Jim Lockhart, Director, North American Supply, IHS, chaired the Wednesday Strategic Dialogue "North American Shale-Productivity Progress," which focused on what is driving productivity gains today. The panelists agreed that the technology improvements and the enormous size of the unconventional reservoirs are the main drivers behind the continuing shale revolution. As the industry gets smarter in understanding the rock properties, there is a great deal of upside potential in recovery factors from the unconventional reservoirs.

Greg Leveille, General Manager, Unconventional Reservoirs Technology Program, ConocoPhillips, noted how unconventional reservoirs in the United States became significant in a short period of time in part because of the size of recoverable resources available in the big four unconventional fields-Bakken, Permian, Eagle Ford and Marcellus. Technology advancements have revolutionized the industry, driving down costs and increasing production rates. Mr. Leveille said that the completion optimization in the Eagle Ford play has significantly increased the estimated ultimate recovery per well by 30%, reduced costs by 30%, and reduced spud-to-prod cycle time by 40% during 2013-15. But to answer how long will these improvements last, he said, "We are somewhere in the middle part of the learning curve, and much advancement is ahead."

Hans-Christian Freitag, Vice President, Integrated Technology, Baker Hughes, discussed technology improvements from a service company viewpoint. He started with a question-"Efficiency gain is a bane or boon?" He noted that after the 2008 natural gas crisis, the number of gas drilling rigs declined, but gas production went up, partly because of associated gas coming from oil rigs. The average land drilling days per horizontal well dropped almost by half from 2007 to 2015. Efficiency gains have dramatically improved. "But 70% of unconventional wells do not reach their production targets, and 30% of all clusters are not producing," he added. "We were insulated when the oil price was in $100/bbl range," he noted. He said that there is need to understand the subsurface and model the reservoir to allow operators to predict the performance. He ended his talk by stating, "There was never easy oil."

Mark Zoback, Benjamin M. Page Professor of Geophysics, Stanford University, focused his remarks on the nature and property of rocks. He talked about the complexity of flow systems in terms of permeability. "Shale permeability is a million times smaller than conventional reservoirs," he noted. The industry has low recovery factors now, approximating 25% for gas and 5% to 10% for liquid plays. But as we become smarter in further understanding the property of rocks, he said, the recovery factors will improve significantly. He mentioned that Barnett wells drilled from 2005 to 2007 showed a rapid initial production decline, and production stabilized later. This he attributed to the rock permeability; in unconventional reservoirs it is low initially, drops quickly as the reservoir depletes, and increases again after significant depletion. He believes that understanding variability in clay and carbonate content of the rocks will maximize production.

Stephen Beck, Senior Director, North America Supply, IHS, said, "Lower prices have given industry a little breather to plan out wells more effectively." In the past 12 months, the pace of technology migration from one play to another has increased. He said, "We have seen technology transfer from the Eagle Ford play to the Permian that has shown more consistent results in the Permian in the past 12 months than what we have seen previously." He mentioned that in 2010,900 Tcf of gas was estimated to be available at $4/MMBtu or less; but a recent IHS analysis concludes that 1,400 Tcf of recoverable gas is available at $4/MMBtu or less.

Mr. Lockhart asked the panelists how much sweet spot is left. Mr. Leveille noted that the sweet spot number keeps growing within large plays with technology advancements. Mr. Freitag said that it is a question of geology and future technology. When asked about how the US unconventional revolution will be transferred internationally, panelists agreed that fiscal systems and the regulatory environment are the main determinant. Mr. Freitag also said that a "change of mind set from conventional to unconventional fields" is very important. He added that technology innovation and adoption together drive the successes achievable in unconventional resources.

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.