The DNA of oil wells - U.S. shale enlists genetics to boost output

By Ernest Scheyder

HOUSTON (Reuters) - A small group of U.S. oil producers has been trying to exploit advances in DNA science to wring more crude from shale rock, as the domestic energy industry keeps pushing relentlessly to cut costs and compete with the world's top exporters.

Shale producers have slashed production costs as much as 50 percent over two years, waging a price war with the Organization of the Petroleum Exporting Countries (OPEC).

Now, U.S. shale producers can compete in a $50-per-barrel oil market, and about a dozen shale companies are seeking to cut costs further by analyzing DNA samples extracted from oil wells to identify promising spots to drill.

The technique involves testing DNA extracts from microbes found in rock samples and comparing them to DNA extracted from oil. Similarities or differences can pinpoint areas with the biggest potential. The process can help cut the time needed to begin pumping, shaving production costs as much as 10 percent, said Ajay Kshatriya, chief executive and co-founder of Biota Technology, the company that developed this application of DNA science for use in oilfields.

The information can help drillers avoid missteps that prevent maximum production, such as applying insufficient pressure to reach oil trapped in rocks, or drilling wells too closely together, Kshatriya said.

"This is a whole new way of measuring these wells and, by extension, sucking out more oil for less," he said.

Biota's customers include Statoil ASA, EP Energy Corp and more than a dozen other oil producers. Kshatriya would not detail Biota's cost, but said it amounts to less than 1 percent of the total cost to bring a well online.

A shale well can cost between $4 million and $8 million, depending on geology and other factors.

Independent petroleum engineers and chemists said Biota's process holds promise if the company can collect enough DNA samples along the length of a well so results are not skewed.

"I don't doubt that with enough information (Biota) could find a signature, a DNA fingerprint, of microbial genomes that can substantially improve the accuracy and speed of a number of diagnostic applications in the oil industry," said Preethi Gunaratne, a professor of biology and chemistry at the University of Houston.

Biota has applied its technology to about 80 wells across U.S. shale basins, including North Dakota's Bakken, and the Permian and Eagle Ford in Texas, Kshatriya said. That is a tiny slice of the more than 300,000 shale wells across the nation.

EP Energy, one of Biota's first customers, insisted on a blind test last year to gauge the technique's effectiveness, asking Biota to determine the origin of an oil sample from among dozens of wells in a 1,000-square foot zone.

Biota was able to find the wells from which the oil was taken and to recommend improvements for wells drilled in the same region, said Peter Lascelles, an EP Energy geologist.

"If you've been in the oilfield long enough, you've seen a lot of snake oil," said Lascelles, using slang for products or services that do not perform as advertised.

Lascelles said DNA testing helps EP Energy understand well performance better than existing oil field surveys such as seismic and chemical analysis. The testing gives insight into what happens underground when rock is fractured with high pressure mixtures of sand and water to release trapped oil.

Biota's process is just the latest technology pioneered to coax more oil from rock. Other techniques include microseismic studies, which examine how liquid moves in a reservoir, and tracers, which use some DNA elements to study fluid movement.

Venture capitalist George Coyle said his fund Energy Innovation Capital had invested in Biota because it expected the technique to yield big improvements in drilling efficiency. He declined to say how much the fund had invested.

"The correlations they're going to be able to find to improve a well, we think, are going to be big," he said.

(Reporting by Ernest Scheyder; Editing by Gary McWilliams, Simon Webb and David Gregorio)