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Oil Industry Boosts Efforts to Coax More from Shale

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Oil Industry Boosts Efforts to Coax More from Shale

The oil industry is increasing spending on research that it hopes will make it cheaper and easier to coax more crude and natural gas from shale formations and deep-sea oil fields, extending and accelerating the U.S. energy boom.

The largest oil-field-service firms--Schlumberger Ltd., Halliburton Co. and Baker Hughes Inc.--raised their research and development budgets by 24% from 2010 to a combined $2.1 billion in 2012. In recent years, these companies, which provide a range of services for energy exploration, have become the primary R&D engines of the oil industry, surpassing spending by oil-and-gas companies such as Chevron Corp. and Royal Dutch Shell PLC.

The hunt for new sources of fossil fuels has led energy companies into deeper offshore regions and into dense shale formations, both of which are expensive to develop.

Much of the oil-field companies' research is focused on understanding shale rocks better and developing improved tools to get more oil and gas from these formations. A decade after large-scale exploitation of shales began, the industry is drilling thousands of wells every year in Pennsylvania, Texas, Louisiana, Ohio, Oklahoma and North Dakota, and is testing other shale rocks in California and Mississippi.

Right now, even with horizontal drilling and hydraulic fracturing, new shale wells tap only a small percentage of the oil and gas trapped in small pores in the rock, leaving more than 75% behind.

"From 2004 to 2012, the development of shales was basically, hit it with a big sledgehammer and see what comes out," says Richard Spears, vice president of Spears & Associates, a Tulsa, Okla., firm that tracks oil-field spending. "Now the question is who can do it the best and optimize the process. Shales aren't tube socks, a one-size-fits-all thing," he said, pointing to using fracking techniques of differing scale and intensity in different shale formations.

Drilling improvements could mean that the North American energy boom, which has seen natural-gas production rise by 19% and oil by 37% over the past five years, could get a new boost from better tools.

"We are in the dawn of this new age, so now the whole industry is starting to look at this resource and figure out ways to get as much of the oil and gas out as it can from these locations," says Dan Hill, chairman of the Texas A&M University petroleum-engineering department.

He said that small improvements in hydraulic-fracturing techniques, in which pressurized water, sand and chemicals crack open rocks far below the Earth's surface, could result in significant profits for the oil-field companies and additional energy for global markets. One new technique involves changing the order in which segments of each well are fracked, with an eye toward impacting the surrounding rock in a way that improves yields. Another is changing chemical mixtures to better suit the shale being drilled.

Oil-field-service companies are also researching techniques to improve deep-water exploration and production. Schlumberger, which has been developing new oil-field technology since 1927, recently introduced what it said was one of the largest engineering projects in the company's history. Called IsoMetrix, it is a new tool for using seismic waves to accurately spot oil reservoirs in deep water.

Halliburton spokeswoman Beverly Stafford said the company is focused on helping oil companies get improved access "to new hydrocarbon discoveries and to maximize the value of their existing assets." The company is working on shales and deep-water exploration, along with improving energy recovery from mature oil and gas fields that have been producing fuel for years.

Copyright (c) 2012 Dow Jones & Company, Inc.

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