Posts Tagged ‘North Dakota’
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.
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.
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.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.
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).
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
This post which is based on results from earlier research and analytic work posted on The Oil Drum, Fractional Flow and not least in recent (private) discussions with other international acknowledged experts present some facts and observations about developments of tight oil (which to some extent also applies to oil sands) versus small deep water discoveries*.
*Small deep water discoveries are here meant discoveries with Estimated Ultimate Recovery (EUR) below 100 Million Barrels of Oil Equivalents (MBOE).One big takeaway from the chart above is that both developed small deep water discoveries and tight oil wells have steep decline rates and short high flow life cycles. These are now the major sources that offset declines from the bigger, heavily depleted legacy fields (with long productive life cycles) and provide any growth in global oil supplies.