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October 08, 2012

North Dakota Bakken Oil Wells have Improving Economics

In part one of a Seeking Alpha series by Michael Filloon, he addressed some issues with the Oildrum article Is Shale Oil Headed for a Run with "The Red Queen"? Its author, Rune Likvern, has a bearish view of Bakken production. He believes Bakken production is close to hitting a plateau.

Seeking Alpha - the Red Queen article stated an oil price of $80-$90/barrel was needed for Bakken wells to make commercial sense. Using an $80/barrel oil price we see that the majority of middle Bakken wells produce enough revenue to pay back costs in the first year of production. The author also made the mistake of not including natural gas, as he stated the potential contribution is marginal at $3 per Mcf. It is obvious the author is not familiar with Bakken production as wells in NE McKenzie County can produce up to 11% NGLs. Using a $40 per barrel price, in the first year revenues from NGLs are over $730,000. The author made another mistake in using what he believes to be the average Bakken well production for the first twelve months. I believe he found these average wells using old well information. Using current EURs, we see that average production numbers are far higher than those used in his research. Mr. Likvern also believes that Bakken well productivity is decreasing, and stated from 2010 to 2011 this has decreased by 25%. This could be from increased development of the upper Three Forks. This pay zone is less productive than the middle Bakken in the 20% to 25% range. Also, less productive areas are being drilled to get acreage held by production.


The “zipper frac” technique helps operators optimize treatment effectiveness on adjacent wells in Oklahoma’s Arkoma Basin. (Image courtesy of Schlumberger)



Mr. Likvern's conclusions are incorrect. Well costs are improving in the Bakken, and will continue to do so through 2012. Pad drilling, sliding sleeves, shorter drill times, and other efficiencies have all helped. Initial production rates and EURs are also increasing. More frac stages, water, proppant and better completions continue to push these numbers higher. This should continue going forward as oil producers are beginning pad drilling programs, and are able to increase production with fewer rigs while utilizing zipper fracs to decrease completion times.

Zipper Fracs and real-time microseismic fracture mapping

Exploration and Production - New fracturing techniques have been pioneered to maximize well performance on a field or reservoir basis. Using the “zipper frac” technique, adjacent wells can be fraced stage-by-stage sequentially. By holding pressure on one well stage while the adjacent well stage is fraced, the resulting stress field prevents the fracs from intersecting. Going back and forth between the wells at each successive stage is cost-effective and helps to optimize production from each well.

One of the biggest technical breakthroughs has been the development of microseismic fracture mapping. This technique allows the stimulation engineer to observe fracture propagation in real time. If the fracture is going in the wrong direction, the pump schedule can be changed on the fly to alleviate the problem. Often, diverters can be deployed to steer the fracture into previously determined sweet spots. Or, if stages are being determined individually, as in the “plug-and-perf” technique, a stage location can be changed or eliminated to ensure an optimum fracture pattern. Schlumberger offers biodegradable diverter fibers that can divert the frac when deployed, then dissolve to reopen all the fractures for production after the stimulation job is completed. All diversions can be monitored using the microseismic mapping program to ensure they are going in the right place and direction.

Going hand-in-hand with stimulation technology are specific formation evaluation programs that can identify formation sweet spots, determine anisotropy, identify and orient regional stress patterns, and characterize the mineralogy to the most effective treatment program that can be designed. BJ Services (now a Baker Hughes company) swears by this approach and has trademarked its “Understand the reservoir first” process, which enables it to achieve optimal frac designs.

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