Market impacts and global implications of U.S. shale development and hydraulic fracturing: an economic, engineering, and environmental perspective

Abstract

The United States oil industry is experiencing a revolution because of significant oil production from tight oil plays since the mid-2000s. Advancements in horizontal well drilling and hydraulic fracturing are powering this new chapter in oil development. Increased oil production has brought billions of dollars of new revenue to oil companies involved in tight oil exploration and production, new jobs in the oil industry, and more tax revenue to oil regions around the U.S. However, tight oil resources do not only exist in the U.S. An understanding of the U.S. tight oil development experience could bring value to stakeholders within and outside the United States, and provide lessons and templates applicable in other tight oil regions. This research examines the U.S. tight oil experience and draws lessons for aspiring tight oil regions on the engineering, economic, and environmental fronts. On the economic front, I have examined an autoregressive distributed lag (ARDL) model on key oil industry macroeconomic data (West Texas Intermediate oil price, tight oil production, and rig count) from 2007 through 2016, and the impact of oil price on tight oil development for the Bakken, Eagle Ford, Niobrara, and Permian tight oil plays. The results show that oil companies in different plays react differently to oil price signals and do so in relation to oil field development characteristics. In addition, oil production and drilling intensity in the Eagle Ford play is found to be most responsive to oil price increases than the Permian, Bakken, or Niobrara oil plays. The Permian play was most resilient during the 2014 through 2016 oil price plunge. Oil production does not fall in response to a decrease in oil price, equally as it rises in response to oil price increase. Tight oil operators are quicker in bringing drilling rigs to service as prices rise than they take them away in response to falling oil prices, but do reduce drilling significantly in response to an oil price plunge. These results have significant ramifications for operators and assets in the respective oil plays or future plays with similar development characteristics. On the engineering front, I used petroleum engineering oil production forecasting Decline Curve Analysis techniques, the Drillinginfo Software, and historical development data of U.S. plays, to conduct oil production forecast for seven U.S. tight oil plays. Forecast results are shown to be comparable to forecasts by the Energy Information Administration (EIA). Building on previous EIA geologic studies on non-U.S. tight oil plays, and by selecting best analogues from within U.S. tight oil plays, I have completed an economic assessment and uncertainty analysis for 10 non-U.S. tight plays using a simple fiscal tax regime. The results indicate that the Eagle Ford play in Mexico, the Vaca Muerta play in Argentina, and the Qingshankou play in China rank highest among the plays studied. Of oil price, royalty rate, discount rate, well cost, extraction tax, and recovery factor parameters evaluated, results indicate that oil price and well cost are among the biggest drivers of profitability in these plays. On the environmental front, I conducted case studies on the busiest U.S. tight oil plays (Bakken and Eagle Ford) and examined the impact of tight oil development on the environment. Local solutions to environmental challenges alongside environmental regulations are discussed and presented as possible templates for other aspiring plays. Since securing freshwater sources alongside wastewater management emerge as major issues in tight oil development, a cost comparison is conducted for reused water disposal versus one-use water disposal options, for a hypothetical development. Results indicate that on a cost-per-well basis, the reduction in water disposal volume from subsurface frack flowback retention improves water reuse economics; the water reuse option is preferable to one-use water disposal for U.S. oil plays. This result points to potential cost savings for reused water disposal in regions such as the Bakken with few disposal wells.