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Page added on April 10, 2014
High depletion rates in Bakken
If you can, you could term it delusion, the theory that Shale gas is the answer to all problems in terms of energy. Just extract the gas, ship it across the pipeline and export the excess, or so goes the popular theory (boom. How easy!). Let’s call this ‘Sale for Energy Security Theory’ or SEST)
If you believe in SEST, here’s a simple task for you: Take a towel or cloth soaked in water. Wring it. Note the amount of water that comes out. Now, wring it again. Okay, once more. How many drops of water did you get in the third time? Two, three? This is precisely what’s happening in the Bakken. Imagine that there aren’t buckets of oil underneath the Bakken but towels soaked with oil. And it is only recently that we figured out the technique called “fracking”: how to wring a towel full of oil. The first time oil companies twist the towel, a stream of oil comes dripping out. Success! Then second time around, surprise: just a few drops, and the third time and subsequent times… nothing. This is what high depletion rates mean and this is what is happening.
Before that, what’s Bakken? The Bakken formation lies in the Williston Basin in North Dakota. Some parts of Bakken also extend into Montana and into the Canadian provinces of Saskatchewan and Manitoba. It is the largest oil field in North America spanning 18,000 square miles. According to an updated oil and gas resource assessment by the United States Geological Survey (USGC), Bakken has estimated oil reserves of 3.65 BBO. In Bakken, the oil rock is located between layers of Shale nearly two miles underground-about 25,000 square miles. Including the Three Forks formation, which lies directly below the Brakken formation, new data from the U.S. Geological Survey estimate 7.4 billion barrels of (technically) recoverable oil, more than 3.65 billion barrels from the assessment in 2008.
Some geologists believe Three Forks to be a trap which just collects oil from the Bakken Shale above. Notwithstanding, for calculation, they are treated as separate formations. But together, they are the largest continuous crude oil accumulation in US.
How much is Bakken worth? In June 2012, North Dakota’s oil production stood at about 660 thousand barrels per day, an increase of three percent from May and over 71 percent over June volumes. Production from the Bakken formation during this period averaged 594,000 barrels a day. According to latest estimates, the crude oil production in North Dakota for the month of may 2013 stood at 25,114 thousand barrels. And, the Bakken accounted for about 90 percent of the state’s oil production. According to the North Dakota Department of Mineral Resources, Bakken oil production increased from 274,000 barrels per day (bbl/d) in January 2011 to 673,000 bbl/d in January 2013.
As a result, if North Dakota’s GDP per capita lagged well below the U.S. average, ranking 38 out of fifty states in 2001, the GDP per capita in 2012 was 29% more than the national average. Most of the rise is attributed to the oil and gas production in Bakken. According to EIA, between 2007 and 2012, annual crude oil production in North Dakota increased fivefold.
Depletion in Bakken
As you can see, Bakken is the star of the region. So, who wants to point that the Emperor has no clothes? In other words, the higher-than-normal rate of depletion of fracked wells?
Well, what is depletion? Depletion is a naturally occurring phenomenon. All non renewable resources undergo reduction over a period of time. Oil and gas aren’t exempted from this equation, either. Production in wells, fields and reservoirs decline depending on the reserves. Even the oil companies with their huge resources can’t prevent depletion (pun intended).
To explain further, it’s just like a cake, a new gas or oil field-the more you take, lesser the cream. The first gas/oil field in a particular area, on or offshore, is relatively large with more reserves. The next field in the same area will have lesser production and accessibility. Subsequent fields will be more expensive with lesser production for more effort. How do oil companies manage? Well, the initial production helps recover cost of exploration as well as future costs of depletion. So, as you can guess, oil companies look for more exploration and development opportunities, and thus the clamor for Shale gas. New areas of exploration in unconventional sources owe more to technology than one can imagine.
In turn, the frenzied exploration has significantly helped the domestic oil scene. It IS a fact that oil production in the US has increased and is rising. Taking the time period between 2011 and 2012, domestic oil production increased by 790,000 barrels per day. This is the largest increase in annual output since the start of the oil industry way back in 1859. As per projections, the domestic production is expected to increase by 815,000 bpd over 2012 levels.
Indeed, the chant of Shale is almost deafening. But the question is for how long. You’d have heard of how Brakken would help US in its quest for energy security; the bluster of a country drowned in Shale gas. Would it? The half a dozen news reports from North Dakota-almost every day – paint a rosy picture of the energy scene in the US.
Yes, definitely, new technologies in exploration like “walking” drilling rigs, multi-well pads, extended horizontal laterals upto two miles long, micro-seismic imaging have helped Shale.
In particular, the most important driver in the domestic energy scene has been the hydraulic fracturing or fracking. Fracking is the process by which water, sand and chemicals are pumped down holes using high pressure to flush out Shale gas and oil trapped in the rock pockets. Many oppose fracking as it causes air pollution as well as ground water contamination-not to forget destruction of pristine forests.
Fracking is still used because up until recently, the US was hugely dependent on the oil from the Middle-East, especially Saudi Arabia. Fracking was too expensive. Then, as time passed, technology advanced. Instead of the conventional vertical wells, horizontal underground wells were introduced which covered more area and thus higher production from sweet spots. Once this fracking came into the picture, the US jumped in as an important oil producer in the world.
Back to the question whether hydraulic fracturing could help export energy from the US sounds fine except for depletion.
Fracked wells age very fast. The initial production is very high so is the rate of depletion. The point is, a newly fracked well may produce 1,000 barrels a day, but this falls by sixty percent the next year, thirty five by the third and fifteen percent by the fourth. Oil companies should replace forty to forty five percent of the current production each year to maintain/increase production. For now at least, the number of wells and cost of production can keep pace with profits because of the higher oil prices. But what happens when the price comes down? The depletion rates will make the wells unviable and the search of oil will continue elsewhere. Roughly the US will need more than 9,000 wells at more than $50 billion to counterbalance the declines.
The number of operating wells in the US has been increasing rapidly while the corresponding productivity (considering all the wells in the US) has declined. There are about 9,000 wells in North Dakota (analyst expect the number to go up to 50,000 by 2030). The state produced more than 800,000 barrels of oil a day in May, a new record. This averages to 89 b/d from each well in North Dakota, hence the need to constantly add new wells in order to maintain a sustainable level of output.
Also, in the case of Bakken, the wells are cheaper compared to the deepwater offshore wells but cost three times those of the conventional onshore wells. This is because the wells must be drilled vertically to nearly two miles, then the angled to horizontal like branches of a tree to more than three miles.
Fracking wells can extend to two miles or three miles to the maximum and Bakken is already saturated with wells. Counting those 50,000 future wells, most of them would be located outside the prime spots. Production from these wells would not have the comfort of those higher first year productivity as those wells located in the prime areas.
Then there’s the environmental angle to it as well. Apart from the ground water pollution there’s the added effect of flares. Natural gas has to be piped immediately after drilling. And, lack of extensive pipeline in the Bakken leads to flaring-burning the gas. So much so, flares in Williston can be seen from space. Talk about manmade landmarks!
Further, what when all these unconventional sources, we’ve become so dependent to dry up? Well, according to analysis by EIA, the ‘inflection point’ could depend on various factors like the economics of scale reduce, depletion of sweet spots but could still arrive as soon as 2014. This is a moving target however, as the coming of this inflection point can be postponed by increasing the number of drilling rigs and other technological breakthroughs (fracking was one of them). The proverbial can will likely be kicked down some more.
Sooner or later, you’d realize that Shale is an industry of diminishing returns. In plain terms, a temporary bubble waiting to burst thanks to depletion. SEST? Enjoy. But then, we’ve warned you.
16 Comments on "High depletion rates in Bakken"
Nony on Thu, 10th Apr 2014 4:49 am
The quality of some of these repost articles are atrocious. I do a daily search on US oil production, Bakken oil production, and Texas oil production. There’s actually huge amounts of daily, high quality analysis (like the ethane puzzle.) Rerunning these blog posts (worse than an old TOD article) does no one any favors.
Nony on Thu, 10th Apr 2014 5:56 am
Forum discussion thread:
http://peakoil.com/forums/viewtopic.php?f=1&t=69494
Plant:
That amount of oil is not more than the Bakken. You’re comparing an oil in place number with a recoverable number.
Rock:
1. The IRR for a well that pays back the investment 1 year later (and no money after) is NOT 100%. It is 0%. (You can just set up a simple spreadsheet in Excel and use the IRR function and see this. Or just think about the definition of IRR: it is the discount rate, which would the NPV become zero.
2. NPV by definition is net of investment (N). Although, I agree on these sorts of things check and make sure people are using terms correctly. But the Bayesian prior would be that the term is used correctly (IOW an 8 million NPV is still positive.)
3. Even with relatively high declines (e.g. Haynesworth pressure drive), any well that pays itself back after a year is going to have very hefty IRRs (70% or higher). Getting to higher than 100% is tricky. You actually have to account for the value being delivered back month the month (which it is and even more in the initial months than the later ones). But usually people use year end accounting for capital projects (I was trying to spreadsheet it and couldn’t figure out why I could not get an IRR above 100%).
Keith: The Alberta Bakken is a different formation from the Williston basin one (that goes into Sask, Mani). It just has a similar name, but is a different formation.
Javier on Thu, 10th Apr 2014 9:20 am
Prices are simply not going down. Demand will keep the same all over the world and even increase, while supply is already going down. As we don’t have any technological alternative to the energy problem, it is obvious that oil prices will keep going up for the next 5 to 10 years.
rockman on Thu, 10th Apr 2014 11:26 am
Javier – “…prices will keep going up for the next 5 to 10 years.” Which is exactly what 99% of the oil patch thought in 1979 which is why we had more than 4,500 rigs drilling…about 3X as many as during the current “boom”. And then the global recession hit and the price of oil fell about 70% by 1986.
After 4 decades in the oil patch I’ve learned the truth of “never say never”. LOL.
Davy, Hermann, MO on Thu, 10th Apr 2014 12:32 pm
Let us thank the Lord for the shale gas revolution on one level of Status Quo Bau. Whether it is or is not a net energy plus to the US and the world it has delayed the energy decent a few years. Liquid fuels are vital to status quo BAU. We have a gathering swelling of numbers of bottom up lifeboat ideas and practices. More and more people are looking around and asking themselves is something wrong and turning to a different path. Will this make a difference probably not in a macro sense. The overshoot to carrying capacity and hyper population growth is just too large to be counteracted. In a local sense and personal sense it has given me a few more years to complete my transition. I know many other have benefited. When the SHTF the capital and resources needed to transition to a prepared post carbon lifestyle will be difficult. It took money to carbonize it takes money to decarbonize. We need a critical mass of knowledge and seed ideas to take root. We will need some plan B’s or the world will spiral into a whirlwind of nasty resulting arrangements. If there are plan B’s then it is possible for some kind reasonable and rational transitions here and there. We will also need some kind of order post collapse to manage all the world ending technologies and wastes. So, I know, how does that relate to the Bakken? It is the Bakken and other unconventionals that have bought us some time and especially the US. If the US collapses so goes the world this is what the PPI’s (political propagandist ideologues) want but they feel the world is decoupled from a US collapse. Orlov is a fine example of a blow hard anti-American collapsenick thinks. He believes the world will get by with a collapsed USA unscathed. Now, I am not saying a sooner a collapse of status quo BAU would not be better. There will be no way to know in any case. It may be better for Mother Nature but what if a worse “Brown Tech” takes over? I know personally I want a little more “prep”. Then I will watch in fascination the whole show unfold from a little better vantage point. It may be measure in months before it consumes me but weeks and months will matter when the world is collapsing around me. If we can make some kind of transition I am well ahead and can be a teacher for those that never prepared. I can be like the monasteries in the middle ages in a very small and local way. “OR” some crazy will come down the road and put a bullet in me. Does it matter? Well I feel good right here right now about what I am doing as a prepper and doomer!
Nony on Thu, 10th Apr 2014 12:46 pm
And stayed down for 20 years, even after coming out of recession and with significant growth. It’s one of the things that makes me wonder if OPEC effectiveness is more the reason for current high price than depletion (I don’t have the answer). But simple Hotelling theory would say that price should have already been higher in anticipation.
You can say that no one knew about China growing, but I disagree…was all the rage from late 90s to discuss that. Anyhoo complex subject…I like to learn more/better (not a Gail analysis…Hamilton/Kopits or better).
The other interesting (eerie) thing is that there was a US drilling/production boom with the ending of price controls and this played a role in helping destabilize the cartel. Not purely that the extra barrels drove the price down…but that they drove price down AND got the cartel to fracture and all pump full out.
There’s a lot of 2P/3P oil in SA and other parts of the ME. You can say that it’s not proved reserves, lacks production capacity. But they know they have it and the lack of developing it serves a cartel benefit. Maybe if they were a little hungrier (like with a crash of prices), they would develop it.
buddavis on Thu, 10th Apr 2014 1:28 pm
rockman
Pretty good book called Victory, by Peter Schweizer. Well sourced book and worth the read. Cheap oil is a key theme.
http://www.amazon.com/Victory-Administrations-Strategy-Hastened-Collapse/dp/0871136333/ref=sr_1_5?s=books&ie=UTF8&qid=1397136380&sr=1-5&keywords=victory
shortonoil on Thu, 10th Apr 2014 2:52 pm
The average Bakken well that comes online at 470 barrels/day is in five years producing 46 barrels/day. That means that the average well in the Bakken, which is now producing 89 barrels/day, is 23 months old. Compare this to US Continental fields in Texas, California, or Pennsylvania were some wells are more than 100 years old. Middle Eastern fields have many wells are more than 60 years old. The Bakken is a very good example of just how very advanced the depletion state of the world’s petroleum reserve has become. The impact of that advancing depletion will become very apparent over the next couple of decades. Our site is dedicated to informing the investor, analysis, and general reader about this ongoing, and world changing event.
Depletion is the inevitable result of resource extraction.
http://www.thehillsgroup.org
Northwest Resident on Thu, 10th Apr 2014 2:56 pm
Production from non-conventional sources of oil like the Bakken are puny when compared to global demand. The world economy would crash in a heartbeat and BAU would stop on a dime if all we had to power it was oil from non-conventionals. Fracturing buys us time, pushing forward that ultimate future date when global demand exceeds oil supply, but not by much. In the meantime, as the article points out, fracturing leads to significant environmental damage in many cases. It is a short term strategy with significant down-side, and amounts to nothing more than hand-bailing water out of a rapidly sinking lifeboat as the huge waves of a storm-tossed ocean slam down all around us.
Todd Nicholson on Thu, 10th Apr 2014 3:14 pm
On you inference of the “environmental angle”, the industry has been fracing wells for over sixty years. This is not a new technique. There has never been a proven instance of contaminated aquifers (drinking water) DUE TO FRACING! The cases that have occurred were due to bad casing issues thousands of feet above where the fractures were induced, and are very very rare, <1%. The fracture stimulation of a typical well only has a height of a few hundred feet ( 65% depletion rate in the first year.
Trent on Thu, 10th Apr 2014 7:43 pm
The impact of that advancing depletion will become very apparent over the next couple of decades. Our site is dedicated to informing the investor, analysis,>>>>>>
Aren’t you being a little optimistic here with this quote? Decades I was thinking in about 2 years time!! we would see the “real picture out in the open..” but maybe I am naive…
Stilgar Wilcox on Thu, 10th Apr 2014 8:10 pm
“The Bakken is a very good example of just how very advanced the depletion state of the world’s petroleum reserve has become.”
If people cannot look at those depletion rates vs. the older fields you mentioned that are 60-100 years old, they are either out of the loop, not paying attention or in denial. Regardless of whether or not people want to acknowledge our energy predicament, it’s dire.
What I find fascinating is if some other intelligent species had just arrived on Earth and had English translated into its alien language, they would figure from watching MSM the only problem on Earth was in locating a missing Malaysian plane. They would also have to wonder why the relatives of the people missing need absolute proof their loved one’s are deceased, when the inference is so obvious. An alien species might also wonder what’s wrong with our species, that we cannot connect the dots to know enough information to conclude they are deceased. Is it really that big a leap? Does the inability to draw that conclusion reflect our species inability to accept peak oil or any other impending crisis?
shortonoil on Thu, 10th Apr 2014 8:42 pm
“Aren’t you being a little optimistic here with this quote? Decades I was thinking in about 2 years time!! we would see the “real picture out in the open..” but maybe I am naive…”
2035 refers to a theoretical point of criticality. It is the point were you can’t go any further; the laws of nature won’t let you! What happens between then and now; your guess is as good as mine.
http://www.thehillsgroup.org
MSN fanboy on Thu, 10th Apr 2014 9:48 pm
2035 refers to a theoretical point of criticality. It is the point were you can’t go any further; the laws of nature won’t let you! What happens between then and now; your guess is as good as mine.
That’s a good debate actually, do we ride this train over the cliff, or does it derail beforehand. Time will tell, Its a blockbuster Cliff-hanger, played out on our doorsteps. We live in the best times.
rockman on Fri, 11th Apr 2014 11:54 am
Bud – Thanks. I’ve heard that point made many times. It would be interesting to see the details.
NR – “Fracturing buys us time, pushing forward that ultimate future date when global demand exceeds oil supply”. Not picking on you specifically but just using your lead to highlight how I see the situation. First, I’m firmly in the “supply will always meet demand” camp. And that’s due to price moderating the dynamic. As energy becomes less available price will rise. That will limit the number of folks that can afford the higher price and thus reduce demand. IOW “demand” isn’t how much energy you want but how much you can afford.
Which IMHO is exactly where we are today. It still surprises me to see demand/global oil production reaching a record high in the face of $100/bbl. Even just 5 years ago I would have expected such a price to reduce demand significantly. Yet we see just the opposite: the demand driven higher prices has led to more oil production that is meeting current demand. Which, in theory, how some manufacturing dynamics should work. But given the geologic constraints I would not expect oil/NG development to follow that premise. Me and all the other geologist have known about the oil/NG in the Eagle Ford Shale et al for decades and understood the take used to get it out for a long time also. But I’m personally surprised to see the level of increase we’ve had in the US. My blind side was probably not anticipating how the pubcos would throw themselves at the unconventional plays. OTOH redeveloping old conventional fields, like the surge in the Permian basin, was more predictable: all geologists/reservoir engineers have projects shovel ready just waiting for the necessary price point to be reached.
Are we at the beginning of the “end game” today? Perhaps and not exactly how many expected the race to the bottom to begin. But once here I don’t find it difficult to understand. The next change step will be when there’s not enough $100/bbl oil to supply all the folks who can afford to pay $100. At that time one might expect prices to increase and thus driving demand down. Today some economies are doing OK so some modest degree with the current energy prices. But many aren’t. Not that energy is their only problems but consider the PIGS. And then we saw new members added like Ireland so we had the PIIGS. And as their energy situation worse in Great Britain we might start using PIIGGS. Which leads to the obvious question: as fewer economies can afford energy down the road how many more letters will be adding to that acronym? As long as your economy isn’t added to the list you might develop a bit cornucopism. But there are those who see their eventual membership in this uninviting club. Thus a bit of doomerism.
Davy, Hermann, MO on Fri, 11th Apr 2014 12:24 pm
ROCK SAID – Which IMHO is exactly where we are today. It still surprises me to see demand/global oil production reaching a record high in the face of $100/bbl.
Rock as long as we have the debt driven bubble of the financial Ponzi scheme secured with Global Central Bank financial repression the global economy can stomach $100 oil. Basically you have cannibalization by wealth transfer of significant areas of the population and global economies by a parasitic scalping segment of the global economy. That in effect is the global elite who are generally TPTB and the 1%er’s in a cooperative revolving door of patronage. This can last for some time. The system is rigged and the players have firm control. But the resulting house of cards can only last so long due to social physics. At some point the social fabric will give and the house of cards tumble. The global elite can also make poor decision in flash points like this Ukrainian situation and bring down the global system. The real test of the energy tipping point will be outright shortages. The higher prices can be maintained as long as the financial wealth transfer pseudo-growth is maintained. Confidence and liquidity are maintained but only temporarily. Status quo BAU is facing multiple tipping points. Complexity and the energy intensity will not be maintained. With the loss of the complexity and energy intensity will come a collapse.