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Page added on June 7, 2016
Bakken Shows: U.S. Tight Oil Production is Up Against its Limits
Geology, drilling efficiency and increased focus on the best producing areas have all contributed to the dramatic increase in drilling productivity over the last 10 years in the Bakken, argue Jilles van den Beukel (ex-Principal Geoscientist with Shell) and Enno Peters. The contribution from technology is much smaller; for a given well location the well productivity has hardly improved. This has important implications: Van den Beukel and Peters expect drilling productivity to have peaked. This will limit the rate at which Bakken production can increase, even in a future high oil price world. It will also limit the ability for US tight oil to act as a swing producer.
Every month the EIA produces an update of US tight oil and shale gas production. For each major play, the key figures are the total production and the added new well oil production per rig. In this paper we try to analyse and better understand these figures, focusing on the new well oil production per rig for the Bakken (North Dakota).
Whilst the increase in Bakken production to over a million barrels/day is impressive (at the least), we find the increase in the added new well oil production per rig (from about 100 to over 700 barrels/day) the most impressive – and intriguing. If the oil production resulting from a month of drilling can increase by such an amount over a period of 10 years (and if oil in place figures for a single play like the Bakken indeed run in the tens or hundreds of billion barrels) then this seems to carry a great promise for the future. What chance does OPEC have to reign in shale oil production in the long term if technology can give us such productivity gains?
Bakken 1
But is technology the key driver? The question we have asked ourselves is: what lies behind these productivity gains? To what extent is it a better understanding of geology and the location of production sweet spots? To what extent is it technology, the ability to drill longer horizontal sections that are fracked in an increasing number of stages with larger proppant volumes? Do increasing efficiencies play an important role (are we just drilling faster)? To what extent does high grading play a role (reducing drilling activities to the very best areas only, with the best performing rigs, in a low oil price environment)?
We have based this work on data available in the public domain (EIA, NDIC oil and gas division), the relatively limited amount of recent overview papers on the Bakken petroleum system that have been published (e.g., Grau and Sterling, 2011) and have used shaleprofile.com, the website on US shale oil production built by one of us (Enno Peters).
Geology
The overall distribution of oil productivity and sweetspots is given in the figure below (from Theloy and Sonnenberg, 2013, except for annotation). The pattern is not overly complicated and most production comes from a limited number of sizeable areas. It is clear that the location of a well has a large bearing on its expected EUR (Estimated Ultimate Recovery). The completion of a well will obviously have an influence as well but seems unlikely to be able to fully compensate for a lack of “good geology”.
The large number of wells that have been drilled in the Bakken post 2005 ensured that the overall pattern of producing areas and sweetspots was well known by 2009 (by the end of 2009 about 1000 wells had been drilled with a good geographic spread). A key event was the discovery (EOG’s Parshall 1-36H well) of the Parshall area in 2006 after approximately 50 wells targeting the Middle Bakken in North Dakota had been drilled. This area is characterised by relatively high overpressures and is the most prolific sweet spot.
Bakken 2
In short: the location of a well is of key importance to its EUR. The hydrocarbon productivity pattern was already well established by 2009. Establishing this pattern (and in particular the Parshall discovery) was key in getting the play off the ground. Increased knowledge of the hydrocarbon productivity pattern/sweet spot location cannot have been responsible, however, for the major post 2009 advances.
Drilling efficiency
The figure below shows the number of North Dakota wells spud, for a 30 days period, per active rig. With the recent large drop in the number of active rigs we do not want to read too much in the large swings for the last few months.
Based on these data it is clear that there has been a large increase in drilling efficiency in the 2011-2015 period, of roughly a factor 2. This period coincided with a very high level of drilling activity with about 200 active rigs. This is not surprising; increasing levels of activity result in gaining experience and increasing efficiencies in virtually every industry.
Bakken 3
There are probably a lot of reasons why drilling efficiency has increased so much. Potential components we could think of are more experience on how to drill (“learning while doing”), more sharing of best practices throughout the industry, better equipment (rigs, drilling bits, motors, etc.), less time spent on keeping producing sections exactly horizontal, less time spent on hole cleaning, increased use of batch drilling from a single location, etc.
If we now look at the average cumulative production per Bakken well (all formations, all counties) then we interpret this figure in the following way:
?the initial large increase in well productivity we attribute to learning the basics on the geology and the location of sweet spots. Pre 2008, during this geology learning phase, a relatively large proportion of wells was still being drilled in what we now know to be areas of low production.
?the limited increase in well productivity post 2008 (figure below) is in striking contrast with the large increase in rig productivity post 2008 (EIA figure at the beginning of the paper). The significant increase in drilling efficiency (which does influence rig productivity but has no bearing on well productivity) is the main reason for this. A large part of the increase in rig productivity post 2008 is not drilling better wells but simply drilling them faster.
Bakken 4
Nevertheless, the figure above does show some real increase in well productivity (post 2008) as well.
High grading vs well quality
High grading we here define as focusing on the best areas and intervals, with only the best performing rigs and crews, in a low oil price world. Well quality we here define in a narrow sense: the well productivity for a specific location and stratigraphic interval. An increase in well quality in this narrow sense is due to technological advances (e.g., longer producing sections, more and larger fracs).
The figure below gives average cumulative Bakken well production for the Middle Bakken in the two counties with the best producing wells (Mountrail and McKenzie). In contrast to the previous figure (which showed production for all counties and intervals), this figure shows no systematic increase of well productivity with time. The production for a given area and interval seems to be relatively constant (if anything the data seem to suggest a slight decrease with time; more so for the long term production and less so for the initial production). Other areas show a similar pattern, be it that in some cases a limited increase in well quality is apparent pre 2012. This indicates that the role of technological advances (leading to a higher production per well for a given “geology”) is limited (and certainly less than what some companies’ investor presentations would lead us to believe).
Bakken 5This suggests that high grading is the main reason for the post 2008 increases in well productivity rather than technological advances. Drilling activities in relatively poorly producing areas have indeed markedly decreased over the 2014-2016 period and have by now virtually ceased. The final figure gives the number of wells spudded (as a fraction of the total) in the different counties. It illustrates the increasing focus on the best counties (McKenzie, Mountrail, Williams). The effect is not that pronounced, however, and we suspect that only keeping the best performing rigs also plays an important role in high grading.
Bakken 6
Synthesis
For the Bakken drilling productivity (new oil production per active rig) we see the following timeline:
?The basics of the technology, horizontal wells and fracking, was developed in the Barnett shale in the 1990s.
?Subsequently, the potential of the Middle Bakken was recognised. Up to 2009 increases in new well oil production per rig came primarily from increased knowledge on geology and sweet spot location. By 2009 the overall picture of well productivity and production sweet spots was well established.
?After a brief interlude (2008-2010 oil price low and reduced drilling activity) the Bakken play took off in earnest. During 2011-2015 the active rig count was in excess of 200. During this period increases in new well oil production per rig came primarily from increased drilling performance.
?During the subsequent low oil price world, starting in mid 2014, further increases in new well oil production per rig were primarily due to high grading (drilling in the most productive areas with the best performing rigs).
Bakken 7
Had the increases in drilling productivity been due to technological advances (an increase in well productivity for a given area and stratigraphic interval) we would have expected these increases to continue.
But they are not. They are due to better geological knowledge, faster drilling and high grading. Here, we see much less scope for further improvements:
?geologically, the play is now well established. Sweet spots are well known
?we expect drilling efficiencies to have reached their limit, after years of high activity and the recent intense competition in the services industry
?we see no scope for further high-grading now that the active rig count is down to about 30
Hence we expect Bakken drilling productivity to have reached its peak. Should oil prices pick up significantly we expect Bakken drilling productivity to drop to a level of about 500-600 barrels/day (similar to the drop in the 2009-2011 period). This limits the rate at which Bakken production can increase in a future high oil price world.
Since the Bakken production profile is quite similar to that of US shale oil in general (there are only two other major plays, the Eagle Ford, which is less resilient in the current low oil price world, and the Permian, which is more resilient), we expect our conclusions to be valid for US tight oil in general. This implies that US tight oil production is running up against its limits. This in turn will limit the ability for US tight oil to act as a swing producer in the global market. Financiers will want to see a prolonged period of higher prices before funding an industry in which they have so far mostly lost money.
by Jilles van den Beukel and Enno Peters
Jilles van den Beukel worked as geologist, geophysicist and project manager and lastly as a Principal Geoscientist for Shell in many parts of the world. In March 2015, he resigned to become a freelance traveller and author. Enno Peters has a background in IT and maintains the website shaleprofile.com
17 Comments on "Bakken Shows: U.S. Tight Oil Production is Up Against its Limits"
HARM on Tue, 7th Jun 2016 3:31 pm
Wake me up when the price of oil cracks $50, or 1/2 of what is was 2 years ago, or 1/3rd of what it peaked at in 2008.
We are still –like it or not– in a global glut situation. And global production of usable, refineable “oil” has still (sorry, boys) not peaked.
“We Were Wrong on Peak Oil. There’s Enough to Fry Us All”
–George Monbiot, 2012
Outcast_Searcher on Tue, 7th Jun 2016 3:42 pm
HARM, WTI closed above $50 today. (Wake up). Brent, OTOH has been above $50 already.
OTOH, you’re absolutely right. Bakken is not the whole US. And the US is certainly not the whole world.
Oil Fracking is a game changer over time, and we’re nowhere near peak oil.
HARM on Tue, 7th Jun 2016 4:38 pm
@Outcast, point taken. Even so, $50/BBL oil is still not really that expensive, especially when you adjust for inflation, however you want to measure that.
Thanks for pointing out that fracking really is a game changer and that U.S. is not the whole world.
To date, fracking has been widely deployed in ONE COUNTRY: the USA. Fracking in that one country *alone* was enough to tip us from global oil shortages and $150/BBL prices to a global glut in just a few short years. Just imagine what could happen when it gets underway on a similar scale in other oil-rich countries? KSA? Russia? Kuwait? Iran? Iraq? Venzuela? Mexico?
Monbiot was right –few of us here will probably even be alive when we hit the global production peak. Like it or not (Not) fracking has shifted the Hubbert curve out –way out.
dave thompson on Tue, 7th Jun 2016 5:22 pm
^LOL you guys crack me up.^ Fracking,tar sands and all the rest of the current unconventional oil/energy will not save us from peak oil, it already happened. Conventional 2-3 dollar a barrel oil(or equivalent) fueled modernity up to about 1970. After the 70’s the price went haywire. Peak oil is long past, about 2005. Yes we are seeing volumes more of production in recent years but no economic growth. No Growth because there has been no net affordable energy gain. And no real gain in available energy.
HARM on Tue, 7th Jun 2016 6:52 pm
@dave,
No one ever said that there won’t eventually be a peak, but facts are facts. To believe a global peak occurred 11 years ago when global production has risen every year since is to deny reality. Denying reality doesn’t change a thing and actually gets in the way of adjusting to the new reality.
“When the facts change, I change my mind. What do you do, sir?”
–John Maynard Keynes
Here are the numbers, straight from Ms. “Our Finite World” Gail Tverberg, not exactly a cornucopian denier, based on EIA data.
https://gailtheactuary.files.wordpress.com/2016/01/total-liquids-oil-production-and-consumption-2015.png
HARM on Tue, 7th Jun 2016 6:59 pm
It doesn’t matter how badly any of us *want* peak oil to be now, or 11 years in the past. It doesn’t matter how badly we wish the rest of the world would finally accept the truth and replace rapacious crony capitalism with a (hopefully) better model based on degrowth and ecological sustainability. Unfortunately, it also doesn’t matter how badly other species and future generations will pay for our collective greed, stupidity and shortsightedness. None of those things has any bearing on “oil” production and BAU –it is what it is.
dave thompson on Tue, 7th Jun 2016 7:20 pm
Yes when all liquid crude and condensate is counted on the charts, the appearance in volume would lead many of the uninformed/under informed/non attention paying people to believe peak oil is yet to be seen. The failure in understanding the peak oil dynamic is in how much energy is being put to use by the end user/consumer. All indicators are pointing to a failing growth in economic activity. The economy no longer can grow, look at the past 10 years for the evidence. 0% interest rates with no where left to go. Sorry the Peak in energy has happened just, not in the numbers showing up in volume.BBLs per day/year only tells part of the story.
Survivalist on Tue, 7th Jun 2016 7:52 pm
According to EIA World C+C peaked in November 2015. I suspect condensate is increasing and crude is flat to down.
http://www.eia.gov/beta/MER/index.cfm?tbl=T11.01B#/?f=M
World minus USA and Canada has been on a long plateau since 2005.
http://crudeoilpeak.info/world-outside-us-and-canada-doesnt-produce-more-crude-oil-than-in-2005
World Conventional (World C+C minus Canadian Sythetic and USA LTO) has been on a long plateau since 2005.
http://euanmearns.com/a-new-peak-in-conventional-crude-oil-production/
I’d like to point out that Euan doesn’t subtract Venezuela bitumen or deep water off shore in his measurement of ‘global conventional’. I therefore suggest his measurement of ‘global conventional’ is a little high.
Long story short, I believe we are very close to the Seneca Cliff, an economic depression and famine. Unconventional can’t replace conventional. It’s more expensive and more carbon intensive and production declines sooner.
By 2025 or so we’ll be well into collapse due to peak oil/decreasing EROI/decreased net energy flow. Add to that a climate change double whammy and you’ll be looking at a life where death by starvation is a distinct possibility.
Coffeeguyzz on Tue, 7th Jun 2016 8:06 pm
Up until 2012/2013. the ‘Land Grab’ phase was underway in earnest on the Bakken.
What’s the Land Grab?
That is what immediately follows the small armies of Landmen who rushed into county courthouses, discovered who owned the mineral rights over an area twice the size of New Jersey, paid significant sums to those ranchers and farmers, and then their employers (usually), brought in over 200 rigs to furiously drill wells within 36 months time so as to hold their acreage for future development.
For anyone to think that further advances are not in the offing displays an unawareness with what is happening in the field.
The very first high density frac that EOG has done in the Bakken – the Riverview 102 32H – has produced almost 400,000 barrels of oil in less than 10 calendar months time.
The lateral is slightly over 4,000′ long.
The increasingly successful use of diverters in the proppant mix is enabling MUCH higher returns with potentially more to come if the open hole completions make a comeback.
Enno Peters has indicated an awareness of higher than projected output from selected older wells without yet definitively stating what is becoming obvious to obervers, namely the hydraulic communication from nearby, newly frac’d wells.
The connection is readily apparent both in the production numbers and the locations of the wells,
This stuff is still in the early innings.
Roger on Tue, 7th Jun 2016 8:15 pm
@ HARM
“To date, fracking has been widely deployed in ONE COUNTRY: the USA. Fracking in that one country *alone* was enough to tip us from global oil shortages and $150/BBL prices to a global glut in just a few short years. Just imagine what could happen when it gets underway on a similar scale in other oil-rich countries? KSA? Russia? Kuwait? Iran? Iraq? Venzuela? Mexico?”
I’m a petroleum engineer with 30 yrs in the industry. “Fracking” — the derogatory term coined by our press — was old technology when l got out of school (invented by Halliburton in the 1950’s I believe?). Industry has been using hydraulic fracturing world wide for decades. That said, George Mitchell combined it with horizontal drilling (a technology which came to fruition in the 1980’s in the Austin chalk) in a most ingenious way. I wouldn’t characterize either as a “recent breakthrough” in technology — or as somehow confined to the US.
Regarding the supposed “one country” aspect to implementing tight oil production — I don’t buy it. The international oil companies have tens of thousands of the “bestest and brightest” available on the planet (they have the resources to get just about anyone they want) spending billions to find oil–including unconventional/tight oil. There’s few places that haven’t been looked at at least twice already I’d guess. Argentina is the only potentially significant tight oil production I’m aware of…but independent of the geology, it won’t be a repeat of the US experience simply because the capital flows into the sector won’t happen there — or in the US again either.
Peak oil is in the rear view mirror. Tight oil bought us a few years, but that’s done.
makati1 on Tue, 7th Jun 2016 8:57 pm
HARM, unfortunately, my (and your) grand kids may be the last generation of humans. I do not see any possibility of the human species, and most life on this planet, existing after 2100. We seem to have gone exponential on the heat index and that is going to cause geological, ecological and climatological changes as it progresses. We seem to have triggered feed back loops that we cannot stop.
Oily stuff, financial conditions and political systems are not important except to note how much closer we are to a nuclear war. Maybe the human species will go out with a bang instead of a whimper? We shall see.
GregT on Wed, 8th Jun 2016 12:06 am
“Peak oil is in the rear view mirror. Tight oil bought us a few years, but that’s done.”
Yet another inconvenient truth.
kanon on Wed, 8th Jun 2016 12:29 am
I seriously wonder if fracking can ever be economically sound. I suspect the rapid production growth was due to a financial market that would finance new wells and the producers needed the money to pay for the just completed wells, since the production was not lucrative enough to actually cover the costs, the investors, and the executives. It is a rough analogy to suburban real estate development, which can appear to be a viable economy until the credit stops flowing and debts come due. So ignoring the environmental costs (which guarantee the industry represents a massive loss in wealth), if each well must pay its own way, how long would the industry last?
HARM on Wed, 8th Jun 2016 2:57 am
“but independent of the geology, it won’t be a repeat of the US experience simply because the capital flows into the sector won’t happen there — or in the US again either”
@Roger,
I am not a seasoned petroleum engineer unlike yourself, so thanks for the inside perspective. I totally understand that hydraulic fracturing is not “new” technology, but… hasn’t it only been widely *done* in the U.S. so far? Is it not possible to do it elsewhere (Argentina as you mentioned)?
Re: capital. Since money is pretty meaningless at this point for TPTB (they can create all the ZIRP “money” they want in nanoseconds), I really think that’s far less of an issue than net EROEI.
Davy on Wed, 8th Jun 2016 7:11 am
So many money misconception here on our board who talk about toilet paper money or printing presses. In our globalized world money is everything and I am talking mainly foreign exchange and the relationship of countries to countries. No central bank can do as they please now without affecting another. We are at a period where money is being made honest because of the interconnectedness of economies. The fed cannot raise rates because China is going in the other direction. The two economies are interconnected such that a divergence by one affects the other in a boomerang effect.
Money is money at these levels. It is physical value that is changing and the value that is changing represents a world in destructive change and decline. It is not the money that is doing this it is the physical world that is doing this. We have this misconception here that all we need to do is change the money situation. Stop printing money and make money worth something. This is just not the case because of the underlying world is in deflation. Sure we have some case like Venezuela where money has been made dysfunctional but the primary currencies of globalism this is not the case.
Gold is never going to substitute for money. A new currency is not going to happen because of scale in time and cooperation. The global system is impervious to change and can’t change because it has ventured too far into the brittle state of overextended systematic existentialism. What is that? Simply a state of overshoot and extension beyond what is sustainable and resilient. Money is an abstract representation of this overextension. Changing money will not change this.
rockman on Wed, 8th Jun 2016 12:12 pm
To answer that question for Roger: no…frac’ng won’t be expanded heavily in anything close to a timely manner to other global regions even if there are suitable formations…which so far few have been identified with huge capex expendatures.
First, simply the drilling rigs and frac’t structure don’t exist and would require many $BILLIONS in capex commitments before such potent could be proven. That wasn’t a problem in the US: we had a lot of rigs available to to the buildup that occured during the days of high NG prices. Fortunately when those prices collapse we had a lot of infrastructure in place to switch to chasing oil.
Argentina? They current have 90 rigs operating today…about half of all the rigs in S America. And that number has been falling since prices collapsed. Any here feels like investing a few $billion in rigs and frac trucks down there today? LOL.
Second (and even more important IMHO) someone please name all the privately owned US companies that invested heavily in our shales. That’s what I thought. LOL. Despite what people think there were many $BILLIONS made as a result of the shale plays: $BILLIONS were transferred from investors to the original owners. Back to my cohorts at Petrohawk: put together a lot of very cheap leases, drilled some “seed wells” and sold the company for $12 BILLION. And the company that bought them: it’s stock has lost $100 BILLION since the purchase. In fact the stock didn’t just collapse: it lost value from about the first day they closed the deal.
The pubco threw mucho $BILLIONS at the shales for the short term gains that earned its management and early share holders many $BILLIONS. The shale plays were hugely profitable…for some folks. They sheeple…they got slaughtered. Which is the normal in this world. The oil patch is not a “petting zoo”. LOL,
So where are the hundreds of pubcos in Argentina and the rest of the world that will pump the $TRILLIONS into the effort to a global shale expansion if 1) the plays really existed and 2) oil got back to $90/bbl. After all while high oil prices fed the US shale plays nothing much happened internationally (except a few uncommercial pilot projects) so why should we expect a global shale boom in the future should those factors develop once again?
roccman on Wed, 8th Jun 2016 2:57 pm
Trillions won’t be spent on cap x projects – and is not required when the population is 1/2 what it is in the near future. PO is a temporary condition (temporarily). Those in power merely need to balance “Stampede” effect with geologic declines – don’t destroy infrastructure in the process. 4 billion use a shit load less energy than 8 and when that population is “rationed” those in power can do this for a few more hundred years. The problem is not energy (currently) but perspective.