Fracking Is Alive and Well

Big hat tip to Wall Street Journal’s energy reporter Erin Ailworth, from whose article I borrowed heavily to write this post. She is based in Houston, and her full article can be viewed on the link below.
Fracking 2.0: Shale Drillers Pioneer New Ways to … – Wall Street Journal

A few years ago, when the global market on oil prices started to head south from over a $100 a barrel, the administrator, Sir James Quinn (who received his knighthood from the Irish owner of a pub in Wildwood NJ, heh) of this distinguished site and I got into an animated discussion about fracking for oil and natural gas. It was fun, mainly because I beat on him like a rented mule while arguing that fracking was good for America’s independence from foreign sources of oil, and Sir James argued that market forces on the decreasing price of oil would eventually destroy those energy industries heavily involved and heavily indebted in fracking for oil in America. Our discussion occurred when I believe oil had tanked to around $60 a barrel.

Well, it kept going south until it hit something in the high $20s per barrel. By then, I started to think that maybe Sir James had a point, and I had lost a ton of money on an oil partnership. He was certainly correct about market forces because over 200 (!!!!) oil companies and oil equipment suppliers have filed for bankruptcy since 2014. Yikes.

But the price of oil slowly rebounded to a more stable plus or minus $50 a barrel, where it sits today. And along comes a fracking industry innovator, Houston-based EOG Resources aka “the Apple of oil.” EOG’s CEO is Bill Thomas, a geologist. Gasp. What a concept – a geologist running a fracking company. And Thomas doesn’t even have a secretary. Outside his office sits an assistant, another geologist, who pours through drilling data which comes in daily from the company’s divisions operating in its drilling areas.

EOG has developed a proprietary application known as iSteer, which consists of a device located behind the drilling bit that sends data (rock density, drill trajectory, etc) to an office which crunches the data and can redirect the drill bit to places where pockets of oil rich deposits are located. Amazing.

And guess what? It works like a charm. EOG is producing as much oil today as it did in 2014, and it is doing it with a budget reduction of 67% in less than three years. Cheaper oil, yes, but also much cheaper costs. EOG is operating in the best locations for fracking: Bakken (North Dakota), Permian (west Texas), and Eagle Ford (south Texas). Last fall it bought Yates Petroleum for $2.6 billion and thus Yates’ oil leases on 310,000 acres in the Permian Basin.

EOG isn’t the only fracking innovator. Also playing in the sandbox are sound energy companies like Chesapeake Oil and Pioneer Natural Resources. There are still critics who maintain that oil will need to stabilize a bit higher at $55-60/barrel to keep fracked oil competitive with vertical drilling. Well, we shall see. Innovation has moved the goal line for profitable fracking way back from the days when critics placed it in the $80-85/barrel market price range. Sir James was one such critic, and even he has to be impressed with the technology that has advanced the fracking industry and kept it alive and kicking.