In 1980s and 1990s, even restrained by petroleum engineering technology, some oil companies like Micelle Energy Company still tried to explore in fine-particle formations. At first, oil companies used horizontal wells to explore shale gas and did precursive experiment in Austin Chalk.

Later, this technology was popularized in the exploration of Barnett Shale Formation. Meanwhile, oil companies started to try new completion and output-increasing techniques, such as multistage hydraulic fracturing, slick water fracturing liquid (including liner and cross-linked gel) and supporting agents of different sizes.

Early in this century, due to higher natural gas price and technology breakthrough in drilling, completion and exploration, Barnett Shale development with horizontal wells became economically feasible. The high initial production of shale gas pool and high price of natural gas greatly promoted the development of shale gas exploration. Furthermore, the good homogeneity of shale blocks and wide spread of transverse distribution with a ‘resource region’ of tens of thousands of square miles led to a shale gas revolution, forming a new and developing direction of shale gas exploration.

1. The First Stage: Development of Shale Gas Commercial & Technological Strategy

On the early stage of shale gas exploration, medium independent oil companies dominated the market. Most of them quickly developed into large independent oil companies.

With the establishment of large-scale model which attracted much attention of Wall Street, many companies were able to apply their thinking that had been proved effective in the past onto the large-scale drilling, completion and exploration of shale gas. However, it is not certain that professional oil companies can make good results on the early stage of shale gas exploration. The main reasons are as follows:

Joined late (Independent oil companies already rented the dessert region);

Did not apply the key exploration strategy of independent oil companies;

The attended shale blocks had not been tested or selected;

Obtained shale blocks of no developing value;

Reacted slowly to new advancement;

High operating cost;

Used various engineering technology in a large scale but achieved little;

The team lacked exploring experience on shale blocks or unconventional blocks.

Consequently, although some large oil companies took part in the development of shale gas, the result was poor. For example, Shell took part in the development of Mississippi limestone in Oklahoma and Kansas. But this block was sold in only a few years because of the poor result and high cost. Also, BP and Lewis Energy Company developed shale gas on EaSe Ford Block. Although the result is satisfactory, BP still thinks it is necessary to cut the cost.

Similar to BP, other large oil company cooperated with independent energy companies, who entered into the field of shale gas exploration earlier and had abundant developing experience, and achieved success. For instance, Norway National Oil Company bought Brigham Energy Company and obtained most patent technologies; BHP Billiton Ltd. Bought Oil Eagle Energy Company and kept its previous CEO for some time in order to transfer the intellectual property rights.

Likewise, other large oil companies started their shale gas exploration through buyout of independent oil companies (not simple block renting).

Certainly, this does not mean that each independent oil company achieved success, or that all large oil companies confronted poor results. It only indicated that the participation of large oil companies in shale gas exploration is more eye-catching since the scope and depth of large oil companies’ involvement is larger.

1.1 Fast and Effective Block Location

Independent oil companies often concern about one or two shale blocks studied for several years. The company either has oil field in operation whose shale block will finally get onto production as a margin pool, or can rapidly expand new shale blocks with no interference (at least initially) towards the market.

Barnett Shale

This block is special. Since most target formations lie under Vossburg, a lot of public hearings must be held before exploration, which made its shale gas development well-known. Many oil companies engaged in this work. Most exploring techniques are still in trial stage and the developing experience of these companies differs a lot.

Marcellus Shale

Shale gas production of this block concentrates in one area. Other formations have been put into production for many years. Actually, Marcellus Shale is the margin pool of this block. Companies working in this area like Lange and Cabot possess or can use present infrastructures hence have excellent primary advantages.

EaSe Ford Shale

This is a typical large shale gas block and has a rare extensive renting area. Renting the whole block is favorable for improving the entire profit. Meanwhile, the working company is demanded to establish a good trusting relationship with landowner, which is difficult for a foreigner or large oil company.

Bakken Shale

Before the real potential of shale was widely approved, Brigham Oil Company and Continent Oil Company already obtained the lease of this block. The estimated recoverable reserve by US Geological Survey was small (equals 6.4×108m3 crude oil), which made these companies benefit from block renting. Presently, due to the appearance of new techniques and discovery of new formations like Three Forks Formation, the estimated recoverable reserve of this block equals 76.3×108m3 crude oil.

1.2 New Financing Method

Due to the large scale of shale gas blocks, huge producing reserves of horizontal wells and homogeneous exploration of all spots, the estimated final reserves and cash flow arouse much attention of Wall Street investors. But it still would be difficult for most independent oil companies to operate on shale blocks with highly intensive capitals if they cannot obtain finance in other creative ways.

Large oil companies are often trapped in a reality that big shareholders are investors of large agencies. They usually ask for profit dividends and expect a rise. However, small oil companies of low market value are very aggressive, that is investors are more likely to assume higher risks for possible high return. Even so, the mode of ‘high risks, high returns’ sometimes might get laid on ice if shareholder activists acquired the control over company. Furthermore, this mode is probably the only result of a high-debt & low-price era.

Nevertheless, some visionary leaders often play a major part on ‘Concept Confirming’ stage, and then shareholder activists joined to establish a set of deliberate rules, i.e. cost control and unified deployment. Adventure may be a good method, but it does not always work. This depends a lot on a company’s culture.

Like the exploring stage, the development of unconventional blocks relies on creativity. Some companies are trapped in the double dilemma of high debt and low price. It was thought that other companies are too careful in buying the assets of these companies. This is because investors expect a steady increasing speed, as though ‘concept confirmation’ always means going well ever after. Unfortunately, with deeper recognization on reservoirs, the development of unconventional resources needs more creativity.

1.3 Application of New Techniques

Among the breakthrough techniques applied in shale gas exploration, most are cooperatively developed by independent oil companies and oil service companies. To ensure the production in tenancy, companies have to drill as fast as possible to accelerate the working schedule. And companies usually use the block as a ‘in-situ lab’ to test and evaluate early single wells before the production. If the testing result of one or two wells indicates that severe problems may be brought in by any techniques, independent oil companies will immediately adjust or even completely change the drilling scheme.

Some new techniques are listed as followed:

Determine oil & gas border through geochemical method

Horizontal drilling/Geo-steering drilling

Geo-steering imaging technique to effectively recognize dessert regions

New fluid to reduce damages to formations

Real-time temperature & pressure inspection tools

Man-made and natural fracture system

Fracturing liquid & hydraulic fracturing design

To further understand mechanical properties of rock

XRD technique to recognize rock properties

‘In-situ lab’ method

Organization structure with team as the core (distributed leadership)

1.4 Challenges

The first stage of shale block exploration achieved great success in engineering technology, which made it possible to drill and complete in shale and produce oil, dry gas & wet gas later. However, a report from Credit Suisse revealed that the production decline rate of shale gas well was huge in the first year. For example, the decline rate of Mississippi limestone gas well was up to 80% and that of Bakken Three Forks shale gas well was around 65%. To control decline rate and develop formations better, research focus moved onto infill drilling (horizontal well).

Besides high production decline rate, other technological challenges include:

Increased cost of large-scale hydraulic fracturing;

Well site and infrastructures need optimization;

To locate dessert region more precisely;

To determine the best well distance and well density;

To determine the oil & gas border of a block (‘dead oil & gas line’);

To determine new oil & gas formation, especially in multiple oil & gas formations or shale blocks of ‘superimposed formations’.

2. The Second Stage: Technical Strategy Optimization of Shale Gas Exploration

At present, shale block exploration has stepped into a new stage, including the optimization of drilling and completion to obtain higher initial production and the control of single well production decline rate to improve recoverable reserves. The key problem of the second stage lies in that large oil companies and independent oil companies needs to realize the exploring benefits and improve the quality of investment portfolio. Their purposes mainly include:

To obtain operational blocks;

To obtain fast cash flow from production;

To study from practice;

To use revolutionary technology;

To optimize infrastructures;

To shorten the producing stage with high decline rate;

To explore the new application of infilled well pattern and improve final recovery.

Williams-Kovacs and Clarkson provided a universal workflow for shale gas exploration. Yet sometimes special developing methods are necessary. The developing process of shale blocks can be generalized into three aspects, i.e. exploration, evaluation and development.

2.1 Exploration

The main purpose of exploration is to recognize the dessert region of shale formations, primarily including acquisition of working site (to rent or buy), analysis and study on large basins, typical profile, logging, seismic survey and geophysics, etc.

2.2 Evaluation

The purpose of evaluation is to prepare for precursive experiment well and horizontal production well.

1) The design of precursive experiment well. The main purpose is to ensure the scientificalness of design and collect data for ongoing laboratory research, primarily including pressure inspection, well testing, logging & coring as well as precursive experiment before and after fracturing.

2) Horizontal wells. The main purpose is to guide the optimization of fracturing design and operation, primarily including shortening well distance, optimizing the density of supporting agent, increasing well density and applying more supporting agents.

2.3 Development

The purpose of development is to keep the balance between investing and production optimization.

Investment. Effective use of capitals, hedging and good mid-stream contract.

New regions in superposition zone. Towards the multi-bore well in every superimposed formation; multiplication of operational areas; reduction of risks and expenses.

Well Pattern Design. Optimization of well distances and position (including superposition well and infill well).

Working efficiency. Infrastructure, mid-stream operation and fluid treatment.

Well density operation (infilled well pattern/ vertical interval drilling).

With the development of shale gas, the optimization of engineering technology gets especially important. To study an optimizing method is to consider variables with effective models, including physical properties and variables in financing and economy.

3. Conclusion and Prospect

In the second stage of shale block commercialization, technical strategy mainly focuses on formation optimization. Undoubtedly, significant progresses will appear in formation description, dessert recognization, drilling & completion as well as production increasing measures.

Some important technical breakthroughs may be expected. The change of present drilling method and the combination of production-increasing drilling and acidification can minimize the damage to formations and reduce cost and cut down drilling & completion time greatly. The final result is to cut down the cost and realize higher final recovery.

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