Van Eck portfolio manager and senior energy analyst says that companies employing unconventional plays have a near-certainty of finding oil and gas.
While not a new concept within the global energy complex, “fracking” is a relatively new word in the investment lexicon. Hard Assets Investor Managing Editor Drew Voros recently caught up with Shawn Reynolds, co-portfolio manager of the Hard Asset Strategy for Van Eck Global, to talk about why fracking has become so important to our country’s energy future and how it offers investment opportunity. Reynolds spoke about the technology unlocking the power of horizontal drilling, the reduced risk in exploration involved with fracking and the growing prowess of the U.S. oil industry.
Hard Assets Investor: Let’s talk about fracking [hydraulic fracturing]. Is this America’s next big thing, and why?
Shawn Reynolds: Well, I wouldn’t say it’s the next big thing, because it’s already a big thing. Hydraulic fracturing has been around for more than 60 years. This isn’t new and it’s certainly not new to the industry.
The reality is that for many decades, virtually every well drilled on shore of the United States has been fracked. What’s going on right now is horizontal drilling, which also has been going on for many decades. But now it’s “extended reach horizontal drilling.” If you think about horizontal drilling even 10 years ago, extending out 500 feet or 1,000 feet was a lot. Now 5,000 feet is about standard for a horizontal well. And there are 10,000 and 11,000 and 12,000 feet horizontal legs. So you’re drilling down 10,000 feet and out 10,000 feet. That’s one of the big technological advancements.
HAI: What has allowed that?
Reynolds: It’s just the type of drilling engineering that goes into getting the needed amount of torque on the end of that drill bit when you’re down 20,000 feet going horizontal. Think about drilling vertically. You’re actually lifting up on the entire pipe. If you put all the weight of the pipe on the drill bit, it would buckle. The drill bit wouldn’t be able to rotate.
With a vertical well, you are lifting up on the pipe as the drill is turning. On a horizontal well, you have the other problem. You can’t get the pressure up against the rock face to actually bite into it. So it’s the engineering of turning that corner and keeping the torque and pressure on the drill bit. That’s basically it. It’s the evolution of that technology. They can turn almost a right angle turn on the drill bit and get it very horizontal. They can actually steer it. It’s called “rotary steerable drilling,” where you can angle the drill bit up and down. It can go hundreds of feet up and down as it’s going more or less horizontal. That’s truly an amazing technology.
When a well is fracked vertically, it’s pretty much one gigantic frack and you’re done. Now they go out to the head of that well — that’s called the toe — and put it on one stage. Then they draw in a couple of hundred feet and do another stage.
They can do 30 or 40 stages of hydraulic fracturing. So the technology is cool, but why is it working?