Time for Tiramisu: Conventional vs. Unconventional

Jim Scherrer
Scherrer Resources, Inc., Exton, Pa


The difference between conventional and unconventional drilling for gas and oil is akin to the difference between a jelly donut and tiramisu.

Oil and gas drillers continuously evolve and enhance their drilling techniques. Their more recent revolutionary technique to drill horizontally along the rock formation has come to be known as “unconventional” drilling, although it’s become the conventional with the shale revolution.

To illustrate, we can compare the confectionery jelly donut to tiramisu. The common jelly donut has been replaced by the tiramisu, which is a delicious Italian dessert that coincidentally means, “carry me up” or “lift to heaven.” As this process of horizontal drilling matures, we enter the next generation of fossil fuel production. Unconventional oil and gas production has the potential to give us an “energy lift” as illustrated below:

Screen Shot 2014-10-08 at 5.50.55 AM

What’s So Unconventional About It?

Oil and gas resources are commonly divided into two distinct types, conventional and continuous or unconventional.

  • Conventional resources are characterized by structural or stratigraphic traps or pockets in which water and gaseous liquid hydrocarbons are separated into layers by their immiscibility and relative buoyancies.
  • Continuous accumulations, also known as unconventional resources, are regional stratigraphic accumulations of hydrocarbons, generally gas, which commonly occur in layer-­‐like sedimentary deposits such as coal, shale rich in organic material, and low porosity sandstones.

Unconventional sediments are not segregated into discrete fields but instead these continuous accumulations produce hydrocarbons in very small amounts in multi-­‐storied stacks. Often these multiple layers are drilled, perforated and completed within a single well.

It’s Time to Ramp Up Unconventional Drilling with More Infrastructure

Unconventional drilling (think tiramisu) has been going on for quite some time, but has been accelerating by technology improvements. The U.S. land market completed a record number of hydraulic fracturing (fracking) stages this year, driven by horizontal drilling and efficiencies. The rapid rate of drilling in Ohio’s Utica Shale play has midstream companies working hard to catch-­‐up with exploration and production companies that have a backlog of wells waiting to come online.

unconventional drilling

The Permian Basin

Likewise, the venerable Permian Basin, where conventional drilling production peaked in the 1970s, has come back to life bigger and stronger with horizontal drilling; the technique that has spurred the shale revolution.

Here Is How We Have Gotten to Tiramisu Time
Getting to tiramisu time is the result of several oil and gas industry developments:
  1. Oil reservoirs that are accessible by vertical drilling are nearly complete.
  2. Source rocks, such as shale where oil originates, are abundant.
  3. Technology advances in drilling allow the well bore to work on a horizontal basis.
  4. Technology advances in using pressurized water and sand during drilling enhances the application to shale source rocks in horizontal wells to extract both gas and oil.
  5. Current technology liberates, at best, 5 percent of the available oil in shale so continued technology advances would significantly improve future resource recovery.

What this all means is this; there’s much more tiramisu that awaits.

Jim Scherrer provides analytical services to energy, power and information technology industries. JSScherrer@AOL.com; 484-­875-­1700

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20 thoughts on “Time for Tiramisu: Conventional vs. Unconventional

  1. Jim, this is great news because I love Italian pastries. I’m now wondering if a leaky casing is like a broken cannoli.

    You and the rest of the industry prefer to use the classifications
    “conventional” and “unconventional.” I think pre-peak” and “post-peak” are more appropriate, or possibly “traditional” and “desperate.”

    You wrote, “Likewise, the venerable Permian Basin, where conventional drilling production peaked in the 1970s, has come back to life bigger and stronger with horizontal drilling; the technique that has spurred the shale revolution.”

    Really? In 1993 the Permian Basin produced over 14.9 billion barrels of oil. In 2012 it produced 0.295 billion barrels – less than 2% of past production rates.

    You wrote, “there’s much more tiramisu that awaits.”

    Really? According to the Texas Railroad Commission, who tracks this stuff, the only thing increasing in the Permian Basis is the number of rigs operating and the number of permits issued. See: http://www.rrc.state.tx.us/oil-gas/major-oil-gas-formations/permian-basin/ Here is a rendering of their data:

    Drilling Oil Oil per Oil per
    Year permits produced well Rig rig
    issued (MMbbl) (Mbbl) Count (Mbbl)
    2005 4,435 253 57 129 1,961
    2006 4,737 252 53 158 1,595
    2007 4,703 251 53 191 1,314
    2008 6,178 260 42 218 1,193
    2009 3,323 260 78 103 2,524
    2010 6,830 270 40 237 1,139
    2011 9,235 295 32 355 831
    2012 9,335 312 33 415 752

    More rigs chasing a diminishing resource does not sound like a pastry banquet. It’s more like a catered wake. The Stone Age didn’t end because we ran out of stones. Why not end the Fossil Fuel Age gracefully?

    • So tedious. You were born 40 years too late, Cliff. The Club of Rome would have welcomed you. Do you still a hard copy of Limits to Growth?
      Rigs produce more per unit every day and, of course, production has down from the conventional wells, but it’s being replaced via the shale revolution. That’s the point, of course, but you refuse to see it. See: http://oilprice.com/Energy/Energy-General/The-Shale-Revolutions-Next-Winner-The-Permian-Basin.html. And for those of you who bother reading Cliff’s comments anymore, here’s what it says in part:

      “While North Dakota and South Texas garner much of the attention by energy investors, West Texas is fast becoming the backbone of the shale story in the United States.

      West Texas is home to the Permian basin, which was originally discovered nearly a century ago. It was home to much of Texas’ oil production for decades, but peaked in the 1970’s – along with many other American oil fields – and entered into a period of gradual decline.

      That all reversed course over the last few years, with the familiar story involving hydraulic fracturing and horizontal drilling unfolding on the dusty plains of West Texas. And although other regions across the U.S. have nearly a decade of fracking under their belt, the surge in production (or resurgence, as the case may be) in the Permian basin has really only ramped up over the last two years.

      Between 2007 and mid-2014, oil production in the Permian jumped from 850,000 barrels per day (bpd) to over 1.6 million bpd. Last year, the region accounted for about one-fifth of total U.S. oil production. That is enough to make the Permian basin home to the most productive oil basin in the United States in 2014.

      Taken together, six Permian shale formations – Sprayberry, Wolfcamp, Bone Spring, Glorieta, Yeso, and Delaware – make up most of that production. More narrowly, the Sprayberry, Wolfcamp, and Bone Spring formations account for almost 75% of the region’s oil production.”

      • Well Tom, I’ll let you take that up with the Texas Railroad Commission but even if you were right, 1.6 MMbbl/day is 584 MMbbl/year and still a tiny fraction of the 14.9 BILLION barrels the Permian Basin produced in 1993.

        While it may be the “most productive oil basin in the United States in 2014,” it is a faint shadow of its former self – the last press of the olives, as they say.

        Is that tiramisu on your tie?

  2. Sorry about the formatting above.

    Here again is the production from the Permian Basin.

    – – – – – – Drilling – – – -Oil – – – – Oil per – – – – – – – – – Oil per
    Year – permits – – produced – – well – – – – Rig – – – – -rig
    – – – – – – issued – – (MMbbl) – – (Mbbl) – – Count – – (Mbbl)
    2005 – – 4,435 – – – – 253 – – – – – 57 – – – – 129 – – – -1,961
    2006 – – 4,737 – – – – 252 – – – – – 53 – – – – 158 – – – -1,595
    2007 – – 4,703 – – – – 251 – – – – – 53 – – – – -191 – – – 1,314
    2008 – – 6,178 – – – – 260 – – – – – 42 – – – – -218 – – – 1,193
    2009 – – 3,323 – – – – 260 – – – – – 78 – – – – -103 – – – 2,524
    2010 – – 6,830 – – – – 270 – – – – – 40 – – – – – 237 – – – 1,139
    2011 – – 9,235 – – – – 295 – – – – – 32 – – – – – 355 – – – – 831
    2012 – – 9,335 – – – – 312 – – – – – 33 – – – – – 415 – – – – 752

  3. Are we really to believe someone who claims the Permian produced 14.9 billion barrels in one year alone?

    To borrow from the link Cliff provided; “The Permian Basin has produced over 29 billion barrels of oil and 75 trillion cubic feet of gas and it is estimated by industry experts to contain recoverable oil and natural gas resources exceeding what has been produced over the last 90 years.”

    This is production since 1921! To think that half of that came during one year shows a complete lack of understanding.

    All anyone would have to do to realize this is look here, one click away on the same page provided, to see that 2012 production levels were approaching 1993 volumes around 350 million bbls: http://www.rrc.state.tx.us/media/1479/pb_vs_statewide_oil_graph.pdf

    I would also check here, same page, which indicates current production around 1.1 million bbls per day. That’s over 400 million bbls per year for those doing the math at the home. And it isn’t slowing down. http://www.rrc.state.tx.us/media/7083/permianbasin_oil_perday.pdf

    Let’s all use a little common sense in the future.

    • Good point Mike – my error. It was over 14.9 billion barrels up to the beginning of 1993. The point is, it will never reach it’s peak production and the costs of squeezing it out will only go up.

      If you can, please explain the drop in production per well and per rig from 2005 to 2012. It looks to me like the depletion rates of these last traces of oil and gas are as expected.

      • Without doing too much heavy thinking, the Permian is still a mixed play with both vertical and horizontal wells. This also gives you horizontal and vertical rigs in the rig count.

        Out of the 1,600 or so land rigs at work in the States, the Permian has over 550 of those. However, less than 60% of those are horizontal rigs. This will have a big impact on production when looking at a per well or per rig basis.

        The vertical rigs will contribute less to production than the horizontal rigs, but they also do so at a much lower cost. A vertical well will run about $1M compared to a $7M horizontal well in the Permian. Either way, growth in US production has helped to stabilize oil prices and both options are economical for the private sector to produce without subsidy. It has less to do with depletion rates and more to do with drilling methodology than you would like to believe.

        Conservative projections for this year put Permian production around 1.7 million bbls per day. That isn’t too far off from the just over 2 million per day produced in the Permian at peak production in the 1970’s. And as we’ve seen with production rates concerning shale basins, most estimates have been far surpassed by reality. Your point that production will never match peak rates ignores increasing productions trends and severely discounts the impressive production increases over a short period of time. And the cost to drill and complete wells continues to go down while the EUR for wells continues to go up as more is learned about each play.

        • How many rigs or wells were there back in the 70s when production was at it’s peak? What was the average production rate per well? Those numbers will tell us whether this is a revolution or a wake.

          • Actually, those numbers matter very little and I don’t have the desire or time to look them up. What will determine if this is a revolution are things like profitability (economics), lower utility costs for consumers, decreased reliance on foreign oil, creating stabilized commodity prices and developing long-term strategies to prevent boom and bust cycles, substantial investments made in communities, and job creation, to name a few. By all measures, I would say this shale thing is off to a brilliant start.

  4. Fractivists overuse that snarky “Stone Age” line from Cliff’s comment above. Of course, stone and stone products are still vitally important in the Information Age. And natural gas is just as certain to be vital and abundant long after fractivists finish ushering in the Misinformation Age.

    • Bob, it’s simply an analogy to point out that we needn’t wait until the last barrel or cubic meter is squeezed out of the ground to make the transition to something sustainable. Like the stone products you mention that are still in use, there will be plenty of future uses for natural gas as a feed stock for all manner of durable goods manufacture. High value products from finite fossil resources make sense. Burning them up in smoke, like using stone tools, makes little sense.

  5. All this sure has had a good return for us consumers ! Crude just keeps on dropping and dropping. Now all we need to do is get energy out of the futures market so we can all enjoy the boom of US oil. Those slobs on wall street are finding it harder and harder to pretend supply is tight . Just think Cliff , maybe less elderly and crippled will freeze to death this winter?

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