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Baker Hughes Inc
JPMorgan Chase & Co
Few energy industry practices have sparked more controversy than hydraulic fracking. First, wells are drilled horizontally below the surface, allowing a single bore or pathway to reach vertical pockets of oil and natural gas trapped between formations of shale and other rock. Then high-pressure jets of water, sand, and chemicals are pumped into the ground to create fissures through the rock so oil can seep out and be retrieved. Regulators, environmentalists, and academics are studying whether the practice can damage the environment.
Undeterred, oil services companies including Baker Hughes (BHI) and Schlumberger (SLB) are continuing their quest to devise ways to create longer, deeper cracks in the earth to release more oil and gas. These companies are no longer content to frack—they want to super frack.
High crude prices and newly accessible oil and gas embedded in shale rock in North America are driving the wave of innovation. The more thoroughly that petroleum-saturated rock is cracked, the more oil and gas is freed to flow from each well, raising the efficiency—and profit—of the expensive process. For example, the growing use of movable sleeves, a tubelike device with holes that fits inside a well bore, lets drillers target multiple spots to dislodge entrapped oil. This technique can reduce the $2.5 million startup cost of a fracking well near the Canadian border by up to two-thirds, according to a recent analysis by JPMorgan Chase (JPM). Multiply such savings by hundreds of wells added in that area each year, and you start to understand why the industry is so eager to hone the process. “I want to crack the rock across as much of the reservoir as I can,” says David A. Pursell, a former fracking engineer who’s now an analyst at Tudor Pickering Holt in Houston. “That’s the Holy Grail.”
Baker Hughes has set its sights on creating “super cracks,” a method of blasting deeper into dense rock to create wider channels. The aim of the technology, branded as DirectConnect, is to better concentrate the pressure of fracking fluids to reach oil or gas farther from the well bore, which existing methods fail to do as effectively.
The company also is trying to speed up the fracking process. Wells usually are fracked in steps, as plastic balls are dropped down to plug the well at various stages and isolate different zones for fracking. It can take days to get a drilling rig to the site and fish out conventional frack balls, which can get stuck over the course of 20 or 30 preparation phases in a typical well before production can begin. With land-based rigs renting for up to $30,000 a day, reducing such delays is critical. So Baker Hughes has developed disintegrating balls, which turn into powder “like an Alka-Seltzer” after a couple of days, says Rustom Mody, vice-president for technology.
Schlumberger, after six years of research, has developed a technique called HiWAY. The technology can generate bigger cracks in surrounding rock formations than current methods by combining fiber with typical fracking materials such as sand so the stuff clumps as it’s being pumped in repeated pulses and at high pressure into the side of a well. The number of customers using HiWAY in North America has grown from two a year ago to more than 20, Schlumberger says. Chief Executive Officer Paal Kibsgaard told investors in October that the HiWAY technology is yielding larger oil and gas production while using less water and sand than conventional fracking. (Schlumberger, in a quiet period prior to the Jan. 20 release of its earnings, declined comment.)
Halliburton (HAL), the No. 1 provider of fracking services, also based in Houston, is trying to reduce the amount of materials and labor used on each well. It’s rolled out RapidFrac, a series of sliding sleeves that open throughout the horizontal well bore to isolate zones for fracking. Fracking fluid is then injected at high pressure through multiple holes exposed by the sliding sleeve, cracking the surrounding rock. The process can be faster and cheaper than the most popular fracking method, which involves sending an explosive charge down the well to blast one hole at a time.
The critics aligned against fracking, let alone super fracking, aren’t impressed. “If critics already think fracking is bad, theoretically, super fracking would be super bad,” says Kirk Sherr, president of Regester Larkin Energy North America, an industry consultant. Doctors attending a fracking conference in Arlington, Va., in early January called for a federal moratorium on the technique in populated areas until the health effects are better understood.
Meanwhile, the U.S. Environmental Protection Agency is studying whether fracking can contaminate water resources. The technique also has raised concerns about excessive water consumption because of the millions of gallons needed to frack each well. And local officials in Texas, Oklahoma, Arkansas, and Ohio have voiced concerns about recent outbreaks of small earthquakes in areas where drilling has been accelerating. Seismologists and academics doubt that fracking itself has caused the quakes. “The fracturing process is not causing the problems that are perceived by the public,” says David B. Burnett, director of technology at Texas A&M University’s Energy Institute. He also says the wider or deeper fractures that result from super fracking won’t create bigger environmental problems. “No change in fracturing technology would change that,” he says.
However, a 2010 study by seismologists at Southern Methodist University and the University of Texas at Austin found that the injection underground of wastewater from the wells may be affecting subterranean pressures in the rock, triggering tremors. Says Amy Mall, senior policy analyst at the National Resources Defense Council: “Just like any other type of fracking, we need a lot more independent scientific data and research to understand the risks and how best to prevent them.” Yet as long as high oil prices create big profit incentives to pursue extraction techniques beyond conventional drilling, energy companies likely will continue to explore ways to squeeze money from rocks.
The bottom line: Despite the furor over fracking to extract oil, energy companies are developing ways to make it more destructive—and profitable.