading production status but also significantly contributes to the energy landscape’s evolution.

Conclusion

The US oil industry, constrained by government restrictions on exploration and facing escalating global demand, must pivot to optimize shale oil recovery. Traditional reliance on standard practices restricts potential growth. Embracing refracturing (refracs), Enhanced Oil Recovery (EOR), and innovative Super & Ultra EOR techniques can transcend these limitations. Implementing these advanced methods as standard practices offers a strategic pathway to extend oil production. This approach not only aligns with the necessity to meet rising oil demands but also positions the United States to capitalize on its shale resources efficiently, ensuring sustained energy leadership and economic benefits.

The strategic deployment of refined oil recovery techniques, notably refracturing and Enhanced Oil Recovery, promises to fortify the United States’ geopolitical stance by:

  1. Augmenting national security through a strategic diminution in reliance upon oil imports from regions marked by geopolitical volatility.
  2. Ensuring the perpetuation of energy abundance, thereby undergirding a flourishing domestic economy characterized by sustained prosperity.
  3. Catalyzing the proliferation of employment opportunities in the energy sector, characterized by remunerative compensation, alongside fostering a fertile ground for investment ventures.
  4. Amplifying tax revenues accruing to both local and national governmental bodies, thus bolstering community and national infrastructural and social initiatives.
  5. Enhancing the fiscal returns for entities engaged in oil exploration and extraction, thereby benefiting the broader investor ecosystem.
  6. Mitigating the environmental footprint by achieving a reduction in scope 1 and scope 2 emissions per unit of oil recovery, aligning with broader sustainability objectives.
  7. Technological Leadership and Export Potential: By pioneering and refining advanced recovery techniques, the United States can establish itself as a global leader in energy technology. This leadership can translate into significant export opportunities for American technology and expertise, fostering international collaboration and economic growth.
  8. Resilience to Market Volatility: Enhanced recovery methods can contribute to a more stable domestic oil supply, reducing susceptibility to global oil price fluctuations. This stability can help insulate the domestic economy from external shocks, ensuring more predictable energy costs for businesses and consumers.
  9. Promotion of Research and Development: The push towards more efficient recovery methods naturally stimulates research and development within the sector. This can lead to breakthroughs not only in extraction technologies but also in environmental mitigation techniques, potentially setting new industry standards.
  10. Enhancement of Energy Efficiency: Advanced recovery methods can lead to more efficient extraction processes, reducing the energy input required per unit of oil or gas produced. This efficiency can contribute to a lower overall carbon footprint for the industry.
  11. Catalyst for Renewable Energy Integration: By increasing the efficiency and reducing the environmental impact of fossil fuel production, the industry can buy time for a more seamless and practical transition to renewable energy sources, facilitating a balanced energy mix.
  12. Strengthening of Supply Chain Resilience: By increasing domestic production capabilities, the United States can enhance the resilience of its energy supply chain, reducing the impact of international supply disruptions and contributing to a more robust national security posture.

This nuanced approach to energy strategy not only cements the United States’ autonomy and resilience in the global energy landscape but also heralds a new epoch of economic vitality, environmental responsibility, and societal welfare.

The Financial Policy Council (FPC) is a beacon of transformation in the energy sector, driving the nation towards a future of energy independence, economic prosperity, and environmental stewardship. Through its unwavering commitment to technological innovation and policy reform, the FPC is reshaping the landscape of the oil and gas industry, positioning it as a catalyst for positive change.

At the heart of the FPC’s mission lies a deep understanding of the pivotal role that the energy sector plays in the nation’s economic stability and growth. By championing cutting-edge technologies and advocating for policies that foster innovation, the FPC is unlocking the untapped potential of the oil and gas industry. This not only strengthens America’s energy security but also creates a ripple effect of economic opportunities across the nation.

The FPC’s impact extends far beyond the confines of the energy sector. By promoting sustainable practices and encouraging the adoption of environmentally friendly technologies, the FPC is contributing to the global fight against the climate change agenda of the current administration. This commitment to sustainability is not just a moral imperative; it’s a strategic move that positions the oil and gas industry as a leader in push back against the green revolution.

Through its extensive network of policy experts, industry leaders, and technology innovators, the FPC fosters a collaborative ecosystem that drives progress. By facilitating dialogues and partnerships between stakeholders, the FPC is breaking down silos and creating synergies that accelerate the pace of change. This collaborative approach ensures that the benefits of technological advancements are felt across the entire value chain, from upstream exploration to downstream consumption.

The FPC’s thought leadership is evident in its rich repository of blogs, podcasts, and resources available at www.financialpolicycouncil.org. This platform serves as a hub of knowledge and inspiration, empowering individuals, and organizations to join the movement towards a more sustainable and prosperous future. By engaging with the FPC’s content and participating in its events, stakeholders can stay at the forefront of industry trends, policy developments, and technological breakthroughs.

As the nation navigates the challenges of the 21st century, the FPC stands as a guiding light, illuminating the path towards energy independence and economic resilience. Through its tireless efforts to champion innovation, shape policy, and drive collaboration, the FPC is not just transforming the oil and gas industry; it’s redefining what’s possible for America’s energy future.

In a world where change is the only constant, the FPC’s role has never been more crucial. By embracing the power of technology and harnessing the potential of policy, the FPC is creating a future where energy is abundant, affordable, and sustainable. This is not just a vision; it’s a reality that the FPC is bringing to life, one innovation at a time.

As we move forward, the FPC invites all stakeholders to join its mission. Whether you’re an industry leader, a policy expert, or a concerned citizen, your voice matters. Together, we can shape a future where the oil and gas industry is not just a driver of economic growth but also a champion of environmental stewardship. With the FPC leading the charge, there’s no limit to what we can achieve.

Sign up now and join the conversation at https://financialpolicycouncil.org/.

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REFERENCES

  1. US Energy Information Administration. February 29, 2024 https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfpus2&f=a
  2. Messler, David. March 21, 2024 “Is U.S. Shale Production Finally Nearing Its Peak?” Oilprice.com https://oilprice.com/Energy/Crude-Oil/Is-US-Shale-Production-Finally-Nearing-Its-Peak.html
  3. Temizi, Cenk. May, 2017. “Data-Driven Optimization of Injection/Production in Waterflood Operations
    1. https://www.researchgate.net/figure/The-cross-section-is-illustrating-how-carbon-dioxide-and-water-can-be-used-to-flush_fig1_316800103
  4. House Appropriations Committee https://houseappropriations.com/Topic/EnvironmentAndEnergy/689
  5. Department of Energy “Enhanced Oil Recovery” https://www.energy.gov/fecm/enhanced-oil-recovery
  6. Spiess, Jason. November 4, 2023 “Enhanced Oil Recovery Seeing Positive Results in Texas” The Crude Life https://www.thecrudelife.com/2023/11/04/enhanced-oil-recovery-seeing-positive-results-in-texas/
  7. Barba, Bob. September 27th, 2023.  The Economics of Refracturing
  8. https://www.spegcs.org/events/6736/
  9. Casto, Wes. September 25th, 2023. Eagle Ford Cemented Liner Refracs. https://nineenergyservice.com/assets/files/CPE-EAGLEFORD-REFRAC-9-25-23.pdf
  10. Downey, Robert. Eardle, Jim. Venepalli. November 2023. EOR/IOR technology: Advanced Shale oil EORs methods for the DJ Basin.  https://www.worldoil.com/magazine/2023/may-2023/features/eor-ior-technology-advanced-shale-oil-eor-methods-for-the-dj-basin/
  11. Deliang Zhang, Yu Dai, Xinhua Ma, Liehui Zhang, Bing Zhong, Jianfa Wu and Zhengwu Tao. February, 2018.  An Analysis for the Influences of Fracture Network System on Multi-Stage Fractured Horizontal Well Productivity in Shale Gas Reservoirs https://www.researchgate.net/figure/Hydraulic-multiple-fractured-horizontal-well-with-the-stimulated-reservoir-volume-SRV_fig7_323136589
  12. U.S. Crude Oil and Natural Gas Proved Reserves, Year-end 2021, EIA, December 2023, https://www.eia.gov/naturalgas/crudeoilreserves/
  13. Casto, Wes. September 25th, 2023. Eagle Ford Cemented Liner Refracs. /https://nineenergyservice.com/assets/files/CPE-EAGLEFORD-REFRAC-9-25-23.pdf

Energy Policy Recommendation Projections and Opportunities. Kaelin, Tim. Reese, Will. McMillian, George. Holt, Blaine. November, 2023 https://financialpolicycouncil.org/wp-content/uploads/2023/11/Financial_Policy-Council-Energy_Policy_Recommendations_Projections_Opportunities.pdf

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