Tuesday, April 1, 2014

Bakken and Eagle Ford Revised Scenarios

Edit: April 2, 2014  This post was a failed attempt at humor on April Fool's Day.  When a "joke" has to be explained, clearly it is not funny.  I apologize to those who took this seriously.

Essentially I was trying to see what it would take to arrive at the 24 billion barrels of Bakken oil that Harold Hamm often claims.  It takes 69,000 wells (at 2400 new wells per year) and no decrease in new well EUR (up to 2041) to accomplish this with a realistic well profile (similar to USGS estimates).  I really thought that people would realize (given the date), that this should not be taken seriously.

I was incorrect and again my apologies.

Dennis Coyne

Figure 1


There has been a lot of discussion about the United States as the new Saudi Arabia.  Output of crude plus condensate has been expanding rapidly in the light tight oil plays in North Dakota (Bakken) and Texas (Eagle Ford).  In the past I have been very skeptical of how long this rapid increase could continue.

The argument was basically that some areas are more productive than others and that these “sweet spots” would run out of room for new wells eventually and that well productivity would decrease.

I have revised my thinking based on the continually upbeat predictions by CEO’s of successful oil companies such as Harold Hamm of Continental Resources.  In addition, there have been several encouraging pilot projects suggesting that well spacing might be dramatically reduced.  This will allow many more wells to be drilled than the 40,000 wells that I have often used in previous scenarios.

Technological advancements will likely allow oil companies to keep well productivity at present levels for the foreseeable future, or possibly increase well productivity.  To remain conservative I have assumed that the technological progress will balance any difficulties with lack of room in more productive areas and that new well productivity will remain constant rather than increase due to improved technologies and methods.

For the Bakken I assume wells are added at about 2400 wells per year until about 2037 and then the rate that new wells are added begins to decrease, a total of about 69,000 producing wells are added by 2041.

A peak of 2300 kb/d is reached in 2038 and total cumulative C+C output is 24 Gb.
 
Figure 2
 
For the Eagle Ford Shale play the rate that wells are added is reduced gradually from 2600 wells per year to 2200 wells per year from 2014 to 2017 and then remains at this level until 2038 at which point the rate that new wells are added starts to decrease.  About 64,000 producing wells is the maximum reached in 2041.  The peak output is about 1500 kb/d in 2038 and total cumulative output is 17 Gb.

Figure 3

The combined output from the Bakken and Eagle Ford based on the two scenarios presented in figures 2 and 3 is presented in Figure 1 at the top of the post and repeated below.
Development of other LTO plays in the United States will only add to this output possibly extending the plateau out to 2050.


 
Figure 1

14 comments:

  1. Wow! That is a monster scenario! You are a mensch!

    I'm half scared it won't happen now. You know...when the last short throws in the towel than the bull market ends. ;-)

    1. What are you using for the type curves?

    2. I wonder what the infrastructure needs are and if the buildout shows confidence in this much boom. I guess they can get it out by rail no matter what (and obviously pipelines have lagged so far). but also the commitment for pipeline shipping requires some confidence of future oil being there for more than a short peak. There is one additional pipeline going in, and some other proposals but also one that failed. Some argue this was because of the terminus of that project, but would think confidence might have also been an issue. Actually whole thing is hard to analyze without understanding national pipeline map and time issues in getting approvals and laying pipe. Sorry...kind of a wishy washy comment, but net/net is that pipelines are an indicator. But Warren and the barges can ship it if needed.

    3. I would think with this kind of scenario, we would see more and more of a WTI-Brent differential unless exports (really swaps) of the light sweet is allowed. [And it makes me laugh to think of the all the doomers from 2005 who said any new oil finds would be heavy and sour and bituminic. But we have too much WTI for the US refineries!]

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  2. http://www.ogfj.com/articles/2014/02/crude-pipeline-wars-in-the-bakken.html

    Here is an article on the pipeline projects. There have been good articles on this. Bottom line, one is going forward well. The other got cancelled.

    ReplyDelete
  3. Hi Nony,

    The type curves are unchanged. Two changes.

    1. Rate that new wells are added is somewhat greater, especially in the Bakken (2400 new wells/year vs 2000 new wells per year), for the EF scenario the wells added is actually reduced a little from previous scenarios.

    2. This is the important change, it is assumed that the new well EUR remains constant, in previous scenarios this was assumed to eventually decrease.

    ReplyDelete
  4. you got me. :-(

    This thing still looks better than that Gail/Piccolo TOD analysis predicting 150-225,000 bpd peak.

    ReplyDelete
    Replies
    1. Hi Nony,

      I looked up "mensch" on April 1st after your comment (I had heard the term, but was unsure of its meaning, "honorable person" for those like me who didn't know) and I felt bad.

      An April fool's joke is not very honorable, sorry.

      You are missed at peak oil barrel.

      Delete
  5. I would have fallen for it hook, line, and sinker. Great post. LOL. I bet the Wall Street analysts were going nuts on this one.

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    Replies
    1. Hi Bruce,

      Thanks.

      I am pretty sure that nobody at WSJ reads this blog.

      Delete
  6. Art imitates life:

    http://www.ibtimes.com/decades-life-left-north-dakota-bakken-crude-oil-shale-petroleum-producer-president-says-1559668

    ReplyDelete
    Replies
    1. It was these types of predictions(32 Gb from the Bakken) that I was attempting to match with my April fool's scenario.

      Wes at POB has pointed out that this is probably 32 billion barrels of oil equivalent or boe (includes the oil and natural gas output).

      Wes guesses that typically these companies assume about 20% of these boe are from natural gas rather than oil, so if we multiply my 24 Gb Bakken estimate by 1.2 we get to 29 Gb which is pretty close to Rick Bott's (president of Continental Resources) 32 Gb estimate.

      It is always a little amazing to me that these guys can make these claims with a straight face. They may believe their own hype and think that they will only drill above average wells, or they may believe the type curves in their investor presentations.

      You may understand where they are coming from, but I am guessing that even an optimist might be left scratching their head.

      Delete
  7. Dennis, you're a nice guy. If I am going to dish it, I have to take it too...

    I don't take that prediction seriously because it's just a percentage times the Price paper. We ought to know more than Price did now (after all thousands of wells have been drilled). And there's no real discussion to tell how serious the guy is.

    I think it would be interesting to interview and compile views (on the Bakken as a whole) from corporate leaders and exploration/development leaders of companies in the Bakken. And not with a lens of "getting a quote for a story", but a little more penetrating discussion to find out what they all really think. Even guys like Mark Papa who have been a little more negative. Could even do it in a way that did not cite any of them (so they can be honest/anonymous).

    I also think there's a lot of insight from the 10Ks and the earnings conference calls. The comments and questions have a fair amount of sophistication. If you read through you can get some good info. It's not some digital 32 billion versus a "sheeple conspiracy".

    ReplyDelete
  8. DC,
    No joke, the academics are starting to get the new math of oil depletion;
    http://money.msn.com/business-news/article.aspx?feed=BLOOM&date=20140403&id=17493948
    "Old Math Casts Doubt on Accuracy of Oil Reserve Estimates"

    So much for the traditional heuristics. When the data changes, the heuristics have to change with it.


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  9. Hi Paul,

    It may be that a combination of an Arp's hyperbolic fit to the first 24 to 36 months of data followed by an O-U Diffusion model would be best. I have some data from the Bakken going back to 2008 (composite well data for about 300 wells or so). Maybe I should try that to get an estimate for the OU coefficients and then assume that will give us a rough idea of the proper OU curve for more recent wells (which only have 24 to 48 months of data).

    Up until now I have abandoned your OU Diffusion analysis and I use a hyperbolic for the first 5 years or so and then use a simple exponential decline at about 10% per year out to 60 years.

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  10. According to eia we're already past the EF peak production estimate of this post. I knkw for ef the optim8sm was mostly for total not peak. But still. Even for your april fools cornie post ef has passed the peak.

    segue. Another thing i just noticed on one of your bakken predictions from may. Seems like a t3ndancy to graph historical. Near linear. And ten the model shows gro2th slowing down right away. I wonder if over the months you've had to keep revising because the linear persisted. This has been case for a lot of marcellus predictors.

    ReplyDelete
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