Issue 5 2017 - North American Shale magazine by BBI International

ISSUE 5 2017

The Time And Place For New Tech From drones to proppants, innovations are ramping up Page 14, 20

Plus Understanding Harvey's Impact Page 24

And Factors In OPEC's 2018 Plans Page 12

NorthAmericanShaleMagazine.com Printed in USA

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NORTH AMERICAN SHALE MAGAZINE ISSUE 5 2017

INSIDE

ISSUE 5 2017

VOLUME 1 ISSUE 5

14 FEATURES

20 The Time For New Shale Tech EXPLORATION & PRODUCTION

PRODUCTS & TECHNOLOGY

Oilfield Transformation From Above

BY LUKE GEIVER As the mood and understanding of shale plays in the U.S. shifts, the need and place for new technology continues to expand.

BY PATRICK C. MILLER Small unmanned aircraft systems are already at work in the oil and gas industry, but major players in aviation are making plans for even more capable drones.

ADVERTISER INDEX

NEWS & TRENDS

2018 Bakken Conference & Expo

BD Diesel Performance

Eldred Environmental & Export Company, LTD.

Flotek Chemistry

Fox Thermal Instruments

FracCure, LLC

Hydrozonix

KLJ

NOV Completion & Production Solutions

STV

TRC Consultants

Industry reps explain the Bakken Interior, BLM working on major changes to energy development

DEPARTMENTS 6

EDITOR’S NOTE

Time For Shale Tech BY LUKE GEIVER

ON THE COVER: Avitas Systems is infusing artificial intelligence, machine learning and autonomous flight capabilities into drones for inspections of oilfield infrastructure.

EVENTS CALENDAR

IN PLAY

Harvey’s impact on Eagle Ford shale operators and Gulf refiners differs

BY NORTH AMERICAN SHALE MAGAZINE STAFF The hurricane that drew nationwide attention had lasting—albeit varying— effects on the production plans and operating momentum of producers, midstream groups and refiners.

PHOTO: AVITAS SYSTEMS

NorthAmericanShaleMagazine.com

EDITOR'S NOTE NorthAmericanShaleMagazine.com

Time For Shale Tech

VOLUME 1 ISSUE 5 EDITORIAL

Following the record-setting rush for Permian acreage at the end of 2016 and the beginning of the year, there appears to be a new mood filtering throughout the vast shale energy industry. A

Editor Luke Geiver lgeiver@bbiinternational.com

former exploration geologist that is now a portfolio manager

PUBLISHING & SALES

for a major natural resources equity investor company helps

CEO Joe Bryan jbryan@bbiinternational.com

explain the growing sense that many in the shale fields and boardrooms are starting to encounter. As the beginning sec-

Staff Writer Patrick C. Miller pmiller@bbiinternational.com Copy Editor Jan Tellmann jtellmann@bbiinternational.com

President Tom Bryan tbryan@bbiinternational.com

Luke Geiver

tion of the story, “The Time For New Tech In Shale,” highlights,

Vice President of Operations Matthew Spoor mspoor@bbiinternational.com

EDITOR North American Shale magazine lgeiver@bbiinternational.com

shale players have a unique opportunity to tweak their typical

Vice President of Content Tim Portz tportz@bbiinternational.com

mindsets.

Marketing & Sales Director John Nelson jnelson@bbiinternational.com

In the past, the value and allure of an energy production company was linked to the value of its reserves and the possibility the company held for future growth.

Business Development Manager Bob Brown bbrown@bbiinternational.com

There was a time when the hit-rate on a new well was less than certain. But now, more than a decade

Circulation Manager Jessica Tiller jtiller@bbiinternational.com

into shale and the unconventional energy renaissance, the risk linked to geology and to the uncertainty of

Marketing & Advertising Manager Marla DeFoe mdefoe@bbiinternational.com

a shale well’s success is virtually nothing. With the geologic risk essentially gone and the basics of directional drilling, hydraulic fracturing and horizontal well production strategies understood by a high number of investors, the necessity for producers to spend capital, time and effort on swapping acres or acquiring

ART Art Director Jaci Satterlund jsatterlund@bbiinternational.com

new assets is less important—at least to some. Because the risk and general operations of shale are now understood, some believe shale firms have an opportunity to focus more on developing what they have through operational efficiency gains and implementation of new or better technology as opposed to seeking new acreage. Opportunity exists for most operators to go into full development mode on the acres they have as if they were an industrial manufacturing firm and not a wildcat at heart. Doing so would allow investors to receive greater dividends from the shale firms they back. Of course, that is coming from the perspective of natural resources equity portfolio manager, so consider the source. However, it is clear that the risk of shale isn’t linked to the shale or tight formation itself anymore, but rather, the people, technology or strategies used to extract and manage all of the resources. That is why this issue, we’re bringing you two unique stories on the role new technology can—or will—play in the Permian or Bakken or Eagle Ford or SCOOP/STACK. Both stories highlight the massive need and opportunity for new technology in shale—from the totally new (drones), to the seemingly unseen (downhole rod inserts or ultralightweight proppants). There has been a race for acreage and capital. Now, although each of those trends will continue--after all, this is the oil and gas industry--the possibility exists that the next trend will be about finding, implementing and succeeding with new and better technology.

Subscriptions Subscriptions to North American Shale magazine are free of charge to everyone with the exception of a shipping and handling charge for any country outside the United States. To subscribe, visit www. NorthAmericanShaleMagazine.com or you can send your mailing address and payment (checks made out to BBI International) to: North American Shale magazine/ Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-7465367. Reprints and Back Issues Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or service@bbiinternational.com. Advertising North American Shale magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about North American Shale magazine advertising opportunities, please contact us at 866-746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. If you write us, please include your name, address and phone number. Letters may be edited for clarity and/or space. Send to North American Shale magazine/Letters, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203 or email to lgeiver@ bbiinternational.com.

For the Latest Industry News: NorthAmericanShaleMagazine.com Follow us: 6

twitter.com/NAShaleMag

facebook.com/NorthAmericanShale

NORTH AMERICAN SHALE MAGAZINE ISSUE 5 2017

Please recycle this magazine and remove inserts or samples before recycling

EVENTS CALENDAR

North American Shale magazine will be distributed at the following events:

Energy Generation Conference January 23-25, 2018 Bismarck, North Dakota

Issue 6 North American Shale magazine

NAPE Summit

February 5-9, 2018 Houston, Texas Issue 6 North American Shale magazine

DUG Permian Basin May 21-23, 2018 Forth Worth, Texas

Issue 2, 2018 North American Shale magazine

Williston Basin Petroleum Conference May 22-24, 2018 Bismarck, North Dakota

Issue 2, 2018 North American Shale magazine

The Bakken Conference & Expo July 16-18, 2018 Watford City, North Dakota Issue 3, 2018 North American Shale magazine

DUG Eagle Ford

September 19-21, 2018 San Antonio, Texas Issue 3, 2018 North American Shale magazine

For a complete list of North American Shale magazine event distributions, please visit NorthAmericanShaleMagazine.com/ pages/advertising NorthAmericanShaleMagazine.com

NORTH AMERICAN SHALE NEWS

NEWS & TRENDS

SCOOP/STACK The Energy Information Administration has added the Anadarko Basin—home to the emerging shale plays of the SCOOP and STACK—to its monthly Drilling Productivity Report. Information used prior to EIA’s inclusion of the Anadarko Basin showed that the region was producing 450,000 barrels of oil per day and 5.7 billion cubic feet per day of natural gas.

Permian The need for surface production equipment in the Permian is strong. Dragon, a company that builds production equipment out of multiple manufacturing sites, said it was purchasing another production site in the heart of the Permian to meet customer demand there. American Capital Partners LLC believes in the value of energy service firms. The California-based company has provided a $25 million line of credit to Greene Energy Group LLC. Greene serves the Permian and Eagle Ford and will use the credit to pay down debt and to expand operations. “Operators are accelerating their drilling schedules, and we share their confidence in the future of the play,” said Gaylon Gray, CEO of Stakeholder Midstream LLC. The company has announced plans to build a new natural gas gathering system in the Permian for producers working in the Horizontal San Andres.

A $130 million investment into drilling programs within Oklahoma and Texas has given IOG Capital LP a presence in the SCOOP/STACK play of more than 15,000 net acres. Work with two separate Oklahoma-based operators will allow IOG to be a part of roughly 38 wells. Alta Mesa Resources Inc. was combined to acquire low-breakeven, stacked-pay, oil-weighted assets, “preferably with an integrated related midstream platform,” according to James Hackett, CEO of Silver Run Acquistion Corp.— a company that has united an Oklahoma operator and midstream entity. Alta Mesa Holding Corp (the operator) and Kingfisher Midstream LLC (the midstream) have merged to form an Anadarko Basin-focused company valued at $3.8 billion.

U.S. Silica has bought a frack sand mine and distribution plant in Missouri that could yield big results for Texas producers. Included in the $95.4 million deal for a 1.2 million ton production facility in Missouri, U.S. Silica also received an idled frack sand plant located in Texas that the company hopes to restart to serve Permian producers.

Eagle Ford Goodnight Midstream continued its push to become an active water and fluids gathering entity in the major shale plays through its entrance into the Eagle Ford. Goodnight acquired Wyatt Water Solutions and its saltwater disposal well infrastructure in the Eagle Ford.

NORTH AMERICAN SHALE MAGAZINE ISSUE 5 2017

Niobrara Tallgrass Energy Partners has announced plans to build a pipeline connecting DJ Basin shale gas producers to a pipeline network capable of bringing their product to markets across the U.S. Anadarko Petroleum Corp. and DCP Midstream LP have already signed on to use or help build the system.

NA SHALE NEWS

Bakken North Dakota’s top oil regulator said “the new normal” for oil production from the Bakken and Three Forks shale play should remain above 1 million barrels of oil per day. “Companies have discovered that bringing wells on slower and restricting that initial production makes for a better well long term,” said Lynn Helms, director of the Department of Mineral Resources. One year after obtaining a $500 million line of equity investment from Warburg Pincus, RimRock Oil & Gas has spent it all in the Bakken. For $500 million, the E&P acquired 30,000 acres including developed and undeveloped assets within the Bakken’s Fort Berthold Indian Reservation—a region responsible for nearly one-third of all Bakken production. Whiting Petroleum, after selling its Fort Berthold acreage to RimRock for $500 million, also announced plans to perform a reverse stock split to generate better trading action on its common shares.

Marcellus

Utica After receiving approval to perform the direction drilling of its Rover Pipeline project, Energy Transfer Partners has moved another step closer to helping Utica gas producers send product to U.S. and Canadian markets. The Rover pipeline will be 713 miles and move 3.25 billion cubic feet of natural gas per day.

Williams Partners commenced construction on the Atlantic Sunrise pipeline, a portion of the greater Transco natural gas pipeline that will connect Marcellus and Utica shale gas producers to Mid-Atlantic and southeastern U.S. end-users. The Transco pipeline will move 1.7 billion cubic feet per day of shale gas.

Drilled, Uncompleted Wells:

Production By Play:

Anadarko: 933

Anadarko: 463,000 bpd - 5.9 million cf/d

Appalachia: 745

Marcellus/Utica: 99,000 bpd – 24.9 million cf/d

Bakken: 775

Bakken: 1.05 million bpd – 1.9 million cf/d

Eagle Ford: 1,401

Eagle Ford: 1.2 million bpd – 6.1 million cf/d

Haynesville: 186

Haynesville: 46,000 bpd – 7 million cf/d

Niobrara: 711

Niobrara: 511,000 bpd – 4.9 million cf/d

Permian: 2,297

Permian: 2.6 million bpd – 8.8 million cf/d

NorthAmericanShaleMagazine.com

NA SHALE NEWS

Texas in U.S. energy dominance

Total capital expenditures for the Permian are expected to increase by 400 percent over the next five years--from $8 billion in 2016 to over $40 billion in 2021.

The Permian Basin accounts for 45 percent of total onshore oil production in the lower 48 states.

Onshore Oil

Capital Expenditure es

In 2016, fully 41 percent of the total upstream deal value in the nation occurred in the Permian Basin (West Texas and Southern New Mexico) with merger and acquisition investments totaling $25.6 billion.

41%

Upstream Deal Valu D alu lu ue

134 announced projects will draw $71 billion of potential investment to the Texas Gulf Coast for new chemical manufacturing facilities or expanded capacity.

New pipelines planned to connect the Permian Basin with Corpus Christi and the Texas Gulf Coast account for over $6 billion in investment once complete. These projects are expected to support more than 60,000 jobs.

Report shows the role of Texas in US energy dominance 10 NORTH AMERICAN SHALE MAGAZINE ISSUE 5 2017

For the U.S. to become energy dominant, the Texas Oil and Gas Association believes it has to start in the Lonestar state. In a new report created to highlight the role Texas play’s in the U.S. oil and gas ecosystem, Todd Staples, TXOGA president, said his state has shown how to apply know-how to capitalize on opportunity. “Our nation’s ability to achieve and sustain energy dominance rests here in the heart of Texas,” he said. The association’s report, “U.S. Energy Dominance Starts in Texas,” offers talking points that help to back Staples, assertion.

NA SHALE NEWS

DAPL pipeline delivers major case: ETP vs extreme environmental groups Bakken oil producers have benefited from the completion and start-up of the Dakota Access Pipeline, but other entities linked to shale energy development may need to resume focus on the main players involved in the saga of DAPL. Energy Transfer Partners LP has filed a lawsuit against

several organizations with environment-first beliefs. In a suit seeking compensatory damages, ETP is suing Greenpeace International, Greenpeace Inc., Greenpeace Fund Inc., BankTrack, EarthFirst!, and others. At the heart of the lawsuit is ETP’s allegation that

Construction happened without consulting with and over the rights and objections of Standing Rock

“organizations manufactured and disseminated materially false and misleading information about Energy Transfer and Dakota Access Pipeline for the purpose of fraudulently inducing donations, interfering with pipeline construction activities and damaging Energy Transfer’s critical business and

financial relationships.” After nearly three years of rigorous environmental review, ETP believes it has an obligation to shareholders, partners, stakeholders “and all those negatively impacted by the violence and destruction intentionally incited by the defendants to file this lawsuit.”

Used excessive and illegal force against peaceful protesters

Desecration of sacred sites took place

ETP’s project encroached on tribal treaty lands

Key Misinformation Points Used Against DAPL NorthAmericanShaleMagazine.com

NA SHALE NEWS

World oil demand in 2018*, mb/d Americas of which US Europe Asia Pacific Total OECD Other Asia of which India Latin America Middle East Africa Total DCs FSU Other Europe China Total "Other regions" Total world Previous estimate Revision

2017 24.91 20.16 14.20 8.11 47.21 13.15 4.49 6.52 8.08 4.20 31.95 4.69 0.72 12.20 17.61 96.77 96.49 0.28

1Q18 24.69 19.97 13.92 8.59 47.20 13.19 4.63 6.36 8.20 4.35 32.09 4.64 0.73 12.22 17.58 96.87 96.63 0.24

2Q18 25.04 20.34 14.20 7.68 46.92 13.65 4.64 6.59 7.99 4.30 32.53 4.49 0.69 12.75 17.93 97.39 96.93 0.46

3Q18 25.47 20.65 14.61 7.77 47.86 13.31 4.38 6.91 8.56 4.25 33.02 4.86 0.73 12.45 18.04 98.91 98.55 0.37

4Q18 25.17 20.38 14.34 8.33 47.84 13.80 4.94 6.55 7.95 4.38 32.68 5.19 0.82 12.76 18.77 99.30 98.96 0.34

2018 25.10 20.34 14.27 8.09 47.46 13.49 4.65 6.60 8.17 4.32 32.58 4.79 0.74 12.55 18.08 98.12 97.77 0.35

Change 2018/17 Growth % 0.19 0.76 0.18 0.88 0.07 0.50 -0.01 -0.18 0.25 0.52 0.33 2.55 0.16 3.53 0.09 1.30 0.10 1.18 0.12 2.76 0.63 1.97 0.10 2.13 0.03 3.48 0.35 2.87 0.48 2.70 1.35 1.40 1.28 1.32 0.07 0.07

Note: * 2018 = Forecast. Totals may not add up due to independent rounding. SOURCE: OPEC SECRETARIAT

US shale plays’ production growth forecast in 2017 and 2018 2017* Shale play tb/d Production Y-o-y change Permian 1,872 410 Bakken shale 1,000 -20 Niobrara 318 23 Eagle Ford 1,213 40 Other plays 347 47 Total 4,750 500

2018* Production 2,322 1,024 353 1,293 377 5,369

Y-o-y change 450 24 35 80 30 619

Note: * 2017 and 2018 = Forecast SOURCE: OPEC SECRETARIAT

OPEC’s view on 2018 world oil supply/ demand shows growth, optimism The Organization of Petroleum Exporting Countries has taken a positive view of the 2018 global oil supply and demand curve. “Global economic growth momentum had gained traction lately and has become more balanced, with all major economies now showing positive growth this year, a trend that is forecast to continue into 2018,” OPEC explained in an early fall oil market report. Part of the growing de12

mand for oil this year and next is due to economic growth expected in several countries. The U.S. and the euorzone should rise in growth by 2 percent next year, OPEC said, with India growing by 7.5 percent next year. Brazil and Russia will rebound and grow at 1.5 percent in 2018 and China will grow at 6.3 percent next year. The growth in the world’s largest economies will help to offset oil production increases that will take place for OPEC’s

NORTH AMERICAN SHALE MAGAZINE ISSUE 5 2017

total volumes and within the U.S. For year-end 2017 volumes, OPEC will produce 500,000 barrels of oil per day more than it did in 2016. Volumes for this year will reach 32.7 mb/d. Next year, however, OPEC said it intends to add another 200,000 b/d, bringing its yearly average for 2018 to 32.8 mb/d. Based on data supplied from OPEC, the U.S. will produce near-record levels this

year before surpassing production totals records previously set in 1970 next year. This year, production will round out at 9.3 mb/d and then reach 9.8 mb/d in 2018. Despite all of the production increases, world demand will surpass supply. Next year, global oil demand growth will rise by just over 1.3mb/d, bringing the world’s daily total to 98.12 mb/d.

NA SHALE NEWS

Q&A: NAFTA’s role in US oil and gas

James R. Jones, Monarch Global Strategies chairman

Michael Camuñez, Monarch Global Strategies president and CEO

With two rounds of negotiations over the North American Free Trade Agreement completed and a third round scheduled for Sept. 23-27 in Canada, what are the potential consequences for the U.S. oil and gas industry? President Donald Trump has the power to withdraw the U.S. from NAFTA and has threatened to do so. But in August, the American Petroleum Institute, the Canadian Association of Petroleum Producers and the Mexican Association of Hydrocarbon Companies released a joint paper outlining their shared policy positions on NAFTA. Two trade experts who cofounded Monarch Global Strategies LLC—a consulting firm that advises companies conducting business in the Americas—provided North American Shale Magazine with their insights on what NAFTA means to the U.S. oil and gas industry and energy infrastructure. James R. Jones, MGS chairman—a former U.S. ambassador to Mexico during the Clinton administration and former congressman from Oklahoma—played a role in implementing NAFTA. He now focuses on international trade, investment and commerce, business-government relations and financial services. Michael Camuñez, MGS president and CEO, served as an assistant commerce secretary for market access during the Obama administration. He advises U.S. companies in domestic and global markets. Has the U.S. shale revolution caused America’s energy industry to rethink how it views NAFTA? If so, why? Mexico has become a major client for American energy companies: they are now supplying more than 80 percent of Mexican natural gas. Mexico also imports a lot of shale oil—the super lightweight crude Mexico needs to mix with its super heavy Mayan crude. I think it’s fair to say that Mexico is now viewed not only as a critical export market but also a strategic market generally for the development of new shale and other energy resources essential for North American energy independence.

What was your reaction when the American Petroleum Institute, the Canadian Association of Petroleum Producers and the Mexican Association of Hydrocarbon Companies released a joint paper outlining the shared policy positions they support on NAFTA? First, the issuance of a joint statement reflects the significant consensus in and deepening of the North American energy industry, something that might not have been conceivable in years past. We welcome the thoughtful and inspiring position paper. The “Do no harm” and “Trilateral NAFTA” principles advanced by the papers should be kept strongly in mind by U.S. negotiators during the talks. How might the U.S. oil and gas industry’s support for NAFTA cause the Trump administration to rethink its position on the trade agreement? One of Trump’s main reasons for revisiting NAFTA is the U.S.-Mexico trade deficit. But the U.S. oil and gas industry is actually benefiting enormously by Mexico’s postponement of opening the energy markets to private participation: Mexico imported $5.45 billion dollars just in fuels in the first five months of 2017, mostly from the U.S. In 2016, U.S. companies exported natural gas for almost $4 billion dollars to Mexico. From an energy perspective, the U.S. has as large a trade surplus ($11.5 billion USD) with Mexico. In 2016, the total value of U.S. energy exports to Mexico was $20.2 billion, while the value of U.S. energy imports from Mexico was $8.7 billion.

NorthAmericanShaleMagazine.com

PRODUCTS & TECHNOLOGY

OILFIELD TRANSFORMATION

from

ABOVE Small unmanned aircraft systems are already at work in the oil and gas industry, but major players in aviation are making plans for even more capable drones

By Patrick C. Miller

UP, UP AND AWAY: Textron Systems has years of experience operating its Aerosonde unmanned aircraft system overseas with the oil and gas industry. The latest version features vertical takeoff and landing capability. The drone can be launched, controlled and recovered from a pickup. PHOTO: TEXTRON SYSTEMS

14 NORTH AMERICAN SHALE MAGAZINE ISSUE 5 2017

PRODUCTS & TECHNOLOGY

Some of the biggest names in aviation are looking at the U.S. oil and gas industry as a prime market for unmanned aircraft systems (UAS) technology, which they say can reduce costs, improve safety and increase the availability of key assets. While the industry is already employing small UAS flying below 400 feet and within line of sight for inspections and data collection, the true measure of what’s possible will occur when larger unmanned aircraft are unleashed to soar thousands of feet up, operating beyond visual line of sight (BVLOS) while flying missions autonomously using the latest breakthroughs in artificial intelligence and machine learning. UAS missions suited for the oil and gas industry include the inspection of infrastructure and other assets, surveying, security and surveillance, equipment inventory, road safety, fugitive emissions and leak detection, well site reclamation, damage assessment following storms and pipeline monitoring, among others. The potential of UAS was recognized by North Dakota Gov. Doug Burgum who earlier this year challenged his state’s oil and gas industry to consider the technology as a means of helping to achieve a goal of zero pipeline spills. The incentive is to avoid a repeat of the sometimes-violent and costly demonstrations against the Dakota Access Pipeline, which transports Bakken crude from North Dakota to Gulf Coast markets.

Insitu’s Drones Down Under Insitu Inc., the unmanned aircraft subsidiary of the Boeing Co., is already demonstrating what can be accomplished with UAS

in Australia by flying its medium-sized fixedwing ScanEagle for the Queensland Gas Co., a business owned by Shell. Among the benefits Insitu cites are a 20 percent reduction in operating costs and reducing unnecessary driving by an average of 500,000 miles per year. Having the UAS in the air seven hours a day for four days a week, the ScanEagle inspects an average of 100 wells per day while flying at altitudes of 2,000 to 3,000 feet. “We can read a gauge on a particular tank that has been designed for someone to look at it from a couple feet away,” says Vincent Vidal, Insitu’s director of commercial solutions. “It’s really part of Shell’s operations now.” In fact, Insitu believes that its Australian experience could directly transfer to a U.S. shale play such as North Dakota’s Bakken formation. “The reason that we’re interested in North Dakota is that there’s a multiple convergence of factors that makes it the right place to develop a UAS operation,” Vidal says. He lists the University of North Dakota School of Aerospace Sciences academic involvement in UAS, testing and training facilities in the state, strong political support and Grand Forks Air Force Base, which has an all-UAS mission flying the Northrop Grumman Global Hawk. “When you look at oil and gas operations—on the back end—Australia and North Dakota are quite similar in their method of extraction and distribution,” Vidal explains. “In Australia, they’re using fracking methodology to extract the oil and the gas. It’s obviously a controlled upstream market. They have multiple wellheads that are not separated by a great distance, so there’s a concentration of gas and oil infrastructure in pipelines, compressor stations, wellheads and the like. That makes it quite an interesting basin to be monitored.”

NorthAmericanShaleMagazine.com

PRODUCTS & TECHNOLOGY

A BAKKEN POSSIBILITY: Insitu, a subsidiary of Boeing, believes its experience with unmanned aerial vehicles in Australia could transfer to North Dakota's Bakken shale play. The company envisions operating in a 50-mile radius from a hub in Watford City to cover a variety of oil and gas assets. IMAGE: INSITU INC.

From Military To Civilian The unmanned systems branch of Textron Systems—a major defense contractor that also manufactures Cessna, Beechcraft, Bell Helicopters and Hawker civil aircraft—has been flying its Aerosonde UAS for oil and gas operations for the past five years in the Middle East. The company has also done work in North Dakota’s Bakken oilfields. Textron Systems is currently testing a vertical takeoff and landing version of the Aerosonde that can be transported in a single pickup with a crew and ground control station. “All the testing we’ve done, we’ve kept in mind flying pipelines with a small footprint,” says Dennis Racine, senior director of civil and commercial for Textron Systems. “You show up and fly your project with a crew—you’re in, you’re out. That vehicle, when it’s completed and ready for prime time in early 2018, will certainly be targeted toward oil and gas.” Racine notes that because of Textron’s diversity, its unmanned systems division can call on the company’s expertise in civil aviation and geospatial solutions—which includes advanced analytics and visualization—as well as training facilities and command and control technologies for ground stations. “We have Textron Support Solutions, which is a sister company,” Racine relates. “Support solutions is an entire organization made up of pilots and maintainers. I have the ability to put together a really good team with a lot of good products to support the customers’ challenges. 16

NORTH AMERICAN SHALE MAGAZINE ISSUE 5 2017

“We’re constantly working on new vehicles and new capabilities,” he adds. “I think unmanned aircraft are going to be a great tool for the oil and gas industry. We’ve positioned ourselves to be ready to work in that space.” Insitu and Textron Systems started flying their UAS for U.S. military operations and both have logged more than a million hours of unmanned flight time. As the Federal Aviation Administration (FAA) slowly moves toward allowing commercial BVLOS operations for UAS in the national airspace, the companies are pursuing strategies to transition into the world of civilian business. The oil and gas industry is a market in which they see great potential and opportunity. “In terms of capabilities, there are actually more similarities than differences between the commercial and military markets,” Vidal notes. “For commercial customers, we are targeting large corporations, major companies. They’ve got the same standards and expectations in terms of reliability of systems and platforms being dependable every day.” The desire to work with companies highly experienced in UAS flight operations and an understanding of the military’s need for safety and security are also compatible with the needs of business, according to Vidal.

Airbus Leverages Satellites and UAS European aviation giant Airbus entered the UAS market earlier this year by forming Airbus Aerial, headquartered in Atlanta and headed by CEO Jesse Kallman, a 13-year veteran of the unmanned aircraft field. Known for its commercial airliners, helicopters and military aircraft, Kallman says some expected Airbus to get into the drone manufacturing business, but he viewed the opportunity differently. “I saw that Airbus already had the world’s largest satellite imaging business and was already working with companies all over the world to provide high-quality and high-resolution satellite imagery,” he explains. “Drones are just an additional layer in all of that. What Airbus Aerial brings together is satellite imaging, drone imaging and analysis into more of a data source agnostic service so that large organizations—for example an oil and gas company—that may want to survey all of Texas. Drones or manned aircraft are used to get those finer layers of detail and combine it with some interesting analytics.” Beyond providing an eye in the sky to collect imagery and data for analysis, a group of companies under the General Electric umbrella is developing UAS and robotics technology that a few decades ago might have been in the realm of science fiction. Avitas Systems—a GE Ventures company—and NVIDIA—best known for its personal computer graphic processing units—have formed a partnership that will enable fleets of drones to not only fly missions autonomously, but also to learn and become smarter each time they fly. Machine learning—combined with artificial intelligence and powerful computing systems in the field—will enable drones to

AUSSIE AIRSPACE INTEGRATION: Unlike the U.S., Insitu has government authorization to fly its ScanEagle unmanned aircraft system to support a Shell subsidiary in two shale basins of eastern Australia. Insitu has nearly two years of experience flying for the oil and gas industry in the country. PHOTO: INSITU INC.

become increasingly better at spotting cracks and corrosion during inspections. This helps oil and gas companies become more flexible in scheduling inspections and making better decisions about whether equipment needs to be shut down for maintenance.

GE’s Transforming Solution “Essentially, we are here to transform the way things are done in the inspections space,” says Kishore Sundararajan, president of

engineering and product management with Baker Hughes, a GE company (BHGE). “Our goal is to make inspections faster, cheaper, flexible and more reliable.” Sundararajan, who’s also a member of Avitas Systems board of directors, uses the example of a tank farm inspection to demonstrate how UAS will transform the way inspections are conducted. “Typically, what happens in a tank farm is that there’s a crew working on corrosion inspection,” he says. “There’s another crew

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WORKING SMARTER AND HARDER: Using NVIDIA’s DGX Systems, GE companies Baker Hughes and Avitas Systems are developing artificial intelligence and machine learning that enables drones to fly missions autonomously and become more intelligent with each mission they fly. IMAGE: AVITAS SYSTEMS/NVIDIA

checking on the levels of the tanks to make sure they’re where they’re supposed to be. There’s another crew that looks at the infrastructure around the tank farm. What’s going on with the footings of the foundations? Is there soil erosion?” BHGE can accomplish all three of these tasks with in one flight with on-demand inspections using a drone equipped with a high-resolution electro-optical camera, a thermal camera and a light detection and ranging (LIDAR) sensor. As Sundararajan explains, “I run the flight and come back with a 3D model of the tank farm. Now I can compare the 3D model with the last inspection and see that soil has eroded since then. Using the thermal and the LIDAR sensors combined, I can look at temperature differences in the tanks and know what the level of the fluid in the tank is because the surface wall is a different temperature from the fluid. The third thing I do is I check for corrosion and cracks. This is the way the industry is going to change—to

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NORTH AMERICAN SHALE MAGAZINE ISSUE 5 2017

PRODUCTS & TECHNOLOGY

combine these three things together to become one single activity.” Avitas uses NVIDIA’s DGX Systems and supporting software not only to automate the flight paths of UAS doing the inspections, but also to fuse the data gathered from other sensors and industrial assets. Based on analysis of the fused data, algorithms can detect flaws, predict problems and determine which equipment is most at risk. “Here’s the difference with GE,” Sundararajan says. “I can run a drone autonomously. I need a set of pilots that manage a fleet of drones—not one pilot per drone. We use flight management systems to automate the drone flight. The drones decide the flight paths themselves, knowing what they will inspect.”

Regulatory Bumps In The UAS Road As attractive as UAS technology appears and as many benefits as it offers to the oil and gas industry, the only drones the FAA

currently allows to fly commercially must weigh less than 55 pounds. They’re restricted to operations below 400 feet and must remain within the pilot’s line of sight, which greatly limits the value of UAS to industry. “Through GE Aviation, we have been doing commercial flight management for a number of years,” Sundararajan relates. “A good proportion of the world’s aircraft that take off and land are supported with the GE flight management system. “We can get all this done, but we’re still sitting with the FAA working on permitting beyond-line-of-sight drones for operators like GE and the oil companies,” Sundararajan continues. “That’s the limitation today. It’s not that drones aren’t available. It’s not that the technology is not available. It’s not that we don’t know how to do it. The FAA needs to move on the regulation.” Vidal points out that in Australia, Insitu’s ScanEagle is authorized to operate in commercial airspace day and night under the control of a radar system developed by Boe-

ing Phantom Works. “We are fully integrated into the airspace,” he says. “We fly like everybody else. There’s no distinction between unmanned and manned aircraft.” In the U.S., however, there’s more work to be done on the regulatory side before UAS are safely integrated into the national airspace and used to their full advantage by the oil and gas industry. “Since we have a pretty robust relationship with FAA, we can fly beyond line of sight on an exemption basis,” Sundararajan says. “We can go through the process of applying by exemption, but that’s not the way we can operate a business.” Author: Patrick C. Miller Staff Writer, North American Shale magazine 701-738-4923 pmiller@bbiinternational.com

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PRODUCTS & TECHNOLOGY

Following a decade of acreage grabs, HBP’ing and new asset development, shale-energy executives may be on the brink of a major shift in strategy, says Shawn Reynolds, portfolio manager for VanEck’s Natural Resource Equity Group. Reynold’s,

put an even greater emphasis and importance on any technology linked to greater well-site operational efficiency or down-hole production increases.

formerly an exploration geologist and energy analyst, believes shale leaders could or should shift their normal mode of business for two reasons: geology allows for it and investors want it. New strategies deployed across the country’s many tight oil and gas plays could

A Shifting Model? Citing the sentiment of his investor clients and the lingering mood at a major energy investor-based event he attended earlier this year—

EXPERIENCE MATTERS: Shawn Reynolds, Natural Resource Equity Group portfolio manager for VanEck, is a former exploration geologist and energy analyst who now in-tune with investor desires. PHOTO: VANECK

20 NORTH AMERICAN SHALE MAGAZINE ISSUE 5 2017

along with moves that a handful of shale players have made regarding to shareholders—Reynold’s believes the old business model could be changing. “The traditional business model was the exploration model,” he says. “It was high risk, high return and it was all about the next discovery. Every day you woke up and your reserves and the value of your company

PRODUCTS & TECHNOLOGY

THE TIME FOR

NEW SHALE

TECHNOLOGY Portfolio managers, former producers and advanced proppant makers reveal a growing mood on new technology implementation

By Luke Geiver

LINING UP A NEW OFFERING: After testing a new production lift enhancement technology in the Canadian Bakken, HEAL systems has grown significantly and now has offices in multiple major U.S. oil market regions. PHOTO: HEAL SYSTEMS

was less than it was the day before unless you found a way to replace your reserves so you were always on this scramble to find out where the next barrel was coming from.” In that old model, the greatest risk for operators was in the geology—there was always a chance a well could be drilled but come up dry. Today, in shale, the hit-rate on most wells is nearly 100 percent. Because the geologic risk of operating in shale is now gone, producers can now become entities that mimic industrial manufacturing firms constantly looking to lower costs and im-

prove efficiencies. Reynold’s said most of his investors are happy with that approach to shale development now and are less concerned with the vastness of an operator’s portfolio. “What investors want is moderate growth with good returns generating cash,” he said. “Investors want to see free cash returned them,” and not, he adds, used to buy more acreage. If operators are going to implement that mindset into their day-to-day operations, a greater focus will be on extracting more from what they have and to do that,

new and better technology will be needed now more than ever.

Blueprint For Bringing New Tech HEAL Systems, a Calgary-based artificial lift technology developer, offers a unique example of how and why operators are adding new technology at the well site. The HEAL team was formerly a Bakken oil exploration and production company focused on the Canadian Bakken. Production engineers on the team continued to deal with NorthAmericanShaleMagazine.com

PRODUCTS & TECHNOLOGY

issues producing the wells efficiently once they were completed. The team was trying to minimize pressure at the bottom of the well. “We were trying to maximize drawdown,” says Jeff Saponja, CEO. The lower the pressure, the more oil and gas the company could recover in a faster time. “We found that the more drawdown we achieved, the less reliable the lift system became,” he says. After exhausting all of the available technology on the market, Saponja and his team began experimenting with new solutions in their own wells. “We discovered we weren’t dealing with the root issue,” he says. Flows coming out of horizontal wells are typically considered to have slug flows, characterized by periods of inconsistent ratios of oil and gas. Pumps don’t like inconsistent flow, Saponja says. “What we found in the industry was that they were just trying to make bigger pumps or trying to handle inconsistent flows.” Saponja’s team created the horizontal enhanced artificial lift (HEAL) system to stop the slug flow and make it more consistent before it ever reached the pump. The result of their new lift design system—which features no moving parts—thrust the team into a new direction. After deploying the system in all of their own wells, and wells for peers and other producer friends, major industry players began taking note. Since the team obtained the intellectual property in 2015, they’ve installed the system in more than 200-plus systems in Canada and the U.S. This year, Saponja and his team of

PRODUCER PROVEN: The HEAL team used their know-how and ability to test new tech in their own wells during their time as an E&P focused on the Bakken. IMAGE: HEAL SYSTEMS

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40-plus turned their field-level, personalized case studies with a new system into a global collaboration with Schlumberger. HEAL signed a joint venture with the world’s largest oilfield services provider so that Schlumberger could have access and the ability to better deploy the benefits of the HEAL system (HEAL’s team has multiple products now). Saponja and his team get the benefit of a greater reach that includes the entire globe, along with better manufacturing ability. The team is now hiring in Denver, Calgary and Houston. “Our core values are very orientated to thinking and knowing and understanding the producer side of the business,” Saponja says. “With the producer background, we understand the idea of net present value of the wells.” Ron Coulter, vice president of marketing for SUN, a drilling fluid additive manufacturer that recently began pushing its advanced proppant technology, has also come to understand what producers want. While many were concerned about cutting costs and implementing the lowest-cost option for materials, services and technologies, some are now realizing the benefit that new technology can bring. The SUN team has developed an ultra-lightweight proppant that improves long-term production curves and helps to maintain the fracture network or prop on the high side and far field of the fracture network that sand alone can’t typically reach or maintain over time. Although the pricing and type of proppant is different than the basics, operators have started using the solution in their wells to de-

crease production decline curves. “One of the things that is constant throughout all shale plays,” Coulter says, “is the proppant transport issue. Operators just can’t get proppant out far enough into the frack matrix. They are pumping more and more sand but in each individual-stage the sand can only go so far. Mother nature always wins. Gravity wins—the sand is going to settle.” The willingness of the operators to implement SUN’s new product is growing every day, according to Coulter. The main hurdle now for the company is obtaining more data on the performance of the product in the field. Coulter and his team are happy that many peerreviewed papers have been authored on the use of ultra-lightweight proppants because many times, clients prefer to keep their field data proprietary. In many cases, Coulter and his team are happy with the response they are getting from clients—clients that are more focused now on enhancing what they have and not looking to spend more on expansion into other areas. “It worked they tell us. It worked really well,” he says, “and they want to buy more.” Author: Luke Geiver Editor, North American Shale magazine 701-738-4944 lgeiver@bbiinternational.com

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IN PLAY

Harvey’s Impact on Eagle Ford Shale Operators and Gulf Refiners Differs When the U.S. Energy Information Administration released its September drilling productivity report for the major U.S. shale plays, numbers from the Eagle Ford indicated a daily production decrease of 9,000 barrels of oil per day. During the height of Hurricane Harvey in late August, the Texas Railroad Commission said up to 500,000 barrels of oil from the South Texas play had been shut-in. Although the brunt of Hurricane Harvey fell short of delivering its full force of wind and rain to the play, operators provided multiple updates to investors, service providers and midstream entities during and after Harvey. Midstream and refining segment entities did the same, providing a much different impact statement compared to operators on the effects of Harvey.

Eagle Ford Messages:

FINDING THEIR FOOTING: Although many Eagle Ford operators halted drilling and completion operations during Hurricane Harvey, most were able to get back to normal day-to-day operations soon after the storm dissipated. PHOTO: MARATHON OIL CORP.

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Calgary-based Baytex Energy suspended drilling and completion activities but then restarted in less than a week. The operator’s restart efforts were linked to downstream assets coming back online. Sundance Energy Australia shut in roughly two-thirds of its Eagle Ford producing assets—nearly 7,500 barrels of oil per day. Once the wells were brought back online, truck takeaway capacity and availability was the limiting factor for Sundance. Lonestar Resources was able to maintain production on most of its Eagle Ford wells, but like Sundance, midstream and downstream infrastructure was the hurdle for its product to reach the market. EOG Resources, Chesapeake Energy, Marathon Oil and Sanchez Energy all halted drilling or completion operations momentarily during the storm.

IN PLAY

COMPLEX CRUDE CHALLENGE: Because Hurricane Harvey brought record-setting rainfall and flooding to the Gulf’s refining region, some analysts said the Hurricane was the greatest disruptive event in the region’s history. IMAGE: ENERGY INFORMATION ADMINISTRATION

Wildhorse Resource Development Corp., another E&P that was impacted by truck takeaway capacity of its products, said only oil sales and not production volumes were affected. Silverbow suffered minimal damage from the storm and said it did not expect to undergo any insurance recovery actions. Devon Energy is back to normal producing volumes across its Eagle Ford acreage, but the downtime incurred because of the storm will reduce the company’s total Eagle Ford production volumes for the third quarter by roughly 15,000 bpd. Baytex believes its Q3 production volumes will be down by 2,500 boe/d, or less than 1 percent of its yearly production guidance. ConocoPhillips did halt production for a brief multi-day period, but said its yearly production guidance for the Eagle Ford will be left unchanged.

Downstream Dilemma Downstream companies and major refinery operations did

not share the same message as the Eagle Ford operators to the North. IHS Markit, a research and analysis firm tracking the impacts of the storm through daily updates, said Harvey was the single greatest disruptive event to ever afflict the U.S. refining industry. The majority of refineries along the Gulf, including the major ports used for crude loading and offloading, were shutdown, shut-in, damaged or have had to undergo Harvey-related procedures. Disruptions to the oil production ability of the Gulf caused U.S. Secretary of Energy Rick Perry to tap the Strategic Petroleum Reserve for refiners who were able to run but didn’t have access to crude. Through his SPR authorization, three refineries were able to acquire 5.3 million barrels of crude. One month after the main landfall presence of Harvey, refineries along the Gulf Coast are still in the process of recovering and restarting but most have restarted. The Bureau of Safety NorthAmericanShaleMagazine.com

IN PLAY

The Expected Rise In Materials And Services

POWER ISSUES: With wind turbines shut-down at 55 mph wind speeds and Hurricane conditions taking their toll on power infrastructure, Texas lost more than 10,000 Mw of generating capacity during the storm. PHOTO: ENERGY TRANSMISSION FOR TEXAS

Thomasnet.com Category

Activity Increase

Steel Buildings

1,700%

Doors

1,200%

Concrete, Masonry & Stone

1,100%

Engineered Wood Products

700%

Clay Bricks

500%

Drywall

400%

Harvey Reigns In Electricity Output

Plywood

400%

Drywall Contractors

300%

Wall Panels

150%

Thomasnet.com Category

Activity Increase

The Electric Reliability Council of Texas’ grid and several other transmission and distribution lines experienced substantial forced outages. High winds and significant flooding in South Texas and the Gulf Coast forced more than 10,000 megawatts of generating capacity out of service.

Communication Systems

10,000%

Hospital Beds

7,000%

Trucking Services

4,600%

Two-Way Communication Systems

2,500%

Transformers

1,750%

Utility Trailers

1,200%

Valve Repair/Reconditioning Services 1,100% Diesel Generators

800%

Gas Generators

500%

Uninterruptible Power Supplies

300%

SOURCE: THOMASNET.COM

26 NORTH AMERICAN SHALE MAGAZINE ISSUE 5 2017

and Environmental Enforcement said, at one point, 121,484 barrels of oil per day in the federal administered areas of the Gulf of Mexico were shut-in. More than a month after the weather event, ports, refineries and midstream infrastructure assets are still dealing with Harvey recovery efforts mainly due to flooding.

Post-Harvey Material Buying and Sourcing Trends Data from Thomasnet.com shows the impact Harvey has had on the Houston area. The data provider has projected how materials and general services in the area will, or already have increased. Author: North American Shale magazine staff

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