Thursday, March 9, 2017

The Red Queen Revisited -- March 9, 2017

This is so incredibly amazing, and no one has brought it up yet, at least not on an ad-free, subscription-free Bakken blog.

This is from yesterday's Director's Cut, the production data from January, 2017, posted earlier. See if you can see what I'm talking about. There will be one main point, and then a secondary point, reinforcing the first point, if that makes sense. Here's the data:
  • January, 2017: 980,294 bopd
  • December, 2016: 942,322
  • Delta: 37,972 bopd
  • Delta: 4.0% increase month-over-month
  • 95% production comes from the Bakken and the Three Forks
  • 5% production comes from legacy conventional pools
Producing wells
  • January, 2017: 13,333 (all-time high was November, 2016, at 13,520)
  • December, 2016: 13,337
Rig count
  • up five from February to today (March 8, 2017)
  • February, 2017: 39
  • January, 2017: 38
  • December, 2016: 40
Completed wells not producing
  • DUCs, estimated: 802, down 5 from the end of December to the end of January
  • inactive well count, estimated: 1,678, up 105 from the end of December to the end of January
This is what popped out at me from the data:
  • month-over-month, North Dakota crude oil production increased by close to 5% rounding up (or 4% if rounding down) -- 5% is an easier number for me to remember, even if it's inflated a bit. Okay, so what? 
This is the "so what": the number of producing wells actually decreased from 13,337 to 13,333.

Yes, I know, the decrease was statistically inconsequential. But the headline could be this: North Dakota crude oil production increases 5% even as the number of producing oil wells decreased, month-over-month. Wow.

The number of rigs, by the way, has become irrelevant when comparing production year-over-year, or decade-over-decade, for multiple reasons. In the Bakken there was a time when production was less than a million bopd and yet there were more than 200 active rigs. Now, there are months when production goes over 1 million bopd and the number of active rigs drop below 45.

Is anyone talking about the Red Queen and more? The Red Queen that we were told was going to fall off her treadmill once the drilling stopped?

So, the first point: despite the dreaded Bakken decline, production actually increased significanly last month despite a drop in the number of actively producing wells.

But then look at the secondary point: the number of inactive wells increased significantly: 7% by my calculations. The number of inactive wells, month-over-month in North Dakota, by my calculations, decreased by 7%, and yet production increased by 4%.

Yes, I already know the counter-argument so don't bother to send a comment: I don't want facts to confuse my inappropriate exuberance about the Bakken.

But there you have it:
  • fewer rigs (from 200 to 40) -- rigs would have to double, then double again, to get back to 160 rigs
  • fewer producing wells (barely)
  • more inactive (shut-in, previously and recently -- in many cases -- producing wells)
and, yet, production increases. 

Three more points.

First, production from a new well is front-loaded; anywhere from a fifth to fourth of the well's EUR might be produced in the first six to twelve months, so all those DUCs waiting to be fracked will deliver a huge number.

Second, today's wells / DUCs have production numbers that are 1.5 to 2 to 3 times better than their counterparts at the beginning of the Bakken boom. Even if the DUCs / new wells were no better than the wells back in 2007, in the aggregate (800 DUCs) would bring in a lot more production. But these DUCs are going to be so much better, that in the aggregate, the amount of production is going to be much greater.

Third, one can argue that the wells that are shut-in are "poorer-performing" wells. I doubt anyone has that data but going through the wells day in and day out I see as many potentially "great" wells shut in as "likely" poor wells. Many of the wells that are shut in are multiple wells on the same pad because neighboring wells are being fracked or there is a work-over rig on site. Wells that are shut in are not being shut in (necessarily) because they are poor performers.

Some folks think that once the DAPL starts flowing, we'll see an increase in production simply because the lower cost of transportation will incentivize operators to bring more wells on line. We'll see.

Disclaimer: this not has not been proofread; there will be typographical and factual errors.

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