America’s top shale field is becoming increasingly gassy as drilling slows down, undercutting profits for explorers at a time when investors are demanding better returns. Natural gas has long been a nuisance in the Permian, where a massive glut weighs on prices, with crude producers sometimes having to pay to get it hauled away or burn it off in a controversial practice known as flaring. Now the problem is intensifying as wells age and fewer new wells are drilled.
Shale wells produce a spew of oil when they’re first fracked, but over time, production falls — sometimes as much as 70% in the first year — and gas becomes a bigger part of the mix. “Activity levels are no longer what they were,” said Artem Abramov, head of shale research at Rystad Energy. “The oil ratio is no longer sufficient to offset gas in older wells, so we’re seeing some increase in basin-wide” gas-to-oil ratios.
In the Midland portion of the Permian, the average well produces about 2,000 cubic feet of gas for each barrel of oil in its first year, according to Tom Loughrey, a former hedge fund manager who started shale data company Friezo Loughrey Oil Well Partners LLC, or FLOW. Over the lifetime of those wells, about 30 years or so, that rises to an average of about 5,000. It can climb as high as 7,000 in the gassier Delaware.
“Shale wells are notorious for their steep output declines; however, that decline is more severe for oil than for gas and NGLs [natural gas liquids]. Gas and NGL production continues for much longer, increasing the gas-to-oil ratio (GOR) of most U.S. shale plays.”