Wednesday, October 2, 2019

The Extraordinary Bakken; In Less Than A Year, This Well Produced More Oil Than The Preceding Nine Years -- October 2, 2019

30-second sound bite: this well produced more oil in the past year than it did the entire preceding nine years and it was not re-fracked. It was simply taken off line for two months and then put back into production (wink, wink, or tongue-in-cheek).

Note: in a long note like this there will be typographical and factual errors. I may have made huge errors in simple arithmetic.

Note: I am using $30/bbl for price of crude oil in some examples; in others, $40 oil. I am making assumptions in some examples.

The definition of an ideal well: a well that pays for itself in six months and then provides free cash flow for the next 35 years.

The following well is NOT an ideal well. It took many years to pay for itself. But in the past year it appears to have generated millions of dollars in free cash flow. 

This gets back to a discussion we had months ago. This was addressed by the CEO of some oil company operating in the Bakken some months ago when asked about the "return on investment." I don't remember his specific words, but they were something to the effect that in some cases the return on a well in the Bakken can only be defined as "infinite." Some readers took issue with that. That's fine.

Yes, I know how the return can be calculated, but this is the problem. How do you "carry this on your books" when considering return on investment?

The well:

  • 17799, 457, BR, Guadalupe 11-23H, Charlson, t3/09; cum 542K 8/19; not re-fracked; for full production profile, see this post;
This well produced 230,608 bbls between 3/09 and 5/18 when it was taken off line for two months. By 5/18, production had leveled off at about 1,500 bbls/month. Forgetting about the natural gas, at $40/bbl crude oil this well had produced $9.25 million in revenue. Probably about what the well initially cost.

It was then taken off line for two months. It came back on line in July, 2018, about a year ago. In the past year, this well produced 311,226 bbls. As far as I can tell it was not re-fracked.

At $40/bbl = $12.5 million this past year. For a well that had zeroed out. For a well that was taken off line. For a well that was no longer producing (wink, wink).

So many story lines. Back in 2009 this well might have been considered "uneconomic." But the operator keep it on line.

Now, let's say the original owner of these minerals never sold his 160 acres of minerals (the typical size of a farm in this area). This is a 640-acre-spaced well. The owner controlled/owned 25% of the production, and probably received 18% royalties for the production.

In April, 2018, the mom-and-pop mineral owner would have received roughly:
  • 1,157 bbls x 0.25 x 0.18 x x $30$1,500.
Not bad but not great. The mom-and-pop mineral owner probably thought this was pretty much what this well was going to be from here on out.

Then, in August, 2018:
  • 28,578 x 0.25 x 0.18 x $30 = $38,580.
That was a check for one month.

For the entire past year:
  • 300,000 bbls x  0.25 x 0.18 x $30 = $400,000 in royalties this past year alone. 
Oh, one more thing. The owner with mineral rights for this well now has another dozen or so wells. Those wells are spaced at 1280- and 2560-acres so the decimal will be less, but all the same.....

So many story lines.

Again, this well was not re-fracked according to the NDIC and according to FracFocus. I don't think it was re-fracked.
 
This well has not been refracked:

Recent production:

PoolDateDaysBBLS OilRunsBBLS WaterMCF ProdMCF SoldVent/Flare
BAKKEN8-201931822084162909352743516928
BAKKEN7-2019319802955625303032630058191
BAKKEN6-2019301334713680226933120330460
BAKKEN5-201923142441422913502485224066729
BAKKEN4-201930224062243019962349022854562
BAKKEN3-2019312967329576260025049249720
BAKKEN2-2019282805428231207727395273250
BAKKEN1-2019312992130008239029361292840
BAKKEN12-2018302956729553246227767276930
BAKKEN11-2018302892428924271526246261720
BAKKEN10-2018312694526520227127609275320
BAKKEN9-2018302508825570215526978269040
BAKKEN8-2018312881428578294732269321920
BAKKEN7-2018311622115949255217136170590
BAKKEN6-20180000000
BAKKEN5-20180000000
BAKKEN4-20183079711737310259510
BAKKEN3-20183113761157112198119040
BAKKEN2-20182812901186123174216720

Initial production when this well was first drilled / completed back in 2009:

BAKKEN10-20093146574443279625806258
BAKKEN9-20092842894597256649449481546
BAKKEN8-20093154685305419866176091052
BAKKEN7-20093163836446579816458292335
BAKKEN6-20092359086000588773759631774
BAKKEN5-2009317296702856889798247732
BAKKEN4-20093085208716871957149694602
BAKKEN3-200929959491771774837608376

6 comments:

  1. Not statistically relevant. So what, about one well? And for that matter, what if there are other wells with the opposite impact from nearby fracks? Or if the old wells are cannibalizing new ones?

    Bottom line, you can't solve this problem with well logs. Need someone to do a real study. Doesn't have to be you. Gift horse and all that. But someone needs to actually define what they mean by halo effect (mathematically) and then look at the overall basin and see the evidence for it. Sounds like a good Drilling Info study.

    ReplyDelete
    Replies
    1. I've pretty much quit posting these "extraordinary wells." To get posted now, they have to be really, rally exta-ordinary. But if anyone wants to do a statistical analysis, they can start with the 315 wells that have shown this phenomenon listed at this post:

      http://wellsofinterest.blogspot.com/p/blog-page.html.

      If one wants to do a statistical study, I would recommend doing it by field. It is obvious some fields are better than others. But, of course, that's anecdotal. LOL

      Delete
    2. With regard to the "halo" effect, this has already been studied statistically but is proprietary and not available to the general public. However, there is a study that has been published and can be found at this post: https://themilliondollarway.blogspot.com/2019/09/flashback-back-to-2013-spacing-and.html.

      Delete
    3. CLR also did a "halo" effect study years ago during the early days of the boom; I posted that years ago. At that time, too few wells to come to a conclusion one way or the other but it was pretty obvious what was happening in this arena.

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  2. One thing to watch for (not saying it's a problem, just something to check): Frac Focus is known for slow reporting of recent completions. See the discussion by EIA in the DPR. So, I worry that some of your "no refrac" comments may be about wells that did have a refrac that will show eventually. Maybe looking at several of your posts from over a year ago, where you said there was no refrac, will now show that there was a refrac.

    Not saying this is a major issue. But it may affect some of the wells you look at.

    ReplyDelete

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