Saturday, October 09, 2010

Fracking Talent Geography

Thanks to a Re-Tweet from Chris Briem, I have a better picture of the labor market for the hydraulic fracturing necessary to release natural gas locked up in shale formations. There is a talent shortage in the Eagle Ford Play (Texas):

Matthew Jurecky, manager of US upstream research at Wood Mackenzie, said that a shortage of fracking crews is affecting the development of unconventional plays partly because more efficient drilling has allowed companies to drill at a record pace. "Operators have accumulated backlogs of hundreds, if not thousands, of wells across the Lower 48 waiting on completion," he said. "This is softening production gains in shale plays as production is pushed back." In addition, Jurecky said that the demand for fracking services is putting pressure on completion costs, eroding the gains from the more efficient drilling operations. While operators are singing long-term contracts to ensure services, many are conditional which allow for further cost increases, he added. In addition, fracking services companies are choosing preferred operators, leaving "many out of luck," Jurecky said. "Going forward, as activity wanes in more marginal, typically gas-biased plays ... fracking crews should be absorbed into the liquid-rich and oil plays just now emerging, keeping demand for these services tight," he said. In another shale hot spot, Marcellus Shale, some producers said they've had no trouble lining up crews. Matt Pitzarella, a spokesman for Range Resources, told Platts in a separate interview that the company's longer service in the play likely gave it a step ahead of the current backlog that late-comers may face in obtaining field services. "Most of our service companies are locked in for extended periods of time," he said.

Eagle Ford and Marcellus are among the two cheapest plays in the United States in terms of drilling costs. However, gas prices are so low that both fields offer little to no profit. Then why the labor shortage?

For U.S. energy producers, high-priced $11 natural gas is "kind of like a Saturday night drunk," Devon Energy Executive Chairman Larry Nichols said at the opening session of the Unconventional Gas International Conference and Exhibition on Tuesday afternoon. ...

... In futures trading Tuesday on the New York Mercantile Exchange, gas closed at $3.74 per million British thermal units, up 1.6 cents, in contracts for November delivery. Prices had soared above $13.50 in mid-2008 before making a dramatic crash.

Drilling activity has been sustained by companies needing to drill wells to retain leases, by hedging contracts that have enabled energy companies to receive prices for their gas that are well above market levels, by joint-venture agreements mandating certain levels of drilling and by Wall Street's willingness to pump money into the industry, Nichols said.

Eventually, the production glut will catch up with the drilling, more so in the other plays than in Eagle Ford and Marcellus. Drillers in the Marcellus Play are hoarding leases and talent, banking on the lower overhead and better well production. The activity continues at a furious pace.

Another conference speaker, Robert Clarke, said there are potentially huge shale gas deposits to be recovered in other parts of the world, including Poland, China and South Africa.

However, barriers to international shale-gas production include less-advanced technology, a relatively small number of skilled energy services firms, a less-developed infrastructure of pipelines and gas processing plants and higher development costs, said Clarke, manager for the unconventional gas service unit of Wood Mackenzie, an international research and consulting firm in Edinburgh, Scotland.


Iphigenia said...

I can only hope NYS legislators have enough foresight to keep the moratorium on hydrofracturing in place. I think I'd rather have potable ground water that isn't flammable straight out of the tap than a few thousand jobs based on a finite industry.

mgiberson said...

Iphigenia, I think you're mistaking an 'art project' film for a factual piece of news.