Why America's Oil Output Refuses to Collapse

More Layoffs Could Be Coming in the Oil Sector
  • Hydraulic-fracking drillers find more sand means more oil
  • A super-size experiment in the Eagle Ford shale formation

Somewhere amid the maze of wells that Murphy Oil Corp. has scattered across Texas’s sprawling Eagle Ford shale formation, Brett Pennington is carrying out a little experiment.

What will happen, the exploration chief wants to know, when he jams huge quantities of sand down the narrow mouth of one of these wells. Will more crude seep out? Or, rather, will he smother the opening and choke off the flow?

For the experiment, he’s amped up the sand meter all the way to 3,000 pounds per foot, almost double the average that each well in the Eagle Ford gets nowadays. If Pennington’s project seems a bit extreme, it also serves to underscore a trend spreading rapidly across a shale industry that’s scrambling to remain profitable after oil prices sank 50 percent. More and more sand is getting stuffed down wells to try to better pry open the rock and bolster output.

Some of this is just a cost phenomenon. In the wake of crude’s selloff, the sand market collapsed too, driving down the price 30 percent and making it cheaper to shovel more grit in. The initiative, though, began years earlier, the result of engineers tinkering with inputs and discovering one of the many little technological breakthroughs that have helped the shale industry weather the downturn better than its legions of skeptics predicted. For proof of greater productivity, look no further than total U.S. output: It remains within 3 percent of a 40-year high even though drillers have idled more than half of their rigs. And a report Wednesday showed production actually rose 1 percent in July to 9.4 million barrels a day.

"I can’t control the price of the commodity," Pennington said in a recent interview. "The only thing we can do is get better and faster and cheaper. There’s a general correlation that more sand equates to a better well."

The increase in sand usage has been steady. Back in 2012, the average well in the Eagle Ford received less than 1,000 pounds for every foot that the opening snaked down into the ground, according to energy consulting firm Wood Mackenzie Ltd. By 2013, that number was about 1,200 pounds. And last year it climbed to over 1,500 pounds. A study of more than 1,000 wells in the Eagle Ford -- a region that accounts for 15 percent of all U.S. oil output -- revealed that the injection of additional sand can triple output in some cases, according to Bloomberg Intelligence analysts William Foiles and Andrew Cosgrove.

Sand, of course, has been used in the oil industry for decades. But the traditional vertical wells that dominated the landscape for much of that time needed little more than a sprinkling. The rock in those wells tends to be porous and permeable, allowing natural underground pressure to squeeze the oil up to the surface.

Shale rock is different. It’s more like concrete. Hydraulic fracking relies on large quantities of both sand and water to tease the oil out. The water is blasted into the well at high pressure to create tens of thousands of tiny cracks in the rock. The sand then keeps the cracks open, elongates them and makes them more jagged. Increase the amount of sand and you increase the amount of fractures that stay open.

What Murphy Oil, EOG Resources Inc. and other shale drillers are trying to figure out is when does it become too much. At some point, all the fractures are propped open, and the extra sand just becomes a cost with no benefit. The Bloomberg Intelligence study indicated there are diminishing returns at the highest levels of sand use. There’s even the risk of clogging up the cracks and obstructing the flow of oil.

"You get to the point where you’re jamming the fractures and your conductivity goes down," said Jonathan Garrett, a Houston-based analyst for Wood Mackenzie.

Pennington, meanwhile, is a bit secretive about his super-size experiment. Don’t ask for the well’s name or location. The sand, he will say, was poured into the ground back in the summer. Early results are due out in the next few months.

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