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Macro trends will influence future development

In its first quarter conference call, Core Laboratories (ticker: CLB) identified four major industry trends that it believes will shape tomorrow’s oil field:

  1. Increasing interest in EOR from tight oil reservoirs
  2. Finer proppants in the initial portion of hydraulic fracturing treatments
  3. Increasing in proppant loads and frac stages per well
  4. Big data and artificial intelligence to increase efficiency and reduce cost in evaluating reservoirs

Unconventional EOR

Enhanced oil recovery from unconventional formations has been sought since unconventional development first began. While recovery factors in conventional reservoirs commonly exceed 25%, unconventional development seldom recovers more than 9%. There is, therefore, a tremendous amount of oil and gas still in place in unconventional fields, waiting to be recovered.

One of the few successful uses of EOR on unconventional formations was performed by EOG. Gas injection in the Eagle Ford produced 30-70% additional oil recovery, giving the project strong economics.

Core Lab reports that early work it has performed on unconventional EOR processes has yielded recovery factors of 13% to 15%. While still below the recovery from conventional fields, this represents an increase of about 50% over primary recovery.

Finer proppant enhancing fractures

Finer proppant is believed to be able to enter secondary and tertiary fracture patterns. If these additional fracture systems can be propped open, the reservoir volume stimulated by a given treatment increases significantly.

As the host company of Stim-Lab, an industry consortium with a 30-plus year history and consisting of over 40 companies, Core is boosting its evaluation of 100, 200 and 400 mesh sand. These sizes are significantly smaller than the 40 and 70 mesh sand that is typically used in fracture treatments. According to Core, the use of micro proppant during the pad stage of fracturing can boost production by tens of thousands of barrels with little added cost.

Increasing intensity of fracture jobs

Increasing proppant and frac stages is a trend that has been apparent since the beginning of the U.S. unconventional boom. Early Barnett wells used perhaps 1 million pounds of sand per well, with few proppant stages.

Today companies regularly use more than 10 million pounds of sand in each well, and continue to intensify. Chesapeake Energy announced in late 2016 the completion of a truly massive fracturing job the company named “Prop-A-Geddon.” This 10,000 foot well used more than 50 million pounds of sand during completion, which Chesapeake claims is a new record. Proppant loading in wells is likely to continue to increase, as higher oil prices encourage continued development.

Lateral lengths have also increased significantly, but the longest wells are beginning to encounter difficulties. Wells with lateral lengths beyond 10’000 ft. can encounter significant friction forces, which make fracturing and other operations difficult. Core Labs reports that it is testing friction reducing additives that would make longer lateral lengths possible.

Big data

Big data is a recent industry trend that seeks to use large amounts of data to more accurately describe reservoirs. For example, Core is currently analyzing data from the Deepwater Gulf of Mexico II joint industry project with machine-learned computers. Analytics will then be used to characterize and identify key properties of deepwater reservoirs. If successful, this process can be applied to deepwater projects worldwide.

Integrating Reservoir Management

Core also announced a change in its business structure this quarter. The Reservoir Management section of the company’s business, which accounts for less than 5% of total company revenue, will be subsumed into the company’s two primary segments, Reservoir Description and Production Enhancement.

Q&A from Core Lab’s conference call

Q: the North American market, particularly the Permian, is exploding with activity here. On your Production Enhancement business, I know we’re hearing about a lot of longer lead times or wait times for frac spreads and even wireline trucks, stuff like that. How do you see or what have you done with your manufacturing of your perf charges in order to catch up with the increasing demand? And are you guys now running kind of full out in terms of manufacturing?

CLB COO Monty L. Davis: On the charge production, we have increased the number of active manufacturing base. Obviously during the downturn, those were decreased to a lower number and we have reactivated some of those with plans through the second quarter to reactivate most of what we had active capacity when the downturn started.

Q: How does the resuming trend towards more pad – or more multi-well pads affect the Diagnostics business? I would think there could be a positive benefit if you want to make sure that the wells aren’t bashing or even maybe are bashing, depending. Does that affect the Diagnostics business for you guys?

CLB President and CEO David M. Demshur: Yeah; sure does. For us, that is a big part of their business right now. As people try to concentrate wells on spacing and then landing zones in these sweet spots, we are seeing more wells bash each other. It’s a concern in the industry now that more bashing is leading to the loss of initial production, especially EURs. So, their business on the diagnostics side is being aimed more towards that now than it ever has in the past.

Q: Okay, and then shifting towards the SRV [stimulated reservoir volume] concept, I know you guys have been talking about that for a little while. Help us frame that. What do you think stimulated reservoir volume was, say, in 2014 versus today versus where you think that might go?

David M. Demshur: Yeah. I think – Rob, actually on the conference calls back then, we talked the amount of stimulated reservoir volume was probably in the low-20 percentile range. Now, with the use of finer and micro proppants, we think that is expanding rapidly. And the reason for that is the use of 400-, 200- and 100-mesh sand in the pumping the pad stage are opening up tertiary and secondary fracture systems to the exposure of surface area. That has never happened before, so it is significantly increasing the amount of stimulated reservoir volume; read that the amount of surface area in the reservoir that is open to a micro fracture.

So, I would put that right now probably in the 50% range. So, we’ve significantly increased it since 2014. You can see that in the production figures and also in the type curves, you can plot that pretty much right alongside of that. How much further it can go, we just now entered looking at 200- and 400-mesh sand, so we’ll give you an update over the next couple of quarters on the effectiveness of using those micro proppants.

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