Re-Fracking: A Bright Spot For The Energy Sector

If at first you don't succeed, frack, frack again.

As oil and gas prices remain collapsed, Bloomberg analyst Peter Pulikkan said in a recent report that re-fracking old shale wells "presents an irresistible opportunity" for U.S. energy companies.

The Evidence

A Bloomberg study of 80 wells in North Dakota showed "that re-fracked wells' initial production rates climbed by more than 30 percent in the first month after re-completion compared with their original completion years earlier." According to Pulikkan, updating the technology of projects initially built with "suboptimal designs" is both relatively cheap and significantly boosts returns.

Pulikkan noted that many existing shale wells only release a small fraction of the oil and gas stored underground. Traditional horizontal wells, he said, only extract about 8 to 10 percent of buried oil. Vertical wells that employ enhanced recovery techniques, on the other hand, can glean up to 55 percent.

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Additional Support

A study by the Society of Petroleum Engineers and Baker Hughes of the Bakken shale in North Dakota and the Eagle Ford shale in Texas found that the "discounted post-refrack profit for good wells was about 175 percent to 358 percent higher than pre-refrack levels." Only about 28 percent of refrackings yielded losses.

According to Pulikkan, "Re-fracks cost 50 to 100 percent of a well's original completion cost." Lowering the cost per unit of productions, he highlighted, is especially critical given the current low price environment in the oil and gas sectors.

The Current Situation

Despite the promise of re-fracking, however, implementation has been relatively limited. Pulikkan found that "only 1 to 2 percent of shale well today are being re-fracked." In his opinion, the best available candidates are the oldest wells in areas that have been widely explored. In these cases, he argued, drillers know the "extent of hydrocarbon deposits and optimal spacing of perforations."

As the domestic energy sector continues to hobble along under persistently low prices, re-fracking could potentially help the industry get back on its feet.

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