Mike Filloon's Update On The Bakken -- Part II, July 23, 2016

Updates

July 24, 2016: a reader (in comments below) also notes the advances in drilling to include monodiameter / monobore / one-run drilling now being used in the Niobrara.

July 24, 2016: follow-up from previous comment, and explanation of tripping -- see additional comments below; most recent one brought up here for easier browser searching:

When tripping, 3 30 foot sections of drill pipe are combined to make a "90 foot stand". When rigging down to move to a new drill site these 90 foot stands are broken down into 30 foot sections. When nearly 4 miles of pipe are out of the hole there about 220 90 foot stands racked in the derrick. 220 connections coming out and 220 back to the bottom. Rig crews pride themselves in making this "trip" as quickly and safely as possible.

Later, 11:28 p.m. Central Time: see first comment. In fact, I will bring it up here for easier browser searches. Note that in the original post I made a huge mistake  -- I said two (2) miles of pipe. In fact, "we're" talking four (4) miles of pipe in a long Bakken lateral. My bad; sorry. I'm glad a reader took time to write and note that. Here's the first comment:

Just some comments to support your idea that the problems with 3-mile horizontals is not generally "controlling the entire length".

Near the end of a two mile horizontal, drillers often experience a lot of drag on the drill string so lubrication methods need to be used to keep the drill pipe free.

Also, drillers can sometimes drill the entire two mile horizontal with just one bit. Near total depth this bit and motor are usually at life's end. Some operators choose to call total depth (TD) when a bit or motor fail just a few hundred feet from TD.

Tripping 4 miles of pipe (2 horiz and 2 vertical) often take 14 to 18 hours of rig time. 

If three mile holes are drilled you need a powerful rig that can handle 3 miles of drill pipe (and liner) as well as the 2 mile vertical section. These longer holes offer a new set of challenges. 

Original Post
 

Wow, it doesn't quit. Just days after President Obama said terrorist attacks were an indication that ISIS was losing, that it was on the run, we have the Munich mall massacre, and now "31 minutes ago" there are reports of another huge ISIS bombing Afghanistan.

Fathomless ignorance. Peggy Noonan no doubt would say it is neither "fathomless" nor "ignorance."

Making the social media rounds right now: Ted Cruz "told" us to "vote our conscience." Spoiler alert, Ted: we already voted our conscience. That's why you are not the nominee. It's hard for me to accept a Texan who doesn't keep his word. In hindsight, Cruz never should have made a pledge he could not keep.

Whatever. On to more interesting news. Mike Filloon has an update on the Bakken: with big changes afoot, a stronger industry could emerge long-term. He says this is part two in this series. If so, I believe part one is posted at this link, from July 16, 2016.

Summary of part two:

• CLR has continued to keep costs very low, but moving to the STACK has improved economics significantly.
• Costs in the Permian are down, but the Delaware Basin may hold more promise than Midland as newer plays have higher costs initially, so an operator can decrease costs more.
• Enhanced completions may only cost $400K to $500K more, but can increase production by 35% to 65% so operators are motivated to move to this type of design.
• We expect continued increases in costs, as well as in the number of wells in plays like the STACK and Permian.

As part two of this series, we continue to look at production increases and cost cuts in the unconventional oil industry. This is not limited to any play, although economics is considered the best in the Permian and STACK. Cost decreases have been seen through better oil service contracts, including frac sand and fluids prices. Water costs are down, as water depots are not as busy and most operators have or are putting pipe in the ground.

Operators continue to decrease drilling and completion times, while improving production. As efficiencies have improved, so has source rock stimulation. This is how the operator breaks or fracs the rock to release oil and natural gas. By doing this well, it increases production significantly. Operators are focusing on the best geology. Core operations produce more resource per foot. When coupled with better well designs performance increases. These are the reasons unconventional US well economics is improving.

Other data points:

• CLR continues to improve production per dollar. Some of this is due to the STACK, but we are seeing better completions in North Dakota. EURs are up, but some of this is due to high-grading. If we look back to 2012, it [EURs?] is up over 300%. Well costs continue to improve.
• Bakken well costs have seen improvements. Although it is highlighted here, we have seen this throughout all plays. There was a time when one-mile laterals in the Bakken were around $10 million, but now most operators are doing it for a little more than half that. The above slide shows well costs on an average two-mile lateral. This is the North Dakota average. Operators have tried three mile laterals but it is too difficult to control the entire length. On average, an operator does produce more per foot doing a one-mile lateral, but has to bear the cost of drilling twice as many holes. Now CLR can drill and complete a location for approximately $6 million.
• We expect oil around $60 to $65/bbl by year end with the possibility of it occurring in 1Q17. We also expect oil prices to be below $50 through Q3. 

Another comment. I am not disagreeing with Mike Filloon on this one. He knows the Bakken a thousand-times better than I do, but I'm not sure I agree with his comment regarding the length of horizontals:

Operators have tried three mile laterals but it is too difficult to control the entire length. 

I've read a lot of "geologist summaries" in the file report, and it does not seem "controlling the entire length" is the long pole in the tepee. Rather, it seems that motor failure or gizmo failure is the biggest problem. The longer the drilling takes, the harder on the motors and the monitoring gizmos. They seem to routinely fail sometime into the second mile. Many well reports that I have read say that the decision to stop drilling just short of the planned bottom hole location was because a motor failed or a monitoring gizmo failed. I don't know if folks realize it, but to replace that motor or monitor, the entire string needs to be brought back up, one section at a time. Takes "forever" when there is two miles of pipeline in the ground. Talk about a lot of man-hours to bring up 2 miles of pipe, replace the motor, and then put back in 2 miles of pipe. 

For the record, I don't see $60 oil by the end of the year; I'm not even sure we will see it in 1Q17 -- and I mean sustained $60 oil, not a day or two of some spikes only to have it pull back.