A recent post by Rune Likvern at the Oil Drum entitled, Is the Typical NDIC Bakken Tight Oil Well a Sales Pitch? has provided some new information which I will use to update my recent scenario for future Bakken output.
Another post by Mr. Likvern from which I gathered considerable knowledge is entitled Is Shale Oil Production from Bakken Headed for a Run with “The Red Queen”? . In addition a post by Heading Out at the Oil Drum had a number of helpful comments by both Mr Likvern and Webhubbletelescope, the entire thread has comments of interest. There are also a number of posts on the Bakken at The Oil conunDRUM blog(written by Webhubbletelescope) from which I have learned much. I am indebted to both Webhubbletelescope and Mr Likvern for sharing their knowledge.
Previous research by Mr. Likvern suggested that average well productivity had been declining by as much as 20 % per year. Recently this decline has stabilized at around 85 kb for the first year of output from the average well, the second year of output is about 45 kb for a 2 year EUR of 130 kb. The well profile is below (note that any chart can be clicked to enlarge):
I attempted to match this profile for Jan 2008 to Jan 2013 below:
|Figure 2- Model 1 Avg Well Profile|
Note that the left scale is different on my chart and the monthly output rather than yearly average output is shown, only the highest monthly output curve and cumulative output (Jan 08 to Jan 13) should be compared with Mr. Likvern's curves. The agreement between the two cumulative curves is fairly close, with the 20 year EUR about 380 kb for each well profile.
For comparison, the well profile I use is somewhat less optimistic:
|Figure 3 - Model 3 Avg Well Profile|
The 20 year EUR is about 284 kb. A concise summary of the Arps equations used for modelling the decline of an oil or gas well by Dr Steven W. Posten is entitled Decline Curves.
The hyperbolic decline curve matching Mr Likvern's average well has qi=14,700 barrels/month, b=1.48, and Di=0.28, note that this curve violates the rule suggesting b should be between 0 and 1, such curves are unrealistic in the sense that the cumulative output will approach infinity over long time periods.
My well profile has qi=14,925 b/month, b=0.95, and Di=0.19.
The following charts compares the NDIC well profile (qi=21,500 b/m, b=1.094, and Di=0.185), with the NDIC Typical Well presented in the Emmons Presentation at the NDIC website (slide 29), Rune Likvern's data (read from figure 1), the hyperbolic (Model 1) which closely matches it, my model (Model 3), and an intermediate model (Model 2).
Using the well profiles presented in figures 2 and 3 and NDIC data for Bakken/Three Forks oil output in North Dakota, we can check how well these well profiles match the data. For Model 1 we have:
I have adjusted my medium scenario to try to match this mean estimate by adjusting the rate that average well productivity decreases and not allowing the rate of increase in producing wells to increase beyond 2000 net wells added per year (currently the rate is 1769/year). For Model 3 we have:
In order to match the USGS Mean estimate for TRR while also following the NDIC's future scenarios for rate of producing wells added per year and total number of producing wells the productivity of the average new well had to decrease as follows:
By 2028 average well productivity falls to 8 % of the Jan 2013 level. To make the scenario more realistic, we now attempt to consider profitability. We initially assume a fairly rapid rise in real oil prices (2013 $) of 7.57 % per year from 2013 to 2037. We also assume that new wells are only added if the real break even oil price of the average well is lower than the real price of oil. To calculate break even oil prices at the refinery gate, we assume well drilling and fracking costs are $9 million per well, OPEX plus financial costs are $7/barrel, transportation cost is $12/barrel, and royalty and taxes are 25 % of the well head revenue (refinery gate revenue minus transportation costs). Then we use a discount rate of 10 % to find the net present value of the net revenue (revenue-cost) stream from oil output over an assumed 30 year well life.
The Model 1 well profile may be too high and Model 3 may be more realistic, future data will help to sort this out. I created a scenario using the Model 1 well profile which results in output similar to the USGS mean estimate of 5.8 BBO over the period from 1953 to 2073. The scenario assumes that prices remain below the Jan 2017 break even price of $107/barrel so that new wells are no longer added after early 2017 and that 1500 wells are added per year from 2013 to 2016. Total wells are 11,000 and output from 1953 to 2073 is 5.9 BBO, well productivity decreases as in figure 10. See figure 14 below:
In this case prices would need to rise to $112/barrel by July 2016 in order for new wells to be added profitably. Output from 1953 to 2073 falls to 3.6 BBO from 5.9 BBO using Model 1(figure 14).
This is a revision of a very rough draft I posted on May 16, 2013, I apologize to anyone who read it, I will do a better job of editing before posting in the future.