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Shale Companies In Turmoil As Newer Wells “Drink Their Milkshake”

Shale Companies In Turmoil As Newer Wells “Drink Their Milkshake”

US shale companies’ decision to drill thousands of new wells closely together – and close to already existing wells – is turning out to be a bust; worse, this approach is hurting the performance of wells already in existence, posing an even greater threat to the already struggling industry. In order to keep the United States as an energy supplying powerhouse, shale companies have pitched bunching wells in close proximity, hoping they would produce as much as older ones, allowing companies to extract more oil overall while maintaining good results from each well.

These types of predictions helped fuel investor interest in shale companies, who raised nearly $57 billion from equity and debt financing in 2016 – up from $34 billion five years earlier, when oil was over $110 per barrel. In 2016, oil prices dipped below $30 a barrel at one point.

And now – surprise – the actual results from these wells are finally coming in and they are quite disappointing.

Newer wells that have been set up near older wells were found to pump less oil and gas, and engineers warn that these new wells could produce as much as 50% less in some circumstances. This is not what investors – who contributed to the billions in capital used by these companies back in 2016 – want to hear.

Making matters worse, newer wells often interfere with the output of older wells because creating too many holes in dense rock formations can damage nearby wells and make it harder for oil to seep out. The “child” wells could also cause permanent damage to older “parent” wells. This is known in the industry as the “parent-child” well problem.  Billionaire Harold Hamm, who founded shale driller Continental Resources, said last year: “Shale producers across the country are finding you can get a lot of interference, one well to the other. Laying out a whole lot of wells can get you in trouble.”

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