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Page added on June 8, 2015

The Bakken ”Red Queen” is restrained with more credit

This post is an update on Light Tight Oil (LTO) extraction in Bakken based upon published data from the North Dakota Industrial Commission (NDIC) as per March 2015.

Extraction developments of LTO from Bakken may be followed by county, formation, vintage of wells, and one important source to understand the developments are coming from studying the developments by companies. Holding this up with companies’ financial statements (10-K and 10-Q) is an invaluable source about the companies, their financial capabilities and their strategies. This information is paramount to understand the developments in LTO extraction from Bakken and provides valuable insights into what to expect of future developments.

To get some understanding of what will drive future developments, it is helpful to look at individual companies.

Amongst all the companies operating in Bakken I selected for this post to present a closer look at 3 of the biggest companies in Bakken; Continental Resources, EOG Resources and Whiting Petroleum.

These 3 companies were found to be representative for several of the companies with regard to a range of variation in quality of wells, development strategies, use of debt, asset sales and not least what their responses to oil price changes may reveal.

For Q1 – 15 the companies involved in LTO extraction in Bakken used an estimated $4 Billion (CAPEX) for well manufacturing and an estimated $2.3 Billion was from external sources, primarily from equity and asset sales and assuming more debt.
The “average” well with around 90 kb [90,000 barrels] of flow in its first year is estimated to have an undiscounted point forward break even (that is a nominal break even with 0% return for the well) at around $60/Bbl (WTI).
The break even price increases with increases in the return requirement.
This analysis shows that the companies have deployed different strategies as responses to the decline in the oil price, which will affect future developments in LTO extraction.

Figure 1: The chart above shows development in Light Tight Oil (LTO) extraction from January 2009 and as of March 2015 in Bakken North Dakota [green area, right hand scale]. The top black line is the price of Western Texas Intermediate (WTI), red middle line the Bakken LTO price (sweet) as published by the Director for NDIC and bottom orange line the spread between WTI and Bakken LTO wellhead all left hand scale. Note that the spread between WTI and Bakken LTO wellhead has remained relatively high and fairly stable during the recent year.

Since September 2014 and as of March 2015 LTO extraction from Bakken(ND) has flatlined at 1.12 – 1.16 Mb/d.

With an oil price below $50/Bbl (WTI) the companies involved in extraction of LTO in Bakken will face several financial challenges.

NOTE: Actual data used for this analysis are all from North Dakota Industrial Commission (NDIC). For wells on confidential list, data on runs were used as proxies for extraction.

Production data for Bakken, North Dakota: Monthly Production Report Index

Formation data from: Bakken Horizontal Wells By Producing Zone

Data on wells kindly made available by Enno Peters’ excellent and tireless work.

Figure 2: The chart above shows an estimate in development of cumulative net cash flows post CAPEX for manufacturing LTO wells in Bakken (ND) as of January 2009 and as of March 2015 (red area and rh scale) and estimated monthly net cash flows post CAPEX (black columns and lh scale).
The assumptions for the chart are WTI oil price (realized price which is netted back to the wellhead), average well costs starting at $8 Million in January 2009 and growing to $10 Million as of January 2011 and $9 Million as of January 2013 with a decline towards $8 Million as from January 2015. All costs assumed to incur as the wells were reported starting to flow (this creates some backlog for cumulative costs as these are incurred continuously during the manufacturing of the wells) and the estimates do not include costs of non- flowing and dry wells, water disposal wells, exploration wells, seismic surveys, acreage acquisitions etc.
Economic assumptions; royalties of 16%, production tax of 5%, an extraction tax of 6.5%, OPEX at $5/Bbl, transport (from wellhead to refinery) $12/Bbl and a weighted interest of 6% on debt (before any corporate tax effects, which now adds around $3/Bbl in financial costs) and income from natural gas/NGPL sales (which now and on average grosses around 1.3 Mcf/Bbl).
Estimates do not include the effects of hedging, dividend payouts and retained earnings.
Estimates do not include investments in processing/transport facilities and externalities like road upkeep, etc. The purpose with the estimates presented in the chart is to present an approximation of net cash flows and development in total use of primarily debt for manufacturing of LTO wells.
The chart serves as a proxy for estimates of the aggregate cash flow for all oil companies in Bakken(ND).

With the decline in the oil price some of the Bakken LTO producers went counter cyclical and took on more debt and sold equity and assets in a bid to sustain/grow oil production. The logic at work here is that any decline in prices should be made up by volume, thus profitability considerations were sidelined.

The decline in the oil price and the aggregate increase in the use of debt made the leverage in March -15 reach new highs.

The LTO Break Even Flow

At $60/Bbl (WTI) it is estimated that wells with a total 1^st year extraction of 90 kb is likely to make a profit and returns improves with increased flow.

At $100/Bbl (WTI) it is estimated that wells with a total 1^st year extraction of 55 kb is likely to make a profit and returns improves with increased flow.

Table 1: The table lists some key metrics for the companies studied.

Table 1 illustrates how the companies responded to the decline in the oil price and it shows the mismatch between total number of wells, wells added during Q1 – 2015 and portion of total extraction. Whatever metric for efficiency is applied, EOG comes out on top.

Figure 3: The chart above (stacked areas) shows developments in LTO extraction by the 3 presented companies and total.
NOTE: The chart does not include contributions from wells starting to flow prior to 2008 for the presented companies and the contributions from these wells normally diminishes as the wells ages.

EOG came in early and they also have, by a wide margin, the best of the wells of the companies presented, refer also figure 7.

There is something about watching those who moves in and out early. EOG may be one to watch.

Continental Resources

Figure 4: The chart above shows developments by vintage in LTO extraction for Continental Resources in Bakken (ND) as of January 2008 and of March 2015 [right hand scale]. Development in the oil price (WTI) black line is shown versus the left hand scale.
NOTES: The chart shows developments in total LTO extraction from wells which Continental Resources were listed as the business owner per March 2015. Continental’s entitlement volumes needs to be adjusted according to their Working Interest (WI) in each well.
The chart does not include contributions from wells starting to flow prior to 2008 and the contributions from these wells normally diminishes as the wells ages.

Figure 5: The chart shows the development in average total LTO extraction by vintage for LTO wells were Continental Resources was listed as the business owner per March 2015.
NOTE: Data for 2014 are not complete with first year totals for all wells.

Continental went counter cyclical with the decline in the oil price and continued to grow LTO extraction.

The average well for Continental does not make commercial sense at present oil prices, which means only a few wells have the prospect of becoming profitable.

EOG Resources

Figure 6: The chart above shows developments by vintage in LTO extraction for EOG Resources in Bakken (ND) as of January 2008 and of March 2015 [right hand scale]. Development in the oil price (WTI) black line is shown versus the left hand scale.
NOTES: The chart shows developments in total LTO extraction from wells which EOG Resources were listed as the business owner per March 2015. EOG’s entitlement volumes needs to be adjusted according to their Working Interest (WI) in each well.
The chart does not include contributions from wells starting to flow prior to 2008 and the contributions from these wells normally diminishes as the wells ages.

Figure 7: The chart shows the development in average total LTO extraction by vintage for LTO wells were EOG Resources was listed as the business owner per March 2015.
NOTE: Data for 2014 are not complete with first year totals for all wells.

Of the companies presented EOG has by a wide margin the most productive wells and so far their wells will be profitable at present price levels if the productivity trends from 2014 are continued.

It is worth noting that EOG adjusts their well manufacturing with movements in the oil price. This strongly suggests that EOG is in the LTO business for successful value capture (profitability).

Whiting Petroleum

Figure 8: The chart above shows developments by vintage in LTO extraction for Whiting Petroleum in Bakken (ND) as of January 2008 and of March 2015 [right hand scale]. Development in the oil price (WTI) black line is shown versus the left hand scale.
NOTES: The chart shows developments in total LTO extraction from wells which Whiting Petroleum was listed as the business owner per March 2015. Whiting’s entitlement volumes needs to be adjusted according to their Working Interest (WI) in each well.
The chart does not include contributions from wells starting to flow prior to 2008 and the contributions from these wells normally diminishes as the wells ages.

Figure 9: The chart shows the development in average total LTO extraction by vintage for LTO wells were Whiting Petroleum was listed as the business owner per March 2015.
NOTE: Data for 2014 are not complete with first year totals for all wells.

The earliest of Whiting’s wells was more productive than the average, while wells for 2011, 2012 and 2013 were poorer and so far the total for wells of 2014 vintage has performed close to the average. At $60/Bbl (WTI) these wells should make some profit.

Summary

This study shows that the companies involved in LTO extraction in Bakken respond differently to movements in the oil price.

As LTO extraction is heavily front end loaded, with most of its extraction early, a sensible strategy would be to adjust the scope of well manufacturing with price movements.

Some companies are clearly value captures that besides having some of the most productive wells also adjust their well manufacturing with movements in the oil price.

It appears strange that of the presented companies the one with the poorest wells, which likely are unprofitable at $60/Bbl [WTI], responded to the recent price decline by growing its total extraction. This may reflect a bet that the oil price soon will make a strong rebound.

Any forecasts for future developments in LTO extraction from Bakken should consider the different strategies amongst the involved companies, their attitude for value capture and their future access to capital, being the combinations from cash flow from operations, equity and assets sales and their capacities for assuming more debt.

When it comes to how well productivity develops, we just have to await actual data for LTO extraction and keep a watchful eye on the developments in water cut and Gas Oil Ratio (GOR).

Fractional Flow

47 Comments on "The Bakken ”Red Queen” is restrained with more credit"

BobInget on Mon, 8th Jun 2015 9:26 am

http://www.bakerobrien.com/bakerobrien2/assets/File/Where%20Should%20My%20Crude%20Go%20Now%20-%20www_bakerobrien_com.pdf

Plantagenet on Mon, 8th Jun 2015 11:08 am

Nice graphics in this report—-how do they get that color effect on the production plots?

GregT on Mon, 8th Jun 2015 11:44 am

Hey look, a squirrel!

rockman on Mon, 8th Jun 2015 1:52 pm

“It appears strange that of the presented companies the one with the poorest wells…responded to the recent price decline by growing its total extraction.” Not sure if this is part of the explanation for those numbers but remember what the Rockman said most companies do when faced with falling prices: they jump thru their ass to increase production. Also understand that the rate an oil produces is determined by the operator. And rarely does an operator produced wells at their max possible rate. “Pulling a well too hard” can reduce ultimate recoverable reserves and sometime even damage/destroy the completion. No way for me to tell but some or most of that production increase is from pulling some or all of their wells at max rate. Considering debt and shareholder anger a pubco might sacrifice URR for immediate cash flow.

apneaman on Mon, 8th Jun 2015 2:01 pm

Lol Greg, good catch. It’s funny how obvious it is when you know what to look for. I still struggle with how many just can’t see it.

Plantagenet on Mon, 8th Jun 2015 2:28 pm

Greg caught a squirrel?

I guess he’ll eat well tonight!

GregT on Mon, 8th Jun 2015 2:30 pm

Over your head planter.

GregT on Mon, 8th Jun 2015 2:36 pm

Look up.

Plantagenet on Mon, 8th Jun 2015 3:04 pm

I’m really not interesting in looking up your squirrel recipes, Greg.

I don’t care how you cook it.

GregT on Mon, 8th Jun 2015 3:40 pm

ROTFLMAO just thinking about you looking up in the air with a puzzled expression on your face. Because I know you did…….

JK on Mon, 8th Jun 2015 3:55 pm

I can not see how $60 WTI provides a breakeven on a point forward basis after royalties and transport discount. One thing I’ve been looking into recently is the fact that production expenses per barrel actually increase over the life of the well as maintenance costs are spread over less and less barrels per year. These production expenses might actually be capitalized but they are in fact needed to keep the well’s oil flowing. Shale oil is a disaster. The income statement and cash flow statements’ accounting conceals the real costs of shale wells. Eventually, the costs come home to roost on the balance sheets.

Plantagenet on Mon, 8th Jun 2015 4:20 pm

@JK

You are exactly right. At some point US shale production should fall off dramatically—which is just what KSA and OPEC are counting on. Thats the whole reason they engineered the oil glut and the current price collapse.

Cheers!

Dredd on Mon, 8th Jun 2015 4:32 pm

Dead man running.

GregT on Mon, 8th Jun 2015 4:40 pm

Yup, and staying in the same place. Over and over again.

rockman on Mon, 8th Jun 2015 4:40 pm

“Thats the whole reason they engineered the oil glut and the current price collapse.” That and the desire of the KSA to give up about $140 BILLION in revenue per year as long as prices stay at the current level. And even according to the KSA they expect prices to remain low for a number of years. So in less then 4 years the KSA would give up 1/2 $TRLLION in revenue to slow down the US shale play. A shale play that took off like wild fire just 10 years after the US oil patch dealt with $11/bbl oil. Makes one wonder how difficult it would be for the shale boom to reignite coming back from 55+/bbl?

Nony on Mon, 8th Jun 2015 4:54 pm

EOG is well known to not complete wells in the winter (can look at last winter also). It is possible that some of the apparent difference is just because of that.

CLR had plans already made, equipment already contracted for. At that point, it becomes a debate of cancellation cost. They have certainly cut back drilling if you look at the more recent months and also have some of the same pattern of drilled but uncompleted wells.

IOW, you have to look at “lag”.

Nony on Mon, 8th Jun 2015 4:59 pm

“Not sure if this is part of the explanation for those numbers but remember what the Rockman said most companies do when faced with falling prices: they jump thru their ass to increase production. Also understand that the rate an oil produces is determined by the operator. And rarely does an operator produced wells at their max possible rate. “Pulling a well too hard” can reduce ultimate recoverable reserves and sometime even damage/destroy the completion.”

Instead of relying on “the Rockman” and his pre-conceptions, I urge looking at the actual patterns of development as well as the statements by NDIC, companies, and journalists. It is crystal clear that the backlog has grown and also that some wells are being throttled back, not opened up.

GregT on Mon, 8th Jun 2015 5:23 pm

” It is crystal clear that the backlog has grown and also that some wells are being throttled back, not opened up.”

In the meantime, everyone from the local news desk eCONomist to the president of the United States himself is shouting Growth, Growth, Growth, yet the economy retracted .7 percent in the first quarter. With all of that extra oil just waiting to be soaked up by the economy, the economy continues to stagnate.

Why could that possibly be? Hmmm.

GregT on Mon, 8th Jun 2015 5:26 pm

The supply is there, and the demand for growth is there. Something just doesn’t add up Nony?

Plantagenet on Mon, 8th Jun 2015 5:32 pm

@grgr

“The supply is there”…no, you are wrong again. Right now there is OVERSUPPLY>

We are in an oil glut. Thats why prices are below the cost of production in parts of the Bakken. Thats why “things don’t add up”—that what your little brain is missing. .

Cheers!

Nony on Mon, 8th Jun 2015 6:43 pm

“The supply is there, and the demand for growth is there. Something just doesn’t add up Nony?”

Price has dropped to $60 because of the supply glut. Volume is up, price is down. Marginal producers (e.g. US shale) are being pushed out of the market by lower cost producers from Arabia. The consumer benefits. It adds up perfect if you know the first chapter of a micro economics book.

shortonoil on Mon, 8th Jun 2015 6:43 pm

Are Bakken wells profitable? Some may be, and some may not, but the author’s approach is to review flow rates as the one, and only critical metric. In conjunction with 10-K financial statements, which are likely to be liberal with the truth from using extended depreciation schedules, the profitability of a particular Bakken well is still very much in question.

One area that can not be manipulated with financial devises is lifting costs. Lifting costs can be calculated using thermodynamic methodologies. They are not subject to the bookkeepers’ creative pencil. The average 10,000 foot well in 2015 with zero water cut has lifting costs of $6.61 per barrel. With a 50% water cut lifting costs are $19.83 per barrel. Williston Basin sweet was selling for $48.44 per barrel as of today. Sour was in the high $30’s.

Average well depth in Mackenzie county, the Bakken’s most productive area is 11,200 feet, and water cut ranges from zero (0) to 80% on initial production. It appears that evaluating the profitability of Bakken production on a company wide basis is likely to be misleading. Evaluation needs to be performed on a well by well bases to produce meaningful results. The critical metric is the ratio of how many unprofitable wells must be drilled to get a good one.

http://www.thehillsgroup.org/

GregT on Mon, 8th Jun 2015 7:23 pm

“Price has dropped to $60 because of the supply glut. Volume is up, price is down. Marginal producers (e.g. US shale) are being pushed out of the market by lower cost producers from Arabia. The consumer benefits. It adds up perfect if you know the first chapter of a micro economics book.”

I have taken economics Nony, and I no longer buy into that nonsense. There is no consideration given to the real sciences.

Why is there a supply glut Nony? Why is that glut not allowing the continuation of growth? How is the consumer benefitting when the economy continues to stagnate? And while we’re at it, why are human beings now being referred to as consumers? Rather than concerned citizens, or informed citizens? Is our prime reason for being here to consume the Earth Nony? Are people too stupid to think for themselves, or do people all now simply become part of the indoctrination of the eCONomists?

shortonoil on Mon, 8th Jun 2015 7:42 pm

“Price has dropped to $60 because of the supply glut.”

If oil was worth $80, it would be selling for $80. Oil has dropped to $60 because that is all that it is worth. It is called depletion, and depletion reduces the value of a commodity. The price goes down, and then the production. Your oil “glut” appeared because what was being produced wasn’t worth buying. If it had been there would not have been a “glut” in the first place. Someone would have bought that oil. They didn’t, and they still aren’t. What part of “no one wants it” don’t you understand. This is like teaching don’t touch the stove to a two year old.

coffeeguyzz on Mon, 8th Jun 2015 7:45 pm

Shorty

How are you reconciling the water ‘production’ numbers in light of the increasing use of slickwater fracs in the Bakken?
150k/200+k barrels of water per Frac is no small issue.

Nony on Mon, 8th Jun 2015 7:49 pm

Depletion raises the value of a resource. This is intuitively true and also has a famous econ “rule” associated with it.

http://en.wikipedia.org/wiki/Hotelling%27s_rule

I’m not sure how to even talk to people like you who have spent years reading about peak oil and don’t know the most basic concepts. I think I’m wasting my time.

GregT on Mon, 8th Jun 2015 8:03 pm

For starters Nony, a pseudoscience does not have rules. It has beliefs, which may, or may not be true.

Depletion only raises the value of a resource if there is demand for that resource, or in this case, if there is affordability for that resource.

GregT on Mon, 8th Jun 2015 8:34 pm

“This is like teaching don’t touch the stove to a two year old.”

Except in the case of the two year old, the lesson is learned rather quickly, and fairly simple to recover from. This lesson will take a bit longer until it sinks in, and there won’t be any recovery.

BobInget on Mon, 8th Jun 2015 9:58 pm

If dissatisfied, you get your money Bakken.

I’ll sneak a few observations aboot KSA :

Gary Ross, another veteran OPEC watcher and the founder of PIRA think-tank, said he believed the market was moving in OPEC’s favor as slowing investment would tighten supply.

“The market is broken – not only are short-term prices too low, but so are long-term prices. They are signaling that the world doesn’t need more supply. Over time, the market is going to tighten,” he said.

One of the best known oil market bulls, the head of Astenbeck Capital Andy Hall, said in a letter to investors he believed global demand growth this year will likely come in closer to 2 million bpd rather than the 1 million “being predicted by the principal forecasting agencies”.

Meanwhile, as Saudi Arabia burns more crude at home to meet peak summer demand for air conditioning, its spare capacity will essentially fall to zero, Hall said. “Yet the geo-political risk premium in the oil price today is zero at best”.

more:http://www.reuters.com/article/2015/06/09/us-opec-vienna-analysis-idUSKBN0OO0EP20150609

BobInget on Mon, 8th Jun 2015 10:06 pm

Carefully note;
Not a F’ing word about KSA’s air campaign on Yemen.News about how A/C gobbles up oil while flaring gas at the well heads but nothing about F-16 fuel consumption.In one hour an F-16 uses more oil then cooling any apartment house for a full day.

Enno on Tue, 9th Jun 2015 5:36 am

Nony,

“It is crystal clear that the backlog has grown and also that some wells are being throttled back, not opened up.”

Crystal clear as mud. Just look at the difference in wells spudded and starting to produce in ND, and you will see that already a couple of months the backlog must be decreasing.

Nony on Tue, 9th Jun 2015 6:41 am

Enno, it may be decreasing…over last couple months. I trust you.

I wonder if you compare JUN2015 to JUN2014? OR APR2015 to APR2014?

Nony on Tue, 9th Jun 2015 6:50 am

Contango was pretty extreme in 1Q2015, especially the beginning of it. So delaying completions made more sense than, than now. Plus there was the waiting for costs to come down.

Nony on Tue, 9th Jun 2015 7:00 am

(I would copy links, but spam checker flags my posts too much already)

If you google the company names along with delayed completion, you will see CLR, EOG, and many others made public statements in early 1Q2015 about delaying completions. (And again EOG is notable for not doing completions in winter anyways, so easier for them to slow down.) Whiting is the one who is notable for saying they would not delay completions. And then the decision and rationale for it in FEB (contango and dropping service prices) may be different from what it is now.

Davy on Tue, 9th Jun 2015 7:11 am

http://en.wikipedia.org/wiki/Seven_virtues

Davy on Tue, 9th Jun 2015 7:11 am

OH, of course NOo, everything is handled. There are few problems in the industry and they have a contingency plans for all eventualities. Come on NOo, your constant “no problems” message diminishes your message. There are always tradeoffs in all aspects of life. Life cycles in all aspects of life. Why would shale be any different?

What a simpleton you are. Your mind is very smart at fooling yourself. You must be a Street dog as in Wall Streeter. NOo, the game is based on reality not the rules you street dogs make up and live by. You are going to be in a world of hurt when reality bites you in the ass. I am sure you will have some kind of story to fool yourself until the bitter end. Psychopaths always do and you street dogs have a mentality built on psychopathic pursuit of profit that is nothing more than one of the 7 deadly sins of greed.

http://en.wikipedia.org/wiki/Seven_deadly_sins

NOo, check out these instead:

http://en.wikipedia.org/wiki/Seven_virtues

Nony on Tue, 9th Jun 2015 7:14 am

I don’t have a “no problems” view of things, Davy. You just can’t imagine someone who is nuanced in their views. For similar reasons, you dismiss any facts that don’t support your hypotheses.

shortonoil on Tue, 9th Jun 2015 7:21 am

“How are you reconciling the water ‘production’ numbers in light of the increasing use of slickwater fracs in the Bakken?
150k/200+k barrels of water per Frac is no small issue.”

The reconciling is that if you pump water into a well it will be necessary at some point to pump it back out, and that is going to increase lifting cost. If the natural water cut is already high enough to make a well unprofitable pumping more water into it is not going to improve the situation. Slick fracs that may have been able to improve revenue at $85/ barrel may not work at $48; just as there are wells that worked at $85 but are now losers.

rockman on Tue, 9th Jun 2015 7:25 am

enno – Can’t hang everything on a one month blip but the Texas RRC report 225 Eagle Ford wells began producing in April. That’s a fair bit above the 12 month running average. And remember wells that started producing in April probably weren’t frac’d until February or so. And were drilled in 4Q 2014.

Cloud9 on Tue, 9th Jun 2015 7:29 am

It would seem to me as a system degrades there will be momentary gluts and shortages depending on what side of the phase shift one finds one’s self. In the early days of the Great Depression farmers were pouring out their own milk and burning wheat in an effort to drive up prices. On the other side of this occurrence city dwellers were starving.

Oil will have a marginal value as the industrial civilization that thrives on it collapses. Put another way, soccer moms will not be filling up their SUVs to run to the outlet malls if the malls are closed.

Davy on Tue, 9th Jun 2015 7:42 am

NOo, you, NOoanced, I am chuckling NOo. There are other people on this board that may not have the depth of your knowledge but they are light years ahead of you in understanding. You fool yourself NOo. You are the epitome of goal seek on this board. As for me NOo show me some mojo and I will worship you and kiss your feet. All I see now from you NOo is phony cheerleading and I am above that.

Davy on Tue, 9th Jun 2015 7:43 am

Cloud, well said!

shortonoil on Tue, 9th Jun 2015 9:04 am

“Contango was pretty extreme in 1Q2015, especially the beginning of it. So delaying completions made more sense than, than now. Plus there was the waiting for costs to come down.”

As of today the futures price for July 2015 is $59.15/ barrel. For July 2016 it is $62.37. If you think that the hope of an extra $3.22/ barrel, a year from now, is going to affect the rate of completions you are an absolute complete idiot. The completion rate that is occurring at the present is not going to change, and it is outpacing drilling by at least 2 to 1 (Enno probably has some numbers on that). The only thing that is going to happen to Bakken production at $48.44/ barrel is that it is going to go down. Since price is not going to go back up:

http://www.thehillsgroup.org/depletion2_022.htm

the Bakken is a few Gb of oil that is not going to come out of the ground. The industry has been taking on higher, and higher cost projects for more than a decade. That was based on the erroneous assumption that the price of oil was unbounded. In the industry’s opinion the consumer would pay anything to acquire oil. They failed to differentiate between “would” and “could”.

Those high cost projects are now in the phase out stage. Once they are gone all that will remain is the low cost conventional legacy fields. There is almost no new conventional coming online. Since about 60% of world production comes from 1% of its fields, and they are on average more than 60 years old, their demise will herald the end of the oil age.

http://www.thehillsgroup.org/

coffeeguyzz on Tue, 9th Jun 2015 11:23 am

Shorty

I have no intention of discussing at length many of the particulars re technology/geology of shale oil and gas production. (The second sentence in your above reply is incomprehensible to me regarding shale production techniques).
If you are monitoring the Bakken well data available through the ND DMR subscription service – hopefully any and all who profess analytical prowess are doing so. Some well recognized contributors were, unil recently, UNAWRE this detailed data even existed, let alone was publically accessible – you may notice a significant DECLINE in water cut as it is still, to a measurable degree, the originally injected Frac water.
As the staggering amounts of water are apt to increase and become more widespread due to slickwater’s results, simple WOR will not be as accurate of a well’s productive status as it has been previously, such as in conventional production.

Nony on Tue, 9th Jun 2015 3:06 pm

” If you think that the hope of an extra $3.22/ barrel, a year from now, is going to affect the rate of completions you are an absolute complete idiot. ”

Actually what I said was the opposite. That current contango is NOT extreme. Please, do try to keep up…

shortonoil on Tue, 9th Jun 2015 6:07 pm

“The second sentence in your above reply is incomprehensible to me regarding shale production techniques”

If this is the second sentence that you are referring to:

“If the natural water cut is already high enough to make a well unprofitable pumping more water into it is not going to improve the situation.”

then it is hard to image what particular “shale production techniques” you could be referring to. I guess EOG must be using anti-gravity devises on their new wells. When you pump more water into a well you have increased the mass that must be removed to recover the oil. That increases the lifting costs. There are no “techo gizmos” to alleviate that problem in this universe.

“simple WOR will not be as accurate of a well’s productive status as it has been previously, such as in conventional production.”

WOR (water oil ratio) has absolutely nothing to do with the fact that 2 pounds is more than 1 pound. There seems to be some cognitive disconnect operating here, and a ND DMR subscription is not likely to improve that situation very much!

Makati1 on Tue, 9th Jun 2015 10:32 pm

Short, If I am correct, water actually weighs a bit more than petroleum. If that is so, then the energy to recover an oil/water mixture would actually be more than pure petroleum, depending on the ratio. Yes? No? At least that is how the laws of physics worked when I went to school. Has someone changed them? ^_^

The Bakken ”Red Queen” is restrained with more credit

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