Monday, December 15, 2014

KLJ's North Dakota Oil And Gas Industry Impacts Study -- Released In September, 2014

I can't remember if I ever posted this. This is the background:
The North Dakota Oil and Gas Industry Impacts Study was commissioned to forecast the level of oil and gas production in the state of North Dakota and trends that may increase, decrease or stabilize production. The study area focuses on the 19 oil and gas producing counties with a time frame of 2014-2019.
The collaborative team of KLJ, based in Bismarck, ND, North Dakota State University’s Agribusiness and Applied Economics Department (NDSU) in Fargo, ND, and the Energy and Environmental Research Center at the University of North Dakota (EERC) in Grand Forks, ND, conducted the research and provided their expertise in preparation of this study.
The study suggests the next five years are forecasted for sustainable oil and gas production in the state of North Dakota. While there are undoubtedly conditions and events that could impact these expected outcomes, the oil and gas industry will continue to invest in the Bakken/Three Forks Formation if the economics of drilling prove profitable.
The sentence in red appears to be the summary but it is a funny way to say that the data suggests North Dakota's oil and gas industry is "sustainable" for the next five years. Whatever that means. Considering the billions of dollars of infrastructure that is in place, one would hope that the North Dakota Bakken is "viable/sustainable" for the next five years. [A sixteen-old teenager in perfectly good health is a lot different than a 75-year-old male diagnosed with a slowly progressing malignancy and given a 99% five-year survival change.] Again, I hope the Bakken is sustainable for the next five years.

That last sentence, in black bold ... well, what can I say?

This will take you to the web page, and then at the bottom of the page is the link to the PDF file. It downloads quickly despite being 215 pages. It appears the first 100 pages is the report itself; the rest is supplementary material. Again, the report focuses on the impact of the oil and gas industry on North Dakota, not necessarily the topics Business Insider or SeekingAlpha is interested in.

I don't see a lot of new information regarding size of the Bakken reservoir, primary recovery rate (how much it will increase over the next five years), etc. In fact, the report provides the size of many other oil reservoirs around the world, but correct me if I'm wrong, I don't see this report suggesting how big these folks think the Bakken/Three Forks is.

Maybe there's more there than meets the eye after a first run-through, but it seems like its lacking a lot of detail. Page 55 is perhaps the most interesting page with regard to production potential:
Recoverable oil and gas in the Bakken and Three Forks Formations make it the largest continuous oil accumulation in the US and accounts for more than half of all domestic-assessed tight oil resources. The second largest continuous oil accumulation in the US is the combined resources of the Eagle Ford Shale and Austin Chalk in Texas and Louisiana. Conservative government estimates state that 40,000 wells would be required to fully develop the Bakken and Three Forks Formations and could take 20 years or more to complete drilling activities and at least 50 years to produce all of the accessible oil, assuming 2014-2019 technology capabilities.
I also wonder if the study overlooked the recent estimates in the Permian.

It would have been interesting to see other estimates in addition to the "conservative government estimates" included in the study. There is nothing new in that paragraph; those figures have been around for the past several years.

What I did not care for were assumptions like these:
The number of wells drilled per rig will likely increase approximately five percent each year during the study period. 
It sounded like a wag. I have no idea how they came up with "five percent each year." Thirteen wells/year x 1.05 =  13.65.  After iterating five times, one comes up with 16.6 wells/rigs at the end of the 5th year. So?

The most glaring short-coming (obviously one can say this in hindsight), KLJ did all their studies based on three price-points for oil: $70/bbl; $85/bbl; and, $100/bbl. In hindsight, they needed to take this to $50/bbl which is very possible for the next two to three years. (It is very possible but very unlikely.) $50-oil won't shut down the Bakken but it changes the economic picture and the impact on North Dakota dramatically. In fact, the impact with $50 oil might be greater than if oil goes to $150 for the next five years. The contractor was lucky to complete this study by September, 2014, before the plunge in oil prices. 

The other shortcoming: I don't think the cost to complete a well within the parameters provided was all that helpful. It was pretty superfluous to the report. Having said that, I don't think they took into consideration the new completion techniques: huge amounts of proppant, for example, but I could have missed that. But even if they had included that data, it would have been superfluous for the purpose of the report.

It's a good source document for city planners and developers but I'm not sure how much it adds to our knowledge of the Bakken.

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