Many of America's oil and gas producers are expecting greater production returns from longer lateral lengths when they drill in unconventional plays. They could be in for a rude awakening, however, as returns from the Barnett Shale indicate that longer laterals have not translated into greater production totals.

A new report from Bernstein Research said there is "no evidence of improved decline" in the Barnett Shale when longer lateral lengths are used. The firm indicated that lateral lengths have increased since 2003 from 2,000 feet to as much as 5,000 feet in the third quarter of 2015. The average peak rate declined, however, from 450 boe/d in early 2003 to less than 350 boe/d in the first quarter of 2016.

Increasing lateral length hurts all horizontal well performance as frictional losses increase and in the Barnett, optimal well length was determined by balancing reduction of fixed costs with reduced incremental production," Bernstein said. "Even correcting for lateral length, Barnett wells got worse with time. The E&P narrative is that a revolution in technology of improved completions (more sand, water, clusters, geo-steering, landing, etc.) is pushing down the cost curve. Yet we fail to see it in the most complete data record we have."

Unconventional drillers still are optimistic about the results they anticipate, though. During a recent speech at a Deloitte conference in Houston, Pioneer Natural Resources Co. CEO Scott Sheffield said his company expected to benefit from the surge in unconventional production in the Permian Basin.

"For the last 70 years, we've been going after this dirty sandstone that used to provide wells producing 100 barrels per day," he said. "Now, we're going after the source rock, and we're getting wells that are producing 2,000 barrels per day."

Sheffield went on to say that he believes production in the Permian, which is currently around 2 million barrels per day, could increase to as much as 5 MMbbl/d by 2025. One of the reasons for that expectation was the belief that technological improvements, including the use of longer laterals in horizontal drilling, would lead to improved production totals.

Bernstein contended, however, that "operators couldn't overcome geology," and the same rules that have applied to drilling historically still apply to unconventional producers: there are only so many high quality locations with a limited amount of oil and gas.

"We believe that the Barnett shale offers compelling evidence that technology improvements ultimately cannot overcome geology," the firm said. "We believe the implication is that shale is a scarcer resource than generally considered and thus are more constructive longer-term as the world must seek a more marginal barrel to match future demand growth. That is bullish for longer-term oil price."

As a result of its findings, Bernstein said it would recommend investors buy into companies with "the best access to the largest and best quality resources." Among that group, the firm said, are Pioneer, EOG Resources Inc.Apache Corp. and Devon Energy Corp.