Wednesday, October 24, 2007

Time For A Reality Rant

You know, I get just a little tired of companies trolling for investors and general media reports that keep bringing up the hundreds of billions of barrels that supposedly exist in the Bakken everytime the formation is mentioned. My question to them is "so what?" Instead, why not tell me what percentage of that figure is recoverable, as isn't that what's really important? For the ignorant, these reports make it sounds like all that previously unknown oil is just waiting down there for whomever wants to put a straw into this vast underground pool like Spindletop and then just let it flow. That is hardly the case.

These enormous estimates are generated by calculating the oil in place on a section basis times the areal extent of the Bakken. Most companies are estimating about 3-5 MM bbls/section, which is open to debate, but is certainly reasonable. Now the tricky part comes in calculating what percentage of that amount is recoverable. A ten percent recovery rate would yield between 300-500K bbls/section. This certainly appears to be a reasonable rate in areas of exceptional formation quality, such as in the Parshall area, although the jury is still out as to the long term producibility of those wells. But again, it is certainly not an unreasonable calculation for that area based on the scant production history that exists. In other areas currently being developed with less favorable geology, perhaps half that, or five percent, is a reasonable recovery rate, as 300K is an often used estimate for 1280 acre units. However, in some fringe areas, the recovery rate with current technology is only a fraction of one percent, and a number of those wells will be hard pressed to ever make 100K, or even 50K, even after twenty years of production.

So what's the point here, you may ask. The point is: how much of the Bakken acreage being used to calculate hundreds of billions of bbls has poor geologic factors that has a recovery rate with current technology of less than one percent? My guess is a lot of it. Consequently, the hundreds of billions suddenly become hundreds of millions in relevant terms. Marathon and EOG both guess that they have recoverable reserves of roughly 100 MM bbls on their acreage. New technology in the next ten years could double or triple that, who knows. Now, is a couple hundred million bbls that nobody thought could be produced five years ago something to take lightly? Of course not. It's the equivalent of finding new Billings Nose, Little Knife, and MonDak Fields. It is hardly hundreds of billions of bbls though.

So if anybody tells me they think there are 800 trillion bbls down there, I really don't care. Tell me how many of those bbls you can economically put in a tank, then I'll care.

UPDATE 10/29: In today's Bismarck Tribune, while speaking at an energy expo in Bismarck, a Sr. VP for Marathon stated that the middle Bakken is a "'marginal play,' one that requires the company to move quickly from one well to the next with fewer people." Yeah, but the economics have changed rapidly what with the current hundred dollar oil. Now, 100K of recoverable reserves can gross ten million dollars in future revenue, as opposed to half that with fifty dollar oil. Marathon's original economic model was based on forty to fifty dollar oil. But I don't think anyone wants to make any hedges on what the price will be a year from now, as with a world recession, it could be thirty or less.

15 comments:

Anonymous said...

Nice rant I do agree with that point of view. Keep em coming!

Anonymous said...

I want to know how many methods of completion have been tested. It sounds like the key to unlocking the oil is developing methods to free trapped oil. What else has been tried besides pumping it full of water and sand? Could high explosive blasts cause hydrolic shock to fracture the formation? In essance attemped to make the bakken a world class sourse rock pay out like one.

Teegue said...

I'm sure with the current oil prices, the brightest minds are being employed to look at that very question. As for using explosives, that likely isn't feasible in open hole completions because it would severely compromise the wellbore integrity (collapse), and as far as I can see, impossible to employ with completions that utilize a liner.

Anonymous said...

Along this line of exciting media reports, - I’ve often wondered what “1000BBL per day discovery “ means . Shouldn’t we get excited about the size of the reservoir rather than the barrels per day? What does the barrels per day say about the size of the reservoir?

Teegue said...

Generally, the initial production rate is indicative of the quality of the reservoir only in the immediate area that well is draining, i.e., how many and big are the pore spaces in the rock (porosity)and thus how much oil is in place, and how well the pore spaces are connected to each other (permeability), which allows the fluid from the pore spaces to migrate to the wellbore. The Bakken is usually terrible on both accounts, and what permeability exists is almost almost exclusively due to fracturing, both natural and man-made. These factors vary from section to section and certainly from county to county, but are fairly uniform in a localized area.

Production rates are also used to create a decline curve to project how much oil will ultimately be recovered. So a high production rate generally means that there is more oil in place and that a higher percentage of it will be recovered in the area that the well is draining.

The size, as opposed to the quality, of the Bakken reservoir is well know. The reservoir covers a large chunk of western ND in a general area north of I-94. How much of the oil can be recovered out of that reservoir is the ultimate question.

jack said...

I get reports of close to 100% success rates from Bakken drillers. I take it they mean wells averaging at least 70 boe/d. Would you attribute this to a geology whose characteristics are easier to identify than areas requiring conventional vertical drilling? Or, is oil in the Bakken rather horizontally evenly distributed throughout the shale? Or to a factor I do not know?

Teegue said...

Jack, if you look at the map near the top of the blog on the right, in all the area in the tan you should have oil shows in the middle Bakken. Now as to why some areas in that tan area are seeing more activity than others, well that is due to areas where more favorable reservoir properties have been identified. So it's really not the distribution of oil per se, but the geologic characteristics of the mid Bakken in local areas.

Different rock qualities mean different porosities (pore space in the rock where oil can be) and permeability (how well interconnected the pore spaces are to allow the oil to "flow" to the well bore), which is also enhanced through fractures.

The Bakken is an "unconventional" play meaning it isn't like conventional plays that involve vertical wells seeking a trap like an anticline etc.

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