April 3, 2014: the post below stands alone; I don't think I will update it. I will add updates up here. One of the points I made believe was the fact that affect daily production in the Bakken is the completion techniques (which affects the decline curves).
Something I failed to mention that affects the rate of increase in bopd month-to-month is time from spud to first sales. I think I read that in the Bakken the average time from spud to first sales is about 120 days. I read, if I recall correctly, that in some other field somewhere in the US for some operator, the time from spud to first sales was down to 30 days. I could be way wrong on that, but think about that. If the "time from spud to first sales -- TFSTFS -- decreased some 120 days to 90 days in the Bakken, think what that would do for the rate of increase in bopd month-over-month.
It has to do with the Bentek study (linked at the sidebar at the right) and a comment I received earlier regarding the Bentek.
There are so many story lines with regard to the Bentek study, one hardly knows where to begin. The first story line, of course, has to do with questions like: who commissioned the study, why was it commissioned, to what degree was it helpful, and whether it contained actionable information for those who commissioned it, and for others who see the study.
Another story line that will evolve over time is the "accuracy" of the study.
A third story line is what question was Bentek answering with regard to production: was Bentek predicting what the Bakken would produce over time, or what the the Bakken could produce over time.
There must be a dozen other story lines one could entertain from that study, but I'll spend a few minutes on the third story line mentioned above.
For the longest time I had been perplexed how to answer folks who asked me how big the Bakken is, or how much it would produce. I was perplexed because I was stymied by geo-politics. If Saudi wanted, could Saudi flood the world with oil and drive high-cost operations (Canada oil sands, Bakken shale) out of business? Could activist environmentalists succeed in getting fracking banned completely? Could Ford invent an automobile that ran on water and sell a production model for $5,000?
A few months ago I had an epiphany. Now when folks ask me how big the Bakken is or how much the Bakken can produce, I re-phrase the question: what are the roughnecks capable of producing in the Bakken? When I ask that question I am taking fringe activist environmental possibilities and geo-politics out of the equation. I am also taking the price of oil out of the equation. When I say "roughnecks" I use the term in a more general way, to include all the folks involved in actually producing oil.
I'm simply looking at the size of the reservoir (the "original oil in place"); the recovery rate; the technology; the workforce; and other similar variables.
Estimates of the size of the reservoir/the OOIP have increased significantly since the 2008 surveys. It will be awhile (if ever) before we seen another Williston Basin survey, but if we do, I assume the OOIP estimates will be further increased.
The recovery rates have similarly increased. When the boom began, "we" were talking about recovery rates of 2 - 5%. Folks were considered nuts if they talked about 8%. Now, there was a throwaway line in a linked article last week that suggested the recovery rate in the Bakken was 15% in some areas (this is primary production; we are not talking about enhanced oil production).
Technology is obviously a big player in production estimates. There are a number of issues here, but I will limit it to "speed." How fast can we get the oil out of the Bakken? There are several factors:
- rigs: more powerful; get to total depth more quickly
- pad drilling: less down time
- knowledge base: each well provides geologists with more information about the Bakken
- geologists: with more experience, better wells
- better completion techniques: sand? ceramic? how much? density of perforations? completions techniques always getting better; best practices spreading across operators
I think the most interesting variable is the workforce. Production is, obviously, a function of the work force.
Size: The size of the work force is important: for an adequate work force to be in place and remain in place in a free society, they have to have more than adequate shelter, food, quality of life, and companionship. An employee has to like it "there" and feel "needed" and "want to stay for the duration." If the work force is unhappy with what they get out of the Bakken they will move elsewhere if jobs are available elsewhere. There is probably some inverse relationship between jobs elsewhere and coming to North Dakota to work.
Trained: the size of the work force won't matter if they aren't trained to do the job. I couldn't drive a truck if my life depended upon it, and yet, I assume, the skills needed to get a CDL rank somewhat lower than other jobs in the oil patch (don't take that out of context: there's a huge gap between the 18-y/o who just got his CDL and the mature driver who's been driving oil trucks in the Bakken for the past seven years). The Bakken competes for trained workers and as the national economy improves, that competition will get tougher. Texas, south of San Antonio, where the Eagle Ford is, beckons. Nice weather, low cost of living.
Specialists: the supply of specialists is limited and it takes time to train new specialists. There was a "specialty" that just popped up on my radar last week -- I had not seen this before, but apparently the US is running short of welders. How crazy is that? Bakken production could be held up by the availability of welders. But also, papers don't get signed without lawyers dotting "i's" and crossing "t's." There are only so many oil and gas lawyers around. Backhoe operators. They can ship a gazillion Bobcat backhoes to the Bakken but if they don't have the operators, those things don't drive themselves (yet). Interestingly enough, the chokepoint in the Bakken might be electricians. Every well requires the services of an electrician. Even if the pumps are run on natural gas, it requires an electrician to hook them up. You know, I was just thinking (that's a scary thought). Remember those night-time photos of the Bakken taken from space? You know the ones I'm talking about. The ones where folks think they are all images of natural gas being flared. In fact, very few of those images are of flares; 99% of the light coming out of the Bakken at night is related to lights on the rigs themselves and/or the well pads. The luminosity of the "Bakken light" may not be as bright as Chicago, but it covers a bigger footprint. When you see that satellite photo, think: electricians. It's 99.9% light, with the rest flared natural gas.
This is a work in progress. But I have errands to run. I will add to this post later, but you get the idea. I no longer worry about what the Bakken will be producing in the year 2022. If fracking is banned completely, the Bakken won't be producing much oil. If the Saudis flood the world with $20 oil for the rest of eternity, the Bakken won't be producing much oil in 2022.
I look at this: based on the size of the work force, based on what banks are willing to lend, based on technology, based on how fast paperwork can be accomplished, based on the number of hours in the day, based on the experience of the work force, based on simply getting the job done, what is the likely production capability, in bopd, of the Bakken on a yearly basis going forward?
The tea leaves tell me that "North Dakota" feels comfortable with about 2,500 new Bakken wells each year for the next few years.
From there, one simply watches the new OOIP estimates; the takeaway capacity at the end of each year; the time from spud to first production; the recovery rates (probably the biggest unknown); and, the history of the preceding years in the Bakken and one can pretty much figure out the "bopd" potential of the Bakken.
For calendar year 2014, the OOIP estimates have probably not changed since last year; the takeaway capacity is increasing slightly but not appreciably so; the work force has stabilized; the recovery rates probably have not changed much from 2013; and that pretty much leaves what the rough necks, geologists, and frack teams can do with 2,500 new wells.
The biggest thing that rough necks, geologists, and frack teams can do with 2,500 new wells is improve completion techniques resulting in a) higher first-year production numbers; and b) better decline curves. The tea leaves tell me this is where the operators are focused and huge strides are being made.
[Note: somehow I missed EURs -- I'm not sure if EURs are pertinent to the discussion; I have to sleep on this.]