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Page added on November 21, 2014
Bakken tight oil forecasts
I’ve collected a variety of forecasts for production from the Bakken oil formation, which is mostly in the state of North Dakota, but also stretches west into Montana and north into Canada. These forecasts are all for the U.S. side of the formation.
To download the underlying data, go to my page on Github.
As you can see, there are wildly different forecasts from various sources. Some of the lowest I’ve seen come from geologist David Hughes, in two reports he wrote for the Post Carbon Institute. The higher forecasts generally come from what can loosely be called the “industry,” including producers, consultancies, and banks. In between are forecasts from the U.S. Energy Information Administration (EIA) and the North Dakota Department of Mineral Resources (ND DMR).
There are also a few other forecasts that were in documents I found online, but which said they could not be used without written permission. These are from WoodMackenzie, ITG, and Goldman Sachs. All are on the high side—considerably higher than EIA’s forecasts of 2013 and 2014. At the end of this post is a list of my sources, if you’d like to download the data to see for yourselves.
Why the huge discrepancies? It’s hard to know, since most of these forecasts provide little or no information—at least to the public—about how they made their forecasts.
Methods
Hughes’ forecasts are the most transparent I’ve seen, in that he spells out his assumptions more clearly than anyone else. He does his own analysis of the average decline of production of wells in each play (and in smaller regions within each play). However, he doesn’t do an economic analysis, explaining in his October 2014 report “Drilling Deeper”:
These production projections intentionally ignore questions of economics (e.g., the amount of capital required and whether oil prices would support drilling in less productive areas) or politics (e.g., community opposition, new government regulation) in order to analyze what is technically possible.
Another key factor is the well spacing. In Hughes’ 2013 report, he based his forecast on the EIA’s assumptions about the size of the Bakken and the ultimate well densities there to generate his forecast.
In his 2014 report, he takes a closer look Hughes looks at a range of possibilities for the ultimate well density, with a “low density” case (2 wells per square mile), an “optimistic” case (3 wells/sq-mi), and a “realistic” case of 3 wells/sq-mi—but only across 80% of the remaining undrilled area. These densities of wells are for all layers of rock that drillers are targeting—that is, he’s assuming a range of 2 to 3 wells/sq-mi, for wells going into the Middle Bakken and the various Three Forks layers. (He also shows how, whatever the ultimate well density, the production can be boosted in the short term if we drill wells faster—but that would mean a steeper decline and less production later on.)
Of course, it is “technically possible” to drill wells far more tightly than this. But Hughes seems to be arguing this is the well density he thinks would be realistic or reasonable—and that seems to have an economic assumption hidden in it. As geologist M. King Hubbert, the subject of my upcoming biography The Oracle of Oil, once said:
If oil had the price of pharmaceuticals and could be sold in unlimited quantity, we probably would get it all out except the smell.
EIA is fairly transparent about how they made their forecasts, stating many of their key assumptions, such as how densely they think wells can ultimately be drilled in a particular play. However they don’t state other equally important assumptions, such as how much they figure wells cost to drill and frack. Presumably this information is embedded within the code for their modeling system, NEMS, but I don’t have the knowledge to get that vast program running and to look through the code to find the parameters they’ve plugged in.
In its 2014 Annual Energy Outlook, EIA assumes an ultimate well density of 2 wells/sq-mi for the Middle Bakken, and 2.5 wells/sq-mi for the Three Forks. So in areas where these two formations overlap—which is essentially the whole area—EIA assumes the well density could ultimately reach 4.5 wells/sq-mi—considerably higher than Hughes’ “optimistic” case.
EIA also has a “high oil and gas resource” case in which they assume that each well would recover 50% more, and wells could be packed in 50% more tightly. If I’m understanding their description right, the “high oil and gas resources” case would allow an ultimate well density of about 6.75 wells/sq-mi.
Meanwhile, companies are hopeful about packing in wells much more tightly—as high as 16 wells/sq-mi. (See, for example, Continental Resources’ August 2014 presentation at Enercom.) In his 2014 report, Hughes calls this kind of density “staggering.” He adds: “There is no confirmation if this actually worked over a period of time long enough to assess the degree of interference between wells,” which (he argues) would require a year or so of production data from each well.
Open question
It seems to me the big question is: How tightly can wells be drilled, and still yield enough to turn a profit?
Or, put another way, what is the optimal spacing between wells? If too close, they will interfere with each other, reducing the amount of oil each one yields. If too far apart, there could be oil left in between the wells that is essentially stranded, because it would not be profitable to drill another well in between to capture that remaining oil. For example, in EIA’s high resource case, they assume that once wells get to a certain density, there will be interference that means all wells drilled after that point would recover 20% less than they otherwise would have.
(For a bit more on well spacing and interference, see my earlier article, “Packing in the wells,” about Continental Resources’ tests in the Bakken in which they drilled wells much closer together than has been the norm.)
The ultimate profitable well density is an open question that companies are still figuring out. And of course, what areas are profitable to drill also depends hugely on the price of oil (as I discussed in an earlier post, “Trouble for the Bakken? Oil prices reach four-year low“).
I’ll have more to say about downspacing in the future. But for now I’ll say the forecasts seem to be shaped hugely by the assumptions about how far downspacing can go. My guess is that’s one of the biggest factors—if not the biggest—explaining why the various Bakken forecasts differ so widely.
18 Comments on "Bakken tight oil forecasts"
Nony on Fri, 21st Nov 2014 8:21 am
1. Good article and agreed on downspacing being key factor. (Average production of a well can be pretty much estimated. Even adjusted for “sweetness” as USGS and CLR maps do.
2. CLR (even if they’re wrong!) has shared a bit more about how they estimate total production from the play. It’s not just a percentage times the OIP Peirce number any more. They’ve recalculated oil in place based on all public information (and ND has a lot, library of cores and well logs and all that). And then they’ve specified well density and where they expect justification for going into different benches of TF.
3. I think he ought to include some of the previous predictions (USGS, Rune, EIA, Picollo) that have proven to be too conservative. Especially with Rune and Picollo, there was a lot of Internet peaker amateur analyst triumphalism about those predictions. And Rune got all kinds of play from MSM. And he was DRASTICALLY wrong on the low side.
4. There has been some evolution in the efficiency and ability of the drilling/completion/exploration. They’ve experimented with different completion methods (for this play). They’ve done the pad drilling thing. They’ve mapped the place and learned the nuances of layers and sweet spots. In some cases, labor rates have stabilized and service provider costs gotten more competitive. [In others, for example take-away, flaring regs, costs may have increased.] But net, net there has been some evolution to “getting better” (and the cornies predicted that and the peakers scoffed at it). This is hard to predict (not like a downspacing calc), but it might be significant. It has certainly mattered so far.
Nony on Fri, 21st Nov 2014 8:31 am
Mason is really one of the best “peaker” type analysts. Really need to give him credit for that…since I am a cornie. Like him a lot more than Berman, etc.
[That said, I wonder if he wants to finish his Marcellus analysis that he was doing previously (other blog). I think he had skepticism of that play’s growth scenarios. It sure seems that it has not pooped out and continues to grow aggressively even in the face of some pretty brutal pricing differentials (because of infrastructure limits).]
Nony on Fri, 21st Nov 2014 8:44 am
Little graphing nits
Mason’s graphics are usually stunning, but this graph is kind of hard to read. Would help I guess to have the labels in pane, not on a box to the side.
Also, I would think the historical should go a lot higher (is it hidden somehow)?
Why are we only showing 2 of the ND reference cases (not high medium low)?
[Also, it would be interesting to show previous ND estimates from a year or two before (which were scoffed at as crazy high…but have proved to be under!) I guess for this whole thing, you could do a separate panel on past low predictions, to not gunk up the more recent ones (or older ones that were not proved low).
Just a counting thing, but I wonder about differentiation of ND bakken/TF versus US Bakken versus US/CA Bakken.
Kenz300 on Fri, 21st Nov 2014 9:00 am
The drop in oil prices will have the biggest effect on production…………
At what price are the wells profitable is the question……..
Davy on Fri, 21st Nov 2014 9:09 am
NOo, I must admit you corns have strong material in many areas of discussions supporting optimism. You give a good sales pitch for US shale lately. I have been listening. You are proving strong backup for your shale play analysis. As a doomer I find this optimism wonderful.
I am not a doom wanna-be. I am a doom because of what reality is expressing. I am a solid long term doomer. I want the corns to be right short term because I do not want a catastrophic collapse in the near term. I would love to see 5-10 more years of a bump BAU. I am afraid we only have 3-5 years of BAU considering the aggregate problem with energy value delivered to the economy and the systematic issue of excessive debt in the financial system. These are the most likely near term issues.
I believe the possible descent scenarios ahead will vary greatly in degree, duration, and location. I hope your optimism holds things together NOo. I am cheering the corns short term. Long term you guys are pissing in the wind.
Nony on Fri, 21st Nov 2014 9:10 am
Have always agreed with the issue of oil price. All you have to do is look at rig count (and production) around 2008/2009 to see this play turn off like a light switch when prices crashed.
The Hubbertian “geologist” attitude of Rune, Picollo, many commenters to think that we would “run out of sweet spot” was pretty much butt spanked so far. The Rock “economist” attitude of POD, (that there are tranches of oil at different prices) is much more relevant to the Bakken. [Of course both are relevant…both depletion and price have impact. But traditional peakers have been wrong over and over and over in being too reserves/depletion oriented and in not considering how price would drive possible to probable to proved.]
[Also, despite all the Austin Chalk harrumphing, there is something to getting better at using techniques after the industry has drilled thousands of wells and refined/honed hz, multistage fracks, proppant mixes, slickwater, yadayada. Even if it’s not discovering a new molecule, there is a Design of Experiments* aspect of a multifactorial problem being solved. And also the specifics of THIS PLAY being learned better with time.]
*Read Box, Hunter, Hunter.
Nony on Fri, 21st Nov 2014 9:16 am
Davy:
I think the issues of moral hazard in the financial system are much more serious concern than the running out of oil stuff. Look at the 2008 bailouts. They were justified as preventing a depression, but there is a raft of evidence (theoretical and observations) that they had the opposite effect. Instead of purging the rotten-ness, we enabled zombie banks and future insolvency.
P.s. This is the chart of the year:
http://www.businessinsider.com/us-crude-oil-production-the-chart-of-the-year-2014-11
coffeeguyzz on Fri, 21st Nov 2014 9:21 am
The continuing evolution of the fracturing process itself is having a significant impact on ultimate well density and, hence, total output.
Operators are employing far more numerous stages, tightly packed together, containing many more perforation clusters/entry points into the wellbore. These stimulations are designed to create greater contact with the formation, but only for a shorter distance away from the wellbore, thus enabling the emplacement of more wells.
Pages #28-31 on Continental’s recent Analyst Presentation graphically display a stunning, real-world view of what a multi-well stimulation actually looks like.
Northwest Resident on Fri, 21st Nov 2014 9:26 am
Nony — Excellent points! I’m thrilled to see a post by you that I can finally agree with 100%. There was never any possibility that we would run out of oil. It is the prohibitive expense of getting what oil is left (in terms of money and energy invested) that will be our undoing. Rather, has been, and IS our undoing. When so much of the energy obtained from oil is required to get that oil out of the ground and delivered to distribution points, it doesn’t leave enough energy to support our current level of infrastructure and economic activity, much less grow it. And it’s only getting worse. They can cover the problem up with debt, which is exactly what they’ve been doing, but not for long. Hey, Nony, I think you’re starting to see the light!
Nony on Fri, 21st Nov 2014 9:44 am
The debt issues would exist irrespective of oil. What makes you think we wouldn’t have a real estate bubble or Solyndra boondoggles or a bunch of failed loans moved from Fannie and Freddie to the Fed? Shale revolution was a complete surprise to the Fed, to the Obama administration. I see very little evidence that monetary policy is driving investment in shale. That is just hand waving excuses from peakers.
Depletion drives prices up. Knowledge drives prices down. Has always been thus. See Adelman*’s comments. And note, that describing this doesn’t mean that either wins inexorably. Certainly depletion never sleeps, what will things be like in 100 years blabla. But also peakers have been over-playing the depletion hand and underplaying the knowledge evolution hand for over a hundred years now. Just something for both sides to watch…
*Master oil economist from MIT [and way better than that pompous stuffed shirt Hamilton!], recently deceased).
shortonoil on Fri, 21st Nov 2014 9:58 am
Although the Bakken is not our primary area of interest we do follow it as the best case scenario in shale production. The two orange plots above are Hughes’ 2013, and 2014 projections. The light orange (the most pessimist) is the 2013 projection. We think that they are far more likely than any of the others to turn out to be correct; although we are leaning toward the 2013 projection as being the more likely of the two.
The reason for our “opinion” is based totally on our projected price of oil. The Bakken began its meteoric production increase about 2007. That was when oil prices reached $65/ barrel. It was the point were these wells could begin to shown a positive cash flow, although we are skeptical that they will ever over their entire life cycle be profitable.
Our projections put prices at:
http://www.thehillsgroup.org/depletion2_022.htm
2014….$87.00
2015……77.00
2016……66.00
When the price of oil falls to a level that these wells can no longer show a positive cash flow (which was $65/b in 2007) additional drilling will cease. We think that will occur in 2016, and the 70% decline rate in new wells (which provide over half of Bakken production) will fall precariously. The very steep slope seen in Hughes’ 2013 projection would be realized.
http://www.thehillsgroup.org/
Davy on Fri, 21st Nov 2014 10:18 am
NOo, my respect level is rising for you in regards to the doom/corn discussions. I admire some sobriety with your acceptance of dangerous debt levels.
I am not qualified enough to argue hydrocarbons. I am on the fence short term but long term I am doom. My longer term is 2020. Short has a compelling story that I have yet to see disproven. It is based on hard science. Yet, short term you have a well documented sales pitch NOo. Although I may just be another sucker.
Northwest Resident on Fri, 21st Nov 2014 10:19 am
Nony — “The debt issues would exist irrespective of oil.”
Would they? I’m surprised to hear you claim that. The connection between too high oil prices and increasing debt is a direct correlation. I know you won’t take Gail Tverberg’s word for it, but there are plenty of other authoritative sources that make the same case.
Here’s one from Oil Change International:
Drilling into Debt: An Investigation into the Relationship Between Debt and Oil
Full PDF report available at link
Drilling into Debt is the first study to rigorously examine the relationship between oil and debt. To do so, we have collected data on 161 countries for the period 1991-2002, and collected further data on 88 developing countries for the period 1970-2000 for use in a statistical model of debt burdens. We have supplemented that analytical exercise with additional research, in order to shed light on the policies that led to the current situation.
Our key findings are
1.Increasing oil production leads to increasing debt. There is a strong and positive relationship between oil production and debt burdens. The more oil a country produces, regardless of oil’s share of the country’s total economy, the more debt it tends to generate.
2.Increasing oil exports leads to increasing debt. There is a strong and positive relationship between oil export dependence and debt burdens. The more dependent on oil exports a country is, the deeper in debt it tends to be.
3.Increasing oil exports improves the ability of developing countries to service their debts. There is a strong and positive relationship between oil exports and debt service. The global oil economy improves the ability of countries to make debt payments, while at the same time increasing their total debt.
4.Increases in oil production predict increases in debt size. Doubling a country’s annual production of crude oil is predicted to increase the size of its total external debt as a share of GDP by 43.2 per cent. Likewise, the same change is predicted to increase a country’s debt service burden by 31 per cent. For example, the Nigerian government currently plans to increase oil production by 160% by 2010. Past trends indicate that Nigeria’s debt can thus be expected to increase by 69%, or $21 billion over the next six years.
5.World Bank programs designed to increase Northern private investment in Southern oil production have instead drastically increased debt. Northern multilateral and bilateral “aid” for oil exporting projects in the South has exacerbated, rather than alleviated debt. Specifically, an examination of those countries where the World Bank Group conducted “Petroleum Exploration Promotion Programs” (PEPPs) reveals debt levels (debt-GDP ratios) in those countries that are 19% higher than those countries that did not undergo this form of structural adjustment.
6.The relationship between debt & oil is most likely caused by the interplay in between three factors: a. Structural incentives for and direct investments in the oil industry by multilateral and bilateral institutions, such as the World Bank Group and export credit agencies. b. Oil fueled fiscal folly – both in the North by creditors over eager to lend to nations perceived as oil rich, and in the South by unwise fiscal policies. c. The volatility of the oil market.
You might want to rethink your understanding on this subject, Nony.
http://priceofoil.org/2005/07/01/drilling-into-debt-an-investigation-into-the-relationship-between-debt-and-oil/
Northwest Resident on Fri, 21st Nov 2014 10:28 am
Nony — Note on the above: It isn’t just exporting countries that can be expected to increase debt in direct proportion to how much they export. It is ALL countries that produce oil, whether for internal consumption or for export, that can be expected to increase debt in direct proportion to how much they produce. This particular report was done before shale development really took off. But the fundamentals are the same. The shale oil “revolution” could not have happened without insane increases of debt accumulation — exactly what we see not only by shale producers with their many billions in low grade junk bonds issued, but in the national debt as well. Where do you think a great portion, perhaps the majority of investment dollars came from for the “shale revolution”? QE1, QE2, QE3.
Davy on Fri, 21st Nov 2014 10:39 am
Good article NR. It is not hard to see the countries rotting from the oil curse. In fact the whole global system is rotting. As the value of oil’s contributions to the global economy diminishes it will likely be oil and financial problems that destroy BAU. My issue at this point is when not if.
Nony on Fri, 21st Nov 2014 11:45 am
Oil is evil. We should make okra whiskey instead.
https://www.youtube.com/watch?v=TWC6W1ctkMY
Plantagenet on Fri, 21st Nov 2014 11:47 am
The only person or entity with two predictions is David Hughes. It looks like his first prediction was far too pessimistic —–its off by 90% or more.
Given that hugely wrong first prediction you’d think Hughes would hesitate to try again, but there it is—a second different prediction. Its already looking to be way off and way wrong.
At this rate Hughes will have to make 9 or 10 predictions, each a bit more optimistic than the last, to even begin to approach reality.
Northwest Resident on Fri, 21st Nov 2014 12:40 pm
Davy — I agree. Not if, but when.
And, isn’t it interesting that the shale revolution started really taking off about the same time that the Financial crisis of 2007–08 hit? Someone with an idle mind and nothing better to think about might begin to wonder if the two events were somehow related.
Of course, that financial crisis is blamed on the collapse of the housing market brought on by lax regulation, excessive borrowing, risky investments, etc… In other words, over-inflated housing markets, otherwise known as a bubble.
And isn’t it also interesting that the response to that 2007-08 financial crisis which nearly took down the entire global economy was to — resort to over-inflating assets, creating bubbles. That’s what Alan Greenspan (and many others) said was the primary effect of three rounds of QE.
From my point of view, it isn’t too far-fetched to suspect that TPTB saw an energy crisis approaching long before 2007-2008, and that the lax regulations and lack of oversight of financial institutions may have been enabled by a unspoken intent to churn the housing market into a giant bubble, to collapse that housing market, which then served as justification to enact QE1, QE2 and QE3 — which in turn dramatically inflated assets all over again, and which also provided the credit/investment needed to launch the “shale revolution”.
Over-inflated asset prices and massive accumulations of debt is how TPTB have decided to exit the Age of Oil. It is not a solution. It just buys a little more time. And that, I think, was the plan all along.
Pure speculation on my part, of course.