Tickers in this Article: GMXR, HK, BEXP, NFX
Exploration and production companies continue to push the limits of new technology in the natural gas and oil shale plays that are slowly starting to dominate drilling in North America. Over the last decade, the industry "cracked the code" in shale formations by perfecting the technique of hydraulic fracturing, or pressure pumping, of wells during the completion process. The industry also started to drill more horizontal wells with longer lateral lengths and multiple fracturing stages. These techniques are used regularly in the Haynesville, Bakken, Marcellus, Eagle Ford and other shale areas.

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Brigham Exploration
(Nasdaq: BEXP), which is active in the Bakken Shale, has applied these technologies on its acreage. The company's first wells were vertical to test the play, and they had low initial production rates.

The latest well that the company announced was completed using a 28-stage fracturing process. The Brad Olson 9-16 #1H had an initial production rate of 2,112 barrels of oil equivalent (BOE) per day during its first 24 hours. The company will begin another 28-stage completion later in the month, but it has not disclosed if it will go above 28 stages.

Other Companies Employing New Technology
Newfield Exploration (NYSE: NFX) is also employing new technology to develop its acreage in various shale plays, including the Woodford Shale. The company is using longer lateral lengths - the latest 10,000 feet - to develop the plays. The company calls this a super-extended lateral.

Petrohawk Energy (NYSE: HK) had similar results when it increased the number of fracturing stages on its wells in the Eagle Ford Shale in South Texas. The company is up to 18 stages, and management believes that the completion process will lead to "strong IPs (initial production rates) with higher pressure retention and flatter production profiles."

Reduced Completion Costs
One noteworthy facet of employing this new technology in developing shale plays is that total completion costs have fallen despite the increase in lateral length and fracturing stages. GMX Resources (Nasdaq: GMXR) reported that completion costs in the Haynesville Shale for an eight-stage fracturing in November 2008 were just over $7 million. In September 2009, the company was doing 15-stage fracs with total completion costs just under $4 million.

While some of this lower cost per well may be due to the plunge in service costs from the recession, it can also be attributed to the expertise of the operators in learning the geology of the play. One question that investors should consider is whether there is a technological limit to the increase in lateral lengths and fracturing stages beyond which an increase will not prove economic.

Technology's Future Role
The employment of technology in shale plays has carried the exploration and production industry into developing areas that were written off as uneconomic just a few years ago. Let's hope the industry can keep pushing the limits for a long time to come, as the resources are desperately needed. (For more, check out our Oil And Gas Industry Primer.)

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