The Fracking Industry Is Cannibalizing Its Own Production, Increasing Spill Risks

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In the climactic final scene in There Will Be Blood โ€”ย arguably the greatest movie about the oil industry โ€”ย the main character played by Daniel Day Lewis explains how he sucked the oil from a neighborโ€™s land by using horizontal drilling. To help his neighbor understand what has happened, he explains it by saying he took a very long straw and โ€œDrank yourย milkshake!โ€

Well, guess what is happening with the fracking revolution built on the concept of horizontal drilling? Not only are oil producers drinking each otherโ€™s milkshakes, they are drinking their own, and in the process losing even more money and raising the odds of dangerous environmentalย risks.

And unlike in the movie where the main character knew what he was doing,ย the modern fracking industry really has no clue what to do about the problems caused by the combination of horizontal drilling andย greed.ย 

Frac Hits, aka Childย Wells

The first thing to understand is that this is simply a problem of the industry being greedy. The oil producers are drilling too many wells in close proximity to one another, and when they frack the newer wells โ€”ย known as child wells โ€”ย those โ€œbashโ€ or โ€œhitโ€ย the older wells and causeย problems.

In a typical frack site, the production begins with a first test well, which is known as the parent well. The wells drilled in proximity to the parent well are called childย wells.

What is happening is that not only are the child wells cannibalizing the production of the existing parent well, but when the child wells are fracked they can create โ€œfrac hitsโ€ that damage the parent well. These frac hits can reduce the pressure in the parent well leading to lower production, they can damage the parent well to the point of it being a โ€œdeadโ€ wellย and, of course, they can lead to spills and environmentalย contamination.

Claudio Virues, a senior reservoir engineer with the oil and gas company Nexen, explained the basic problem of frac hits in the Journal of Petroleumย Technology.

โ€œYou usually have two scenarios,โ€ Virues said. โ€œOne may be that you have a temporary loss of production, but you will recover to the trend that you had before. The other will be really bad for your production andย reserves.โ€

Bob Barree, who runs the Petroleum engineering consulting firm Barree & Associates, explainsย the โ€œreally badโ€ย scenario.

โ€œYou put the well back on production and youโ€™ve lost your pressure, the velocity, the inflow capacity, and the well is just dead,โ€ Barreeย said.

And that means the fracking industry loses even moreย money.

In another article in the Journal of Petroleum Technology, titled โ€œFrac Hits Reveal Well Spacing May be Too Tight, Completion Volumes Too Large,โ€ the author references a technical paper by engineers at Shell that estimates that if a โ€œproducer has an inventory of 2,000 640-acre drilling sections, and each new well costs $5 million, then adding just a single unneeded well to each section would cost the operator $10ย billion.โ€

The reality is that the potential costs of frac hits and tight well spacing arenโ€™t currently known by the industry, but there is no doubt that frac hits are costing the industry money and contributing to productionย declines.

Industry Experts Admit They Donโ€™t Know What They Areย Doing

The industry has certainly acknowledged frac hits are a major problem โ€”ย one the industry currently has no idea how to solve.

Energy industry research and consulting group Wood Mackenzie has studied the issue of frac hits and child wells and concluded theย following:

โ€œClosely spaced child well performance presents not only a risk to the viability of the ongoing drilling recovery but also to the industryโ€™s long-term prospects.Virtually every operator believes child well performance is a material issue, but there is no consensus on how to best address it.โ€

A risk to the viability of the industryโ€™s long-term prospects โ€” for an industry that has never made money โ€” isnโ€™t a very positiveย outlook.

But that is the situation in 2018 for the oil fracking industry. In early 2018, members of the industry gathered in Texas to talk about the issue. As the Midland Reporter and Telegram reported, Dick Leonard, one of the panelists at the conference explained that when it came to mitigating the impacts of frac hits that โ€œโ€ฆno one has the answersย yet.โ€

Another panelist, Lance Robertson of Endeavor Energy Resources echoed this sentiment saying, โ€œWeโ€™re in the early phases and still have a long way to go. We and the industry have a lot toย learn.โ€

How long can the fracking industry continue to lose money while trying to learn what they are actuallyย doing?

Frac Hits Increaseย Environmentalย Damage

The risks of fracking operations contaminating the air, drinking water and land are well known. Even when wells are operating independently without having been โ€œhitโ€ by another frack job. Now due to the closer well spacing and frac hits, the risk of environmental damage isย increasing.

In Oklahoma, horizontal wells are bashing through existing conventional wells and causing spills. Mike Cantrell is a small operator of conventional oil wells in Oklahoma who is speaking out about the large fracking companies that are damaging wells like his. โ€œThey know they’re going to ruin your well and they don’t care,โ€ Cantrell toldย E&Eย News.

The state of Oklahoma acknowledges that spills have occurred but disputes claims that any groundwater has been contaminated โ€”ย the standard industry line aboutย fracking.

And yet on the website ofย Eagleford Training under the topic of โ€œWhat are frac hits?โ€ the issue of environmental risks is detailed including a section titled โ€œLoss of Well Control.โ€ Potential issues listed when well control is lost include โ€œa blowout of either frac fluids or charged reservoirย fluids.โ€

Additional risksย include the release of deadly Hydrogen Sulfide gas and the fact that โ€œOffset well releases will release reservoir fluids, which tend to be extremely flammable,โ€ย according to theย site.

So, while the industry likes to claim that fracking poses little risk to the environment, the issue of frac hits appears to raise a whole new set of environmentalย risks.

Frac Hits May Be Deadly Financial Hit to Money-Losingย Industry

It is well established that the fracking industry has been a money losing proposition for the past decade. In a recent Oilprice.com article that detailed the industryโ€™s bad luck making financial hedging bets, this is acknowledged with the statement that โ€œShale drilling has historically been a loss-makingย proposition.โ€

Now this historically money-losing industry is facing a major challenge that could prove to be a fatal flaw in the already failing fracking businessย model.

If producers try to pack in wells too close to each other, the wells will damage one another and production will decline or even stop for some wells. If producers have to resort to much larger distances for well spacing, the lower number of wells will also likely decrease overall productionย numbers.

How will this turn out? Donโ€™t ask the industry experts because they admit they have no idea โ€”ย which canโ€™t be comforting for investors who continue to lose money while waiting for the fracking revolution to finally payย off.

Main image: Kern River Oil Fieldย  Credit: Hamish Reidย Attribution 2.0 Genericย (CC BYย 2.0)

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Justin Mikulka is a research fellow at New Consensus. Prior to joining New Consensus in October 2021, Justin reported for DeSmog, where he began in 2014. Justin has a degree in Civil and Environmental Engineering from Cornell University.

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