The following commentary was written in February and updated in March, 2010. I've added updates/comment in bold red, September, 2010.
UK faces 'oil crunch' within five years. February 10, 2010.
1. Everything points to continuing excitement in the Bakken. The number of active rigs is now up to 99 (March 6, 2010), 30+ more than when I first posted observations about the increase in rigs in North Dakota back in early November. The Grand Forks Herald reports (January 24, 2010) that there could be 110 - 120 rigs in North Dakota by mid-summer. That estimate was low: the high was 146.
2. Oil takeaway capacity as of January, 2010, in North Dakota: 410,000 barrels/day. Pipeline takeaway capacity: 350,000 bbls/day. EOG railroad terminal: 60,000 bbls/day. New Dickinson railroad terminal, scheduled to be operational in October, 2010, another 60,000 bbls/day. I would be interested in hearing from Dickinson readers if this project remains on schedule.
3. My father says that vehicular traffic has increased significantly in Williston (November 26, 2009).
4. Even the NY Times has noticed that mid-tier companies have been buying up great acreage in the continental US while the majors (like XOM) were ignoring the US, and looking for oil/gas in politically unstable areas overseas. December 15, 2009.
5. Five areas of significant drilling activity: a) Parshall-Sanish oil fields north of the reservation; b) the Van Hook / Big Bend areas inside the reservation, especially Slawson; c) the area immediately around Williston, especially to the west, to include eastern Montana; d) the Highway 50 Corridor: on either side of Highway 50 southeast of Kenmare, and north of Parshall, the Clearwater oil field, especially EOG; and e) Ambrose, a ways north of Williston. [Update: Slawson hit a great well in Van Hook: IP of 1,208 bopd and 42,000 bbls in first 59 days -- Fox 1-28H. Also, EOG announced a great Van Hook well, the Van Hook 100-15H, with a 1,390 bopd, and this targeted the Three Forks Sanish. February 9, 2010.] The Alger field should be added to this list; Ambrose taken off.
6. Is EOG asking for 570 more wells in the Parshall? If you want excitement, look at the Ross oil field, T156N-R90W, section 27, where you will see six EOG wells spaced 50' from each other in a line, 500' from the section line. Follow this discussion thread regarding the two 2560-acre spacing units which will be allowed to have as many as six horizontal wells each. One spacing unit: sections 26, 26, 28, and 29. The other spacing unit: sections 20, 21, 22, and 23. January 24, 2010.
7. The RS-Feldman well, about 4 miles northwest of Stanley. This appears to be the best Hess well in the Bakken and it may be due to multiple stage fracturing. The presentation by Harold Hamm, November 19, 2009, continues to support my opinion that the increased success in the Bakken is due to multiple fracturing. Some companies are still doing single-stage fracturing -- but I think single-stage fracturing is a thing of the past. Even EOG is studying the "right" number of stages. Wow, as late as March, 2010, we were still talking about single-stage fracturing. We are way beyond that. The norm appears to be 15 - 20 stages and BEXP's norm appears to be 30 stages, and now we have super-fracking, 40 stages.
8. GeoResources, Inc., announces an aggressive 2010 in North Dakota. GEOI is getting a lot of interesting comments on Yahoo!Finance message boards. Oil and Gas Journal has short article on GeoResources, March, 2010. This is really quite phenomenal. I had not heard much about/from GeoResources in the past six months, and then, all of a sudden, out of the blue, GeoResources is featured on Motley Fool -- just last week, Thursday, September 17, 2010. Go figure. GEOI has been added to the sidebar stock listing at the right.
9. Slawson may be the next big story. Look at the results of the the November 3, 2009, North Dakota state land lease auction. In 2007, Slawson had 7 permits in the Williston Basin; in 2008, Slawon had 27 permits; 28 in 2009; and 12, as of March 6, 2010. Of the 27 permits granted in 2008, we have yet to hear the outcome of 14 of those permits. The other 13 have resulted in very good wells with IPs ranging from 248 to 2,205 bopd with an average of 791 bopd. Of all the 2010 Enercom presentations, I was most energized by NOG's presentation. NOG said they are emphasizing Slawson and EOG for partnering.
10. There are now 99 active rigs in North Dakota up from a low of "around 33" in the of autumn, 2008. Many of the big producers are still bringing in new rigs. Harold Hamm, CEO of Continental Resources, says he might have 18 rigs in North Dakota this time next year (mid-2010), a significant increase over the 5 rigs CLR had in 2009. EOG has stated it could triple the number of rigs they have, from 5 to 15. March 6, 2010. I think CLR has about 20 rigs in North Dakota and there are 146 active rigs in North Dakota.
11. Look at the IPs of the wells reported on November 5, 2009 and the wells that reported on December 14. Cut the IP in half, and assume that amount will be produced on a daily basis for the first year, and multiply by $70. Then assume that the wells will be productive for seven years (on a declining basis) but subject to re-fracturing. The numbers are staggering. And not all those IPs were exceptional, many well below 1,000 boepd. Yes, I know, the BEXP IPs seem to decline by as much as 90% three or four months out. Having said that, there are some monster wells out there.
12. The companies engaged in fracking are going to be very, very busy: it appears the norm is now 24-stage fracturing, +/- four stages. Some opine that we may soon see 60-stage fracturing. I have to study it again, but it appears the mathematical relationship between fracturing and oil production is initially exponential, but with increased stages, there comes a point of diminishing return. Regardless, it appears that fracturing increases the initial amount of production, delays the need for a pump (albeit a very short period of time), and increases the ultimate total recovery of oil from a well. (My hunch: frac stages remain somewhere between 14 and 20.) This is a moving target; without companies being more forthcoming with data, I don't know for sure where we stand. I do know BEXP reports many wells with 27 - 30 stage fracturing.
13. EOG typically has 70 - 80 wells on the confidential list. It has been opined that EOG could drill between 225 and 250 wells in 2010. And that's just one producer working in the Williston Basin, albeit the one with the most rigs (six now and going to 13 or 14 in 2010).
14. The area around Williston is very, very active. There are two areas: west of Williston, mostly BEXP. And then northeast of Williston, the Spring Brook area. In the Stony Creek field there are 11 wells/permits on the confidential list. The BEXP well on SE edge of Williston reported an IP of 3,394 bbls/day, which BEXP says is their largest IP reported to date. Since then, BEXP has reported two more wells with higher IPs: the Jack Cvancara and the Sorenson, both in the Alger and right next to each other; both with fracture stimulation approaching 30 stages. The Alger field is east of Williston, north of the Sanish field.
15. Harold Hamm, CEO of Continental Resources, opines there may be double the amount of recoverable oil in "the Bakken" forecast by the USGS in 2008. CLR's goal is to double its proved reserves in the Bakken over the next five years. CLR recently reported an increase of 21% of their proved reserves.
16. North Dakota is #4 in oil production in the United States, surpassing Louisiana. I never thought that would happen, ever. In December, 2006, Mountrail County produced 1,300 barrels of oil per day; this past October (2009), Mountrail County produced almost 100,000 barrels of oil per day. At $60/barrel, 43 wells in Mountrail County produced $100,000,000 worth of oil at the wellhead over a three month time period, ending in October. North Dakota hit a new record in July, 2010, producing almost 10 million barrels of oil (monthly production).
17. Reports that there is yet another formation, the Birdbear, amenable to horizontal drilling are intriguing, but statements saying this is a "new" formation are incorrect. This formation has produced oil, albeit not much, for decades. Incidentally, WLL re-entered an old well that was producing from the Birdbear Formation; exited with a horizontal and ended up with a 2,000 boepd IP in the Bakken (December 8, 2009). Haven't heard much since. In fact, I haven't heard anything.
Yesterday I decided to take a little time to look at the Bakken production data that is available from public and commercial sources in North Dakota and Montana. I do not currently work in the Williston basin but I have fond memories of drilling vertical and horizontal wells there in decades past and so I wanted to dig a little into a play that is receiving so much recent publicity. I did not examine every recent horizontal Bakken completion in the basin but decided to focus on the Parshall and Sanish fields along with a few other outlying wells which have reported amazing initial production rates. I used an easy to manipulate decline curve program and tried to be optimistic but realistic when fitting a hyperbolic decline curve to the monthly production graph where it seemed appropriate.
ReplyDeleteWhat I found is that yes indeed there are sweet spots for Bakken production within this play. These sweet spots contain a fair number of amazing wells that will consistently produce 500,000 to 1,000,000 plus barrels of oil per well. Surrounding these sweet spots there are some wells that will ultimately produce 200,000 to 500,000 barrels per well (still good wells) along with many wells that will struggle to make 100,000 to 200,000 barrels per well (fair to poor wells). In general, the sweet spot wells tend to have higher sustained production rates (duh) and lower early decline rates (30% to 45%) as compared to the early decline rates in non sweet spot wells (45% to roughly 90% ugly). This may be due to a variety of factors including the operator, completion technique, rock quality or, more likely, some combination of these and possibly other factors.
One thing that I noticed is that, outside of the sweet spots, there is not necessarily a good correlation between the announced IP rate and the actual early monthly production rate for these wells. I did not find any wells that had an average early monthly production rate of 4,000 BOPD or 3,000 BOPD or even 2,000 BOPD. There are a handful of wells that had sustained early monthly rates of 1,000 BOPD and these were confined to the sweetest of the sweet spots. Overall, I was not terribly impressed with the reported high IP rate wells except for those within the sweet spots. Perhaps these non sweet spot wells can be re-stimulated or otherwise have their production optimized. Or maybe they are in areas that contain just plain poor reservoir quality rock. Only time will tell.
OK, so in summary, my opinion is that there will be winners and there will be losers in the Bakken play as in most plays (big surprise huh). The companies that have acreage in the sweet spots, whether through good science or good luck, will be be the winners. The question is, as always, how do companies identify those areas that will become the sweet spots and avoid those areas that will become the not so sweet spots? As time permits, I will try to expand my little study of the Bakken horizontal wells to see if I can identify some of these newly developing really sweet spots.
Regards,
rockdoc76
I really appreciate this. It brings a nicely reasoned analysis to the whole subject of the North Dakota Bakken.
ReplyDeleteFor me, the reported IPs have lost all value, but that's about the only thing we have when a well is first reported. For me, it's the one- and five-year cumulative that holds the most value.
"Poor" is, of course, a relative term. Compared to some of the great wells in the Bakken, there is no question that there are a lot (a majority?) of "poor" wells. However, compared to the vertical wells of yesteryear, I wonder how "poor" they really are. We will get an idea of the longevity and economic viability of these wells as we start to see "TA" on the daily activity reports (TA = totally abandoned) or wherever that information is posted.
Some of the great wells pay for themselves in the first year and will produce for thirty years, albeit at a lower rate. The poorer wells may not pay for themselves for several years, but they still go on for quite some time. If they are viable at $40/bbl, they are very, very nice at $80/bbl and I think the price of oil will trend higher.
By the way, the reason for the decline rate is very, very perplexing. If this ends up being a technological/manmade problem that can be resolved, it will change everything.
And, of course, there is always the "business" of the oil business: tax write-offs, depletion allowances, opportunity costs of material sitting idle, interest rates at near zero percent, etc.
If you are able to provide similar analyses in the future, I will post them as stand-alone posts if you give me permission. They would of course remain "anonymous" if you prefer. But I generally don't post things as stand-alone posts if they were submitted as comments. Some folks prefer a quieter release.