FRACTIONAL FLOW

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Posts Tagged ‘Mountrail

Is the Red Queen outrunning Bakken LTO extraction?

This post is an update on LTO extraction in Bakken based upon published data from the North Dakota Industrial Commission (NDIC) as per January 2015.

This post also presents a closer look at developments in LTO extracted from the three of the four counties that presently dominates LTO extraction; McKenzie, Mountrail and Williams.

With an oil price below $50/Bbl (WTI) the companies involved in extraction of LTO in Bakken faces two financial challenges;

  1. The decline in the cash flow from operations reduces funding capacities for manufacturing new wells. A lower oil price also lowers the value of the companies’ assets and borrowing capacities.
  2. The “average” well with around 90 kb [90,000 Bbls] of flow in its first year is estimated to have an undiscounted point forward break even (that is a nominal break even with 0% return for the well) at around $65/Bbl (WTI). The break even price increases with increases in the return requirement.


In short, LTO extraction at present prices
($45/Bbl, WTI) makes little commercial sense!

Figure 01: The chart above shows development in Light Tight Oil (LTO) extraction from January 2009 and as of January 2015 in Bakken North Dakota [green area, right hand scale]. The top black line is the price of Western Texas Intermediate (WTI), red middle line the Bakken LTO price (sweet) as published by the Director for NDIC and bottom orange line the spread between WTI and Bakken LTO wellhead all left hand scale.

Figure 01: The chart above shows development in Light Tight Oil (LTO) extraction from January 2009 and as of January 2015 in Bakken North Dakota [green area, right hand scale]. The top black line is the price of Western Texas Intermediate (WTI), red middle line the Bakken LTO price (sweet) as published by the Director for NDIC and bottom orange line the spread between WTI and Bakken LTO wellhead all left hand scale.

From December 2014 to January 2015 LTO extraction from Bakken(ND) declined from 1.16 Mb/d to 1.13 Mb/d.

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Are Mountrail’s Sweet Spots Past Their Prime?

This post is an update on total Light Tight Oil (LTO) extraction from Bakken in North Dakota based upon actual data as of October 2014 from North Dakota Industrial Commission (NDIC). It further presents a statistical analysis on developments of well productivity with a detailed look at developments in Parshall, Reunion Bay and Sanish.

  • There were general improvements in LTO well productivity in Bakken during 2013.
  • Present trends in LTO well productivity for Mountrail’s sweet spots (Alger, Parshall, Reunion Bay, Sanish and Van Hook) suggests these are past their prime.
  • Figure 29 in this post show development in well productivity for Alger and Van Hook and figures 06, 08 and 10 for Parshall, Reunion Bay and Sanish. A common feature for Parshall, Reunion Bay, Sanish, and Van Hook is that these reached new highs in well productivity for wells started in 2013.
    Alger has been in general decline since 2011.
  • LTO extraction in recent years may be viewed as a source for global swing production for oil.

Figure 01: The chart above shows development in Light Tight Oil (LTO) extraction from January 2009 and as of October 2014 in Bakken North Dakota [green area, right hand scale]. The top black line is the price of Western Texas Intermediate (WTI), red middle line the Bakken LTO price (sweet) as published by the Director for NDIC and bottom orange line the spread between WTI and Bakken LTO wellhead all left hand scale.

Figure 01: The chart above shows development in Light Tight Oil (LTO) extraction from January 2009 and as of October 2014 in Bakken North Dakota [green area, right hand scale]. The top black line is the price of Western Texas Intermediate (WTI), red middle line the Bakken LTO price (sweet) as published by the Director for NDIC and bottom orange line the spread between WTI and Bakken LTO wellhead all left hand scale.

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Written by Rune Likvern

Friday, 9 January, 2015 at 20:40

Will the Bakken Red Queen Outrun Growth in Water Cut?

This post presents a closer examination of actual data on Light Tight Oil (LTO) extraction, developments in water cut and Gas Oil Ratio (GOR) for some pools and individual wells in the Middle Bakken and Three Forks formations in North Dakota.

LTO extraction’s primary drive mechanism is (differential) pressure and there are some noticeable trends for LTO extraction from Bakken:

  • LTO productivity (measured as average totals by vintage) in 2014 have increased, most notably from the Middle Bakken formation which has better well productivity than Three Forks.
    There are differences to LTO productivity developments amongst the pools.
  • Water cut; generally increases as the wells ages.
    An indicator for depletion.
  • Water cut; generally increases for newer wells.
    This suggests that the areas with the highest oil saturation has been developed.
  • Gas Oil Ratio (GOR, produced and expressed as Mcf/Bbl); generally increases as the well ages. 
  • What appears to characterize a Bakken sweet spot is the presence of natural fractures (favorable geology), high oil saturation and a pressure above hydrostatic pressure.

Further, this post also has a brief look into well economics and describes how well manufacturing is likely to be affected by the decline in the oil price and what this may entail if a lower oil price ($70/Bbl, WTI) is sustained.

Figure 01: The chart above shows development in the water cut [water cut = [water/(water + LTO)] for the “average” wells by vintage in North  Dakota. Produced water (brine) is transported to dedicated disposal sites. Chart by Enno Peters.

Figure 01: The chart above shows development in the water cut [water cut = [water/(water + LTO)] for the “average” wells by vintage in North Dakota. Produced water (brine) is transported to dedicated disposal sites.
Chart by Enno Peters.

What is fascinating about LTO wells in Bakken is that the individual wells appear to have their own “personality” when it comes to productivity, surrounding rock properties, water/oil saturation and GOR which makes well management (of close to 9,000 “personalities”) a paramount task.

This post contains in total 30 charts that hopefully are self explanatory.

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Growth in Global Total Debt sustained a High Oil Price and delayed the Bakken “Red Queen”

The saying is that hindsight (always) provides 20/20 vision.

In this post I present a retrospective look at my prediction from 2012 published on The Oil Drum (The “Red Queen” series) where I predicted that Light Tight Oil (LTO) extraction from Bakken in North Dakota would not move much above 0.7 Mb/d.

  • Profitable drilling in Bakken for LTO extraction has been, is and will continue to be dependent on an oil price above a certain threshold, now about $68/Bbl at the wellhead (or around $80/Bbl [WTI]) on a point forward basis.
    (The profitability threshold depends on the individual well’s productivity and companies’ return requirements.)
  • Complete analysis of developments to LTO extraction should encompass the resilience of the oil companies’ balance sheets and their return requirements.

Figure 01: The chart above shows development in Light Tight Oil (LTO) extraction from January 2009 and as of August 2014 in Bakken North Dakota [green area, right hand scale]. The top black line is the price of Western Texas Intermediate (WTI), red middle line the Bakken LTO price (sweet) as published by the Director for NDIC and bottom orange line the spread between WTI and Bakken LTO wellhead all left hand scale. The spread between WTI and Bakken wellhead has widened in the recent months.

Figure 01: The chart above shows development in Light Tight Oil (LTO) extraction from January 2009 and as of August 2014 in Bakken North Dakota [green area, right hand scale]. The top black line is the price of Western Texas Intermediate (WTI), red middle line the Bakken LTO price (sweet) as published by the Director for NDIC and bottom orange line the spread between WTI and Bakken LTO wellhead all left hand scale. The spread between WTI and Bakken wellhead has widened in the recent months.

What makes extraction from source rock in Bakken attractive (as in profitable) is/was the high oil price and cheap debt (low interest rates). The Bakken formation has been known for decades and fracking is not a new technology, though it has seen and is likely to see lots of improvements.

LTO extraction in Bakken (and in other plays like Eagle Ford) happened due to a higher oil price as it involves the deployment of expensive technologies which again is at the mercy of:

  • Consumers affordability, that is their ability to continue to pay for more expensive oil
  • Changes in global total debt levels (credit expansion), like the recent years rapid credit expansion in emerging economies, primarily China.
  • Central banks’ policies, like the recent years’ expansions of their balance sheets and low interest rate policies
    • Credit/debt is a vehicle for consumers to pay (create demand) for a product/service
    • Credit/debt is also used by companies to generate supplies to meet changes to demand
    • What companies in reality do is to use expectations of future cash flows (from consumers’ abilities to take on more debt) as collateral to themselves go deeper into debt.
    • Credit/debt, thus works both sides of the supply/demand equation
  • How OPEC shapes their policies as responses to declines in the oil price
    Will OPEC establish and defend a price floor for the oil price?

I have recently and repeatedly pointed out;

  • Any forecasts of oil (and gas) demand/supplies and oil price trajectories are NOT very helpful if they do not incorporate forecasts for changes to total global credit/debt, interest rates and developments to consumers’/societies’ affordability.

Oil is a global commodity which price is determined in the global marketplace.

Added liquidity and low interest rates provided by the world’s dominant central bank, the Fed, has also played some role in the developments in LTO extraction from the Bakken formation in North America.

As numerous people repeatedly have said; “Never bet against the Fed!” to which I will add “…and China’s determination to expand credit”.

Let me be clear, I do not believe that the Fed’s policies have been aimed at supporting developments in Bakken (or other petroleum developments) this is in my opinion unintended consequences.

In Bakken two factors helped grow and sustain a high number of well additions (well manufacturing);

  • A high(er) oil price
  • Growing use of cheap external funding (primarily debt)

In the summer of 2012 I found it hard to comprehend what would sustain the oil price above $80/Bbl (WTI).

The mechanisms that supported the high oil price was well understood, what lacked was documentation from authoritative sources about the scale of the continued accommodative policies from major central banks’ (balance sheet expansions [QE] and low interest rate policies) and as important; global total credit expansion, which in recent years was driven by China and other emerging economies.

I have described more about this in my post World Crude Oil Production and the Oil Price.

 

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THE REVIVAL OF MOUNTRAIL’s ”OLD” SWEET SPOTS

This post is an update and slight expansion of my previous post In Bakken (ND) it is now mostly about McKenzie County about developments in light tight oil (LTO) extraction in the Bakken/Three Forks formations in North Dakota.

It also includes a little about developments in LTO extraction from Bakken/Three Forks in Elm Coulee, Montana.

Harsh winter weather affected additions of producing wells and also caused a total estimated 300 additional producing wells (relative to entering winter) to be shut in with different durations. The total effects from well additions that was below what was estimated to sustain a level production, and the high number of wells shut in caused total LTO extraction to move sideways last winter, with a small dip during December and January.

Figure 01: The chart above shows development for annual tight oil extraction from the Bakken/Three Forks formations in North Dakota [green area and rh scale]. The black line shows development in the interest for the US 10 - Year Treasury [lh scale].

Figure 01: The chart above shows development for annual tight oil extraction from the Bakken/Three Forks formations in North Dakota [green area and rh scale]. The black line shows development in the interest for the US 10 – Year Treasury [lh scale].

Interest rates had for some time been on a downward trajectory and the extraction of tight oil from Bakken/Three Forks started to grow while interest rates continued to be lowered and the Fed and other central banks started their rapid expansion of their balance sheets. Assisted with a tighter global supply/demand balance the oil price moved higher.

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IN BAKKEN (ND) IT IS NOW MOSTLY ABOUT MCKENZIE COUNTY

In this post I present an update to my previous posts over at The Oil Drum (The Red Queen series) on developments in tight oil production from the Bakken formation in North Dakota with some additional estimates, mainly presented in charts. The expansion is much about the differences between wells capable of producing, actual producing wells and idle wells (here defined as the difference between the number of wells capable of producing and the number of actual producing wells).

Figure 01: The chart above shows monthly net additions of producing wells (green columns plotted against the rh scale) and development in oil production from Bakken (ND) (thick dark blue line, lh scale) as of January 2000 and as of October 2013. The 12 Month Moving Average (12 MMA) is also plotted (thick dotted dark red line, lh scale).

Figure 01: The chart above shows monthly net additions of producing wells (green columns plotted against the rh scale) and development in oil production from Bakken (ND) (thick dark blue line, lh scale) as of January 2000 and as of October 2013. The 12 Month Moving Average (12 MMA) is also plotted (thick dotted dark red line, lh scale).

There is still noticeable growth in tight oil production from an accelerated additions of producing wells.

  • For October 2013 North Dakota Industrial Commission (NDIC) reported a production of 877 kb/d from Bakken/Three Forks.
  • In October 2013YTD production from Bakken/Three Forks (ND) was 775 kb/d.
    (It is now expected that average daily production for all 2013 from Bakken (ND) will become around 800 kb/d.
  • The cash flow analysis now suggests less use of debt for manufacturing wells for 2013.
    Major funding for new wells now appears to come mainly from from net cash flows.

kb; kilo barrels = 1,000 barrels

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