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WOOD MACKENZIE PROVIDES ‘UNCONVENTIONAL 3.0: A NEW ENERGY OUTLOOK’
August 25, 2014
Wood Mackenzie has identified the three distinct phases of the unconventional onshore revolution and has explored the future of the sector in North America and internationally:
1.0 Numerous mega gas plays
This period was characterized by intense production growth, with operators amassing positions in dozens of mega gas plays. In 2005, the Barnett shale play in North Texas was the only significant shale gas play, but, by 2011, seven plays were all producing more than 500 MMcfd. Marcellus shale supply rose rapidly, with producers adding over 3.0 Bcfd to the market each year over a 36-month period.
Associated gas from the Eagle Ford, Niobrara, and sections of the Marcellus and Woodford also increased. However, it was the emergence of these liquids-rich gas plays that signaled the shift to the next phase.
2.0 High-margin, smaller-volume tight oil plays
In 2011, the booming supply of shale gas caused prices to drop, and producers quickly began redeploying their asset teams to high-margin tight oil plays, including the Eagle Ford, Wolfcamp, Bone Spring, and Cline.
Yet, as oil plays developed, total production volumes from successful plays were, on average, a third smaller compared with typical unconventional gas plays during a similar timeframe.
Most importantly, a smaller absolute number of commercially successful large scale liquids plays have been discovered. Two plays are clear leaders, currently producing more than 800,000 b/d, while the third most productive asset is only producing 160,000 b/d.
3.0 Development of niche assets
The smaller number of large-scale plays in the unconventional 2.0 tight oil phase provided the impetus for operators to explore more aggressively. In this current third phase, producers are using the combined knowledge from unconventional 1.0 and 2.0 to target niche plays – essentially reevaluating existing inventory and underexplored strata previously considered insufficiently permeable.
Smaller companies are leading exploration efforts, and unexpected sweet spots are being identified at a fast pace. Consequently, non-headline 1.0 and 2.0 plays now have 35 more unconventional rigs running in them than they did last year. This is a larger year-on-year increase than the joint number of rigs added in the prominent Utica and Denver-Julesburg Niobrara plays, which together boast over 550,00 boed in production.
In a global sense, operators have struggled to build unconventional 1.0 and 2.0 projects outside of North America, and we believe the emergence of this new 3.0 development phase could provide the bridge needed for international unconventional projects to ultimately be successful.
Should countries such as Mexico, the UK, Colombia, and Poland adopt a similar operational mentality and deploy similar models within their projects, Wood Mackenzie analysts say they believe that unconventional 3.0 could become the first successful phase of international projects, rather than the last.