Tuesday, April 21, 2015

Bad times for Bakken and fracking

Fracking is one of those ideas that doesn't even look good on paper.  It's crazy expensive, it's environmentally insane enough to have provoked organized political objections, but mostly, there isn't very much oil in those tight shale formations—the well's production drops off pretty rapidly.  Fracking only exists because the easier ways to get liquid hydrocarbons have been exploited.

Fracking barely makes sense when oil is $110 a barrel, and for a wide assortment of reasons having to do with the decline in speculative interest in all commodities by the hot-money guys, that price may not be seen again for several years.  So what happens?  The guys in charge of reporting the facts on the ground start fudging their figures, and when that won't work, they come up with more creative interpretations of the data.

While North Dakota isn't all fracking, it's a best-case scenario.  So if there are problems in Bakken, the whole industry is probably in trouble.  This story is definitely worth watching.

The EIA Is Bizarrely Optimistic About Future US Oil Production

By Ron Patterson Fri, 17 April 2015

The EIA came out with its final update of Annual Energy Outlook 2015. It seems that the EIA is extremely optimistic concerning future US crude oil production.

Here is a comparison with AEO 2014. The EIA still expects US crude production to peak in 2019 but at 10,472,000 bpd or 824,000 barrels per day higher than the expected last year. But the biggest difference is in the EIA’s change in decline expectations. They now expect the US to be producing 9,329,000 bpd in 2040 or 1,812 higher than they had 2040 production last year. This is the EIA’s reference, or most likely case.

Production from tight formations leads the growth in U.S. crude oil production across all AEO2015 cases. The path of projected crude oil production varies significantly across the cases, with total U.S. crude oil production reaching high points of 10.6 million barrels per day (bbl/d) in the Reference case (in 2020), 13.0 million bbl/d in the High Oil Price case (in 2026), 16.6 million bbl/d in the High Oil and Gas Resource case (in 2039), and 10.0 million bbl/d in the Low Oil Price case (in 2020).
Related: Has The Bakken Peaked?

What the EIA is saying in the above paragraph is that price and tight oil production is everything when it comes to US future oil production. On that point I would agree except that even if the price returns to $100 and higher, it will not produce tight oil production to anywhere near the EIA’s high price projections.

In both the High Oil and Gas Resource and High Oil Price cases, total U.S. crude oil production is higher than in the Reference case mainly as a result of growth in tight oil production, which rises at a substantially faster rate in the near term in both cases than in the Reference case. In the High Oil and Gas Resource case, tight oil production grows in response to assumed higher estimated ultimate recovery (EUR) and technology improvements, closer well spacing, and development of new tight oil formations or additional layers within known tight oil formations. Total crude oil production reaches 16.6 million bbl/d in 2037 in the High Oil and Gas Resource case. In the High Oil Price case, higher oil prices improve the economics of production from new wells in tight formations as well as from other domestic production sources, leading to a more rapid increase in production volumes than in the Reference case. Tight oil production increases through 2022, when it totals 7.4 million bbl/d. After 2022, tight oil production declines, as drilling moves into less productive areas. Total U.S. crude oil production reaches 13.0 million bbl/d by 2025 in the High Oil Price case before declining to 9.9 million bbl/d in 2040.

To such optimistic projections I have nothing to add.

Jean Laherrere posted me the above chart a couple of days ago of US production history and future production forecast from various sources.

Could this be the reason for Saudi Arabia's stance on oil supplies?

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LTO reserves estimated by the USGS based on geological oil in place and recovery factor are not reliable. I am a geologist. I rely only on the production and its growth linearization

Related: The Latest Media Attempts To Suppress Oil Prices

...it is bad but better than anything else for the moment. ND Bakken LTO production growth linearization leads towards 4 or 3 Gb depending the period up to February 2015.

But other modeling can be done depending the feeling about the 1000 wells waiting to be fracked. My guess is that these two models give a good range of the future Bakken production. But as an explorer I am used to being wrong.

Production in the Bakken’s most productive county, McKenzie, has fallen 45,784 bpd since December and is currently about 1,000 bpd below September production level.

Mountrail peaked in September and has since dropped over 25,000 bpd from that peak and is currently almost 2,000 bpd below its July production level. It appears that Mountrail had reached its peak, or nearly so, before the price collapse began. WTI prices averaged $93.21 in September and $84.40 in October when Mountrail had its biggest hit in production.

Related: Is Saudi Arabia Setting The World Up For Major Oil Price Spike?

I find it interesting that the recent decline in North Dakota production has been confined to the two counties that contain all the sweet spots. Since peaking in December North Dakota production has been down 50,435 barrels per day. But the combined McKenzie and Mountrail production is down 61,655 bpd while the rest of North Dakota was up 11,220 pbd over that period. Since September 2014, total North Dakota production is down 9,261 bpd. Over that same period McKenzie and Mountrail is down 26,084 bpd while the rest of North Dakota is up 16,823 bpd.

Chesapeake’s rather interesting business plan will reduce Eagle Ford rigs from 20 in January to 3 in July then hold that level the rest of the year. The above chart and a lot of other Chesapeake stuff can be found at Chesapeake’s Howard Weil Conference Presentation. more

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