Beware The Bakken

Tyler Durden's picture

Via Arthur Berman of OilPrice.com,

It’s the beginning of the end for the Bakken Shale play.

The decline in Bakken oil production that started in January 2015 is probably not reversible. New well performance has deteriorated, gas-oil ratios have increased and water cuts are rising. Much of the reservoir energy from gas expansion is depleted and decline rates should accelerate. More drilling may increase daily output for awhile but won’t resolve the underlying problem of poorer well performance and declining per-well reserves.

December 2016 production fell 92,000 barrels per day (b/d)–a whopping 9 percent single-month drop (Figure 1). Over the past two years, output has fallen 285,000 b/d (23 percent). This was despite an increase in the number of producing wells that reached an all-time high of 13,520 in November. That number fell by 183 wells in December.

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Figure 1. Bakken Production Declined 92,000 bopd (9 percent) in December. Source: North Dakota Department of Mineral Resources and Labyrinth Consulting Services, Inc.

Well Performance Is Declining

Well performance was evaluated for eight operators using standard rate vs. time decline-curve analysis methods. These operators account for 65 percent of the production and also 65 percent of producing wells in the Bakken play (Table 1).

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Table 1. Operators, Cumulative Oil Production, Total Producing Wells and 2012-2015 Wells Used for Decline-Curve Analysis (DCA) in this study. Source: Drilling Info and Labyrinth Consulting Services, Inc.

Estimated ultimate recovery (EUR) decreased over time for most operators and 2015 EUR was lower for all operators than in any previous year (Figure 2). This suggests that well performance has deteriorated despite improvements in technology and efficiency.

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Figure 2. Bakken EUR (Estimated Ultimate Recovery) Has Generally Decreased Over Time. Source: Drilling Info and Labyrinth Consulting Services, Inc.

Figure 3 shows Bakken EUR and the commercial core area in green. The map on the left shows all wells with 12-months of production history and the map on the right, all wells with first production in 2015 and 2016.

Most 2015-2016 drilling was focused around the commercial core area. The fact that EURs from these core-centered locations were lower than earlier, less favorably located wells indicates that the commercial core is showing signs of depletion and well interference.

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Figure 3. Bakken EUR map showing all wells with 12-months of production and all wells with first production in 2015 and 2016. Source: Drilling Info and Labyrinth Consulting Services, Inc.

Well-level analysis indicates a fairly systematic steepening of decline rates over time. Figure 4 shows Continental Resources wells with first production in 2012 and 2015. 2012 wells have a shallow, super-harmonic (b-exponent = 1.3) decline rate but 2015 wells have a steeper, weakly hyperbolic (b-exponent=0.2) decline rate.

Oil reserves for 2012 wells averaged 343,000 barrels but only 229,000 barrels for 2015 wells–a 33 percent decrease in well performance. Steeper decline rates result in lower EURs.

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Figure 4. Well-level analysis shows steeper decline rates for more recent wells than for older wells. Source: Drilling Info and Labyrinth Consulting Services, Inc. Related: One Shocking Chart On The Death Of A Gold Nation

Gas-oil ratios (GOR) for most operators increased from 2012 through 2014 and then, decreased for wells with first production in 2015 (Figure 5).*

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Figure 5. Bakken gas-oil ratios generally increased over time but then decreased in 2016. Source: Drilling Info and Labyrinth Consulting Services, Inc.

Changing GOR is important because it suggests decreasing reservoir energy. The Bakken has a solution gas drive mechanism. Initially, oil is produced by liquid expansion across the pressure drop from the reservoir to the well bore. Later, gas dissolved in the oil expands and this is the mechanism that lifts oil to the surface.

Rapidly increasing GOR in the Bakken probably indicates partial reservoir depletion and subsequently decreasing GOR suggests more advanced depletion accompanied by declining reservoir pressure, declining oil production and increasing water cut (Figure 6). 

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Figure 6. Increasing gas-oil ratio indicates partial reservoir depletion–Decreasing gas-oil ratio indicates advanced depletion. Source: Schlumberger and Labyrinth Consulting Services, Inc.

The sequence of events summarized in Figure 6 is demonstrated in Bakken field production shown below in Figure 7. Gas increased before oil production peaked in December 2014 and continued increasing through March 2016, and then declined.

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Figure 7. Bakken gas production increased as oil production peaked and then it declined. Source: Drilling Info and Labyrinth Consulting Services, Inc.

Water cut—water as a percent of total liquid produced—has increased for most operators over time (Figure 8) and this provides additional support for progressive Bakken depletion.

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Figure 8. Bakken water cut has generally increased over time. Source: Drilling Info and Labyrinth Consulting Services, Inc.

Company Performance, Break-Even Prices and Future Drilling Locations

Well performance for the 8 key operators shown above in Table 1 above provides a framework for company performance and break-even prices for the Bakken play.

Reserves were estimated for more than 4,400 wells with first production in 2012 through 2015 using standard rate vs. time methods. Decline-curve analysis (DCA) was used to evaluate wells with at least 12 months of production history for key operators. Production group DCA was done separately by operator and year of first production for oil, gas and water.

Results are summarized in the following tables.

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Table 2. Summary tables of key operator EUR and break-even prices and economic assumptions. Source: Drilling Info and Labyrinth Consulting Services, Inc.

None of the key operators’ average well breaks even at current Bakken wellhead prices of $42.50 per barrel although ConocoPhillips ($43.08 break-even price) is very close. EOG, XTO and Marathon all break even at prices less than $50 per barrel but other operators need higher oil prices to break even. It is worth noting that Bakken wellhead prices are about $10 per barrel less than WTI benchmark prices.

Current well density was calculated by measuring the area of the $50 commercial area (406,000 BOE cutoff) and dividing by the number of horizontal wells within that area. There are 5,500 producing wells within the 1.2 million acre commercial area shown in Figure 9. That equates to a current well density of 215 acres per well.

Figure 9. Bakken EUR map showing the $50 (406,000 BOE EUR) commercial area and well density table. Source: Drilling Info and Labyrinth Consulting Services, Inc.

Tight oil operators describe infill spacing of 40 to 120 acres per well favoring the lower end of that range. Current well density in the Bakken core of 215 acres per well suggests substantial infill locations remain yet declining EURs, increasing water cut and falling GOR do not support further infill drilling.

The Bakken is unique because of the extraordinary lengths of lateral wellbores compared with other tight oil plays. Laterals are commonly more than 10,000 feet in length and often approach 12,000 feet.

Figure 10 shows lateral lengths in the Bakken. It is clear that within the commercial core area, most laterals exceed 8,000 feet. Available evidence suggests that current well density is sufficient to fully drain reservoir volumes. That implies that further drilling will not result in producing new oil volumes but will interfere with and cannibalize production from existing wells.

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Figure 10. Bakken lateral length map. Source: Drilling Info and Labyrinth Consulting Services, Inc.

The Downside of Technology

The Bakken play represents the fullest application of modern horizontal drilling and hydraulic fracturing technologies. The Middle Bakken and Three Forks reservoirs are tight, naturally fractured sandstones that respond exceptionally well to long laterals and multi-stage fracture stimulation. Field rules allowed long laterals well before these were feasible in other plays.

The downside of efficiency and technology is that depletion has accelerated. Resulting higher initial rates masked underlying field decline that is becoming apparent only in wells with first production in 2015. The evidence for depletion is compelling but pressure data is not publicly available and is needed to complete the case.

The most appealing aspect of resource plays is their apparent lack of risk. Source rocks are the drilling target so finding oil and gas is given. Because the plays are continuous accumulations, there is no need to map and define a trap. Since the reservoirs are tight, seals are not an issue either. But commercial risk should be more of a concern for investors than it seems to be so far.

The downside is that there is no way to stay away from water and it is produced from day one in large volumes. The Bakken has produced 1.5 billion barrels of water along with its 2.2 billion barrels of oil over the decades. Where are they putting it and what does that cost?

Investors should be worried. As analysts cheered the resilience of shale plays after the 2014 price collapse, nearly a billion barrels of Bakken oil were produced at a loss--about 40 percent of total production since the 1960s. Vast volumes of oil were squandered at low prices for the sake of cash flow to support unmanageable debt loads and to satisfy investors about production growth. The clear message is that investors do not understand the uncertainties of tight oil and shale gas plays.

And all major Bakken producers continue to lose money at current wellhead prices. If observations presented here hold up, there may be nowhere for the Bakken to go but down. Higher oil prices may not help much because the best days for the play are behind us. Future profits were sacrificed for short-term objectives that lost the companies and their shareholders money.

The early demise of the Bakken should serve as a warning about the future of other tight oil plays.

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bamawatson's picture

who can argue against a lateral length map

not to mention Labyrinth Consulting Services, Inc.

Government needs you to pay taxes's picture

Just in time to serve as the ARAMCO IPO fluffer.  

bwh1214's picture

It seems that the zerohedge narrative is that oil prices are going to stay down.  I’ve always been skeptical of this view.  This piece is a break from that standard narrative and one that I more closely subscribe to.

demi urge's picture

I don't know about ZH's, but prices staying low is definitely my view.

I wouldn't read too much into declining bakken production rates during  the price collapse... wells weren't getting worked over at the same rate.  These tight plays need to be re-frac'd every 1.5-3 years (depending on your tolerance for production decreases), and it's like this production decline is a product of producers deciding to play it safe, keep rigs and funds on teh sidelines, and just ride out the cheap oil in the cheapest way they could while still producing.

samsara's picture

It will continue until the economic slowing of demand destuction catchs up with well depletions.

(for the last few years,  demand destruction out paced slowing from depletion)

Then price will go up(like you suspected)  until it creates more hardships, which will cause another stair step down of economic activity which will be visible via Demand destruction again,  repeat... down, down.

We have Peaked Globally folks, the above paragraph will be played out over the next 10 - 20 years.

Welcome to the Dim Ages.

swmnguy's picture

It's easy to assume that supply and demand set pricing, but there's more to it than that.  And, as with everything else, timing is the trick.  Yes, we are "rapidly" using up the petrochemical energy that yields more energy than it takes to extract it.  "Rapidly" means that we've been using it for about 15 decades, and we've only got a few more decades (nobody know how many, 3?  5?  Not 15, though) before extraction takes more energy than is yielded, at which point it's game over.

When and exactly how that happens can't be reliably foreseen.  If we were to come up with an amazingly productive new source of energy soon, it might make sense to use some of that energy to drive extraction of petrochemicals.  So you can't be sure we simply won't be able to use petrochemicals in the next few decades.

The key really is the price--as measured in Joules.  Measuring in US Dollars introduces a whole new set of influences and conditions.  Pretty much all the fracking and oil tar sands production is driven by incredibly large amounts of borrowing, and extremely low interest rates.  The price of oil is being manipulated downward, and the drillers can't roll over their debt forever.  Demand isn't what some expected, but it's not enough lower to explain the price level.  

At some point, enough drillers will go bust that Goldman Sachs is going to control domestic energy production.  Fancy a wager on which way the price goes then?  And it won't have anything to do with how much there is in the ground.

Déjà view's picture

'Bakken' In The Cake...

junction's picture

Bakken to the future: Total Wipeout!

North Dakota, your state is toast.

BandGap's picture

That is a high well density.

 

Akzed's picture

We have more.

samsara's picture

"The decline in Bakken oil production that started in January 2015 is probably not reversible"

 

Impossible.   Why I heard right here from knowledgable geologists on this site that there is BILLIONS of barrels i Bakken.  We were supposd to be saved...

Figure 7 shows an a typical Hubberts Curve of oil production. 

And Yes, it is NOT reversible.

shovelhead's picture

Them abiotic bugs better get busy filling them cracks back up or it's gonna be crying time in the oil patch.

samsara's picture

Yes the Abiotic fairies will replace it all in one night maybe with their magic.

Abiotic Faries

Thorium Reactors

FUSION

any other miracles that are going to save us?

ThanksChump's picture

OR,

 

Leonardo DiCaprio, global climatologist/philanthropist, will buy a fucking bicycle, and stop funding 30,000 air mile trips for an Aussie beautician to pluck his eyebrows so he looks nice for a climate change conference.

Lore's picture

Bob Dobbs! There's a blast from the past. Got slack?  XD

DiCaprio is a moron who should stick to movies and leave the study of "Global Chinooking" to Albertans.

lasvegaspersona's picture

The magic Tesla...you forgot...

Sick Underbelly's picture

Not quite a miracle, but very real and existent now... Gravatational Vortex Power Plants.

Thank about chaining a few of the large ones together.

Imagine not having to worry whether that giant dam is going to break.

This also fits along with the "everything's going to be more local" theme here at ZH.

demi urge's picture

Of course it's reversible. 

The only question is whether it's economically prudent to do so. 

samsara's picture

First,  No its NOT.

Second

"The only question is whether it's economically prudent to do so economically prudent to do so. "

It won't be.  

EROEI   baby

ThanksChump's picture

'Not reversible' covers not economically viable just fine. All the non-viable things, it covers them.

 

Some of us will never run out of gas or oil, but that's an asset that has to be hedged with weapons and ammo investments. It's dumb to be the last guy with diesel fuel if someone can just take it.

 

People SAY they won't pay $25/gal for gasoline. Bullshit. Sure they will. Walk 20 miles (ass. 20MPG car) then say "$25 is too much to pay for that". Lol.

Dig a 20'x3'x3' trench with pick and shovel. Time yourself.

One beer glass of diesel fuel can dig that trench in 20 minutes. Without the week to recover.

The difference is its actual value.

samsara's picture

Cut a couple of trees with a two man saw,  I'd pay the $25

3 Days of the Condor

 

Higgins: It's simple economics. Today it's oil, right? In ten or fifteen years, food. Plutonium. Maybe even sooner. Now, what do you think the people are gonna want us to do then?

 

Joe Turner: Ask them?

 

Higgins: Not now - then! Ask 'em when they're running out. Ask 'em when there's no heat in their homes and they're cold. Ask 'em when their engines stop. Ask 'em when people who have never known hunger start going hungry. You wanna know something? They won't want us to ask 'em. They'll just want us to get it for 'em!

 

 

KingTut's picture

Don't know what the truth here is, but I heard Arthur make essentially the same arguments about all shale in 2008.

The guy seems to live for the whole shale concept  to fail].

So far, it's not really working out for him.

ThanksChump's picture

No, all shale plays are short-term bonanzas.

 

Marcellus shale was in decline after just 3 years, Bakken is definitely in decline. Russia is sitting on a play above the Arctic circle, but that will be a flash in the pan too.

 

The party was over when the era of gusher wells ended. That was literally free production, with a quarter the population and not much equipment to use it. Now it's getting more and more expensive. 40 years left before it's too expensive to produce it for any but military use, maybe only 20, maybe 10.

skbull44's picture

Bring on that 'energy independence' cheer...

Teja's picture

Ask the Fed if they can print oil!

Cthonic's picture

Where are they disposing of that 40% - 70% water fraction?  OK?

demi urge's picture

wastewater injection wells.

jimbos world's picture

Had to log in just to upvote your comment!  LOL!  Drink Heineken.  Non-GMO and quite tasty!

PoasterToaster's picture
PoasterToaster (not verified) Mar 2, 2017 4:18 PM

Just close the wells for awhile.  It will pressure up again.  But then, according to traitorous US "law", you have to cement in a non-producing well, don't you?  You can't just close the valves.

This is the kind of stuff that Trump needs to change if he wants to reignite US Industry.

ThanksChump's picture

Most of the leases have a 'production quota' clause to prevent that. Greedy OG rights holders...

 

They have to produce, even if it's at a loss, and the lease holders don't have to pay negative royalties for losses. That's how production outfits go bankrupt.

CEOoftheSOFA's picture

The Bakken operators should be applauded for using the fracking technology to efficiently drain the field with fewer wells.

crossroaddemon's picture

And when it becomes clear that this will NEVER happen, I will once again say I told you so.

LA_Goldbug's picture

An oil/gas reservoir is nothing but a special natural gas station. Once the fuel in the tank finishes there is not refilling it. So the end must come. Fracking just quickens the pace of production (with fewer wells).

demi urge's picture

It doesn't only quicken the pace, it also increases the total recovery %.  In the past fields were abandoned with 60+% of the oil left in teh ground because it wasn't economically prudent to keep chasing... fracking has taken that number way down.

LA_Goldbug's picture

In the past there were bigger fish to fry and more to be found. So all the jive talking today about shale is just soothing music to the masses. The truth is here,

http://www.theglobaleducationproject.org/earth/images/final-images/o-exp...

And fracking just makes the decline curve go STEEPER helping the drunk to get wasted quicker!!!

bluskyes's picture

Perhaps there's no where to put it once it's been pumped out.

crossroaddemon's picture

Naw, I do a lot of work out in the Bakken. I know a lot of people out there, and some of them are administrators and engineers. Shale is almost done. The easy plays have already been eaten, and the cost of new ones is rapidly becoming unviable. Even at it's best, shale has yielded marginal returns on investment. This is why I'm an advocate of improving relations with the mideast and any other region with liquid landbased plays... tough oil is just too damn expensive. Energy independence is a pipe dream.

lasvegaspersona's picture

but but...wind....but but...solar....They are perfect except for infrastructure...if only it did not cost so much to tear down all those out of use turbines. We could live our pipe dreams.

francis scott falseflag's picture

 

It is much easier to find empty salt caverns than it is to find shale wells that

produce more than 200 bpd.

peter4805's picture

Instead of all the diagrams, just show a picture of a fuel guage sitting on the empty mark. That would sum it up much better.

shortonoil's picture

 

We did an extensive energy analysis of the Bakken Play using data from David Hughes "Drill Baby Drill" in 2014. We came to the same exact conclusion that Berman has arrived at in his study. A sustainable reservoir for liquid hydrocarbon production is not present in the Bakken.

 

http://www.thehillsgroup.org/

francis scott falseflag's picture

This isn't so much 'fake news' as it is a 'fake explanation'.  Shale wells aren't

the same as conventional wells under enormous pressure.  Horizontal drilling

isn't the same as slant or vertical drilling.  The reserves of conventional oil that

have been drilled into vertically are not the same as reservoirs of shale oil into

which perforated pipe has been laid horizontally.

 

The great reserves of shale oil in America lay in gravel sized pieces which have

to be retorted in huge containers or in situ to yield their valuable product.

 

A much more expensive way of producing shale oil.

 

lasvegaspersona's picture

Earth farts on the decline....thats how I read it.

Likelihood of Hershey Squirts (wetness) ...low....look elsewhere for energy survival.

sinbad2's picture

When the US crashed oil prices in 2014, to hurt Russia, it shot itself in the foot.

Now that wound has turned gangrenous, lose the leg(empire) or die.

LA_Goldbug's picture

Don't forget the bullshit Saudi was feeding the World, "We are fighting for market share to compete against Shale." line. Their over producing was aimed at Venezuela and Russia, in the main. Russia didn't work out but Venezuela is close to breaking point.

The Saudi's are US/London puppets. Period.