Diversified Oil & Gas. Wiki. In case this name comes up again some day. Robert Hutson bought his first natural gas well in 2001. He now has 60,000 wells across the Appalachian Basin. What a great country. I guess he could have bought a corner "7-11" or a Dairy Queen or a Waffle House but instead bought a natural gas well. Headquartered in Birmingham, AL, and listed on the London exchange, had revenues of $400 million in 2020 with a net income of ($24 million) in 2020.
Super-long laterals: US upstream industry relying on longer lateral drilling to boost cash flows. Link here.
The article is all about the Permian. We went through this "debate" in the Bakken some years ago. For a number of reasons, the Bakken is ideally suited for 20,000-foot laterals but interestingly enough, the standard remains 10,000 feet. Maybe we will see the industry move to 20,000-foot wells in the Bakken somewhere down the road but after several years, it certainly seems the 10,000 lateral is the way to go in the Bakken.
On the other hand, the technology might be there, but anyone watching the Permian understands why super-long laterals have not yet become the standard.
By the way: when it comes to cost, the long pole in the teepee is not the drilling -- it's the fracking. From my limited perspective, the focus needs to be on completion strategies, not drilling.
From the linked article:
According to Daryl Koo, head of oil asset intelligence for energy consultancy Enverus, in the core Delaware Basin Wolfcamp-A formation, the breakeven WTI price of a well decreases from $38/b to $34.50/b when going from 5,000 foot to 10,000 foot laterals.
"Though we didn't model a 15,000-foot case given it's still an emerging design, I'd expect the breakeven price to further decrease to around $31-$33/b, assuming no major issues with production or cost performance," Koo said.
Upstream operators during Q1 conference calls viewed the incremental economics favorably – especially at current WTI prices well above $60/b.
Break-even prices: regardless of the length of the lateral, did you see the break-even in the Permian? $40 / bbl and less. And WTI is over $60 right now. Put that in your pipe and smoke it.
Scientific American: I haven't subscribed for decades. This is why.
Only because I like maps of railroads:
A.
ReplyDeleteIt's not just about drilling rig cost. Of course the vertical shaft cost gets spread over more lateral (and some pad facilities spread too). But, completion costs get higher for the ends of longer laterals. Also, the inherent risk (if you have a mechanical issue, go out of zone, etc.) gets higher with longer laterals.
There is a sort of calculus turning point problem, going from vertical to 5,000 to 10,000 to 15,000 to 20,000. Not just "longer always better", but find the maximum of value creation on the parabola-ish curve.
Of course, lease line boundaries also affect things. In some cases, you just can't get the acreage swaps to allow a long lateral. So something is better than nothing. In other cases, you're drilling under a lake or such and need to do a 15,000 or 20,000 lateral even if you wouldn't want to (economically) if 10,000 was physically possible.
B.
Scientific American has jumped the shark. Pains me to listen to all the veneration of capital S Science by liberals. And I even have one of those "union cards" (pile higher and deeper). These people are more into image than into critical thinking. Exact opposite of what a real curious thinker like Dick Feynman was.
Wow, wow, wow. Thank you so much. You said it much better than I could. I would like to expand on my thoughts but I get so much push-back, I've learned to avoid expanding on topics well beyond what I understand, hoping that readers will figure it out for themselves, and even better, some readers will post comments.
ReplyDeleteYou are exactly correct with regard to drilling and completion. So much could be said.
With regard to fracking: microseismic arrays and nanoproppants; toe-to-heel issues; understanding the geology; experience of the geologists in a given field (not a given basin); etc, etc.
I was hoping someone would notice the "boundaries" drilling units: some administrative; some physical. As noted, you can't drill a 20,000-ft lateral if you don't have the spacing.
Scientific American: I can't add anything. You had me at Feynman.
Thank you for taking time to write.