The looming threat to American oil output
Thursday, 12 Feb 2015 | 2:19 PM ET CNBC.com
Conventional wells go through a long period of steady, flat production between peak and decline. In contrast, production falls rapidly in the first three years of unconventional wells—those in shale, sandstone and carbonates. They then enter a long phase of very low production.
In order to even keep production steady across an unconventional oilfield, producers must constantly drill new, high-producing wells. Now they’re cutting back on exploration, and many investors and energy companies do not fully appreciate how many new wells producers will have to drill in order to get production back to where they were, said Michael Rowe, vice president of exploration and production research at Tudor Pickering Holt.
To be sure, some new wells have been drilled, but producers have delayed fracking them. In its most recent report, the North Dakota Industrial Commission pointed out that 775 drilled wells in the state’s Bakken Shale were waiting to be completed at the end of November. While some of the wells were not being completed due to a backlog of work for fracking crews, some companies have made the strategic decision to put off the investment in the second phase, Hughes told CNBC.
Ron Paterson just updated us, as he always does, on the progress in the Bakken oil field towards achieving its all-time peak of oil production, coming very soon. Interesting figures here come from the “Director’s Cut,” a monthly review by the Director of the North Dakota Industrial Commission, which tracks such things as obsessively as Ron does.
The “Death Cross” to which we refer is that point on the timeline when the rate of oil production DECLINE from wells already drilled and completed will EXCEED the rate of oil production INCREASE from the new wells being drilled and fracked at all times in North Dakota’s four county Bakken region (it’s only 4 counties, folks; the rest is old conventional wells gradually going out of the oil business). “Death cross” will be when the third bar in the below graph is flatlined, equals zero, no net gain.
At the rate with which existing wells are falling-off in daily production, one could anticipate that some time this summer, 2015, the “death cross” will be reached, and decrease will exceed increase once again in North Dakota. What we don’t know is when that will trigger the “death cross” for Wisconsin frac-sand operators? If a new round of drilling and fracking frenzy began — trying to stay ahead of decline — then the demand for frac-sand could actually increase. But a new round would require a new round of debt financing which is looking less likely to be a good sell to financial markets already flooded with “junk debt” from the energy industry.
So, enjoy the new daily oil record in North Dakota, folks, but no, you’re not going to become “Saudi America” this way. When the Death Cross is reached, you’re already on your way back to the last decade when U.S. oil production was slowly petering out. Get in on the glory while you can. Perhaps buy a trailer house out in a “man camp” in North Dakota and see if you can get a job out there driving a truck full of toxic chemicals to dump back into the groundwater, eh?
From the Director’s Cut:
Nov Oil 35,647,735 barrels = 1,188,258 barrels/day
Dec Oil 38,047,667 barrels = 1,227,344 barrels/day (preliminary)(NEW all-time high)
1,163,352 barrels per day or 95% from Bakken and Three Forks
63,992 barrels per day or 5% from legacy conventional pools
Nov Producing Wells = 11,951
Dec Producing Wells = 12,124 (preliminary)(NEW all-time high)
8,826 wells or 73% are now unconventional Bakken – Three forks wells
3,298 wells or 27% produce from legacy conventional pools
Nov Sweet Crude Price = $60.61/barrel
Dec Sweet Crude Price = $40.74/barrel
Jan Sweet Crude Price = $31.41/barrel
Today Sweet Crude Price = $34.50/barrel (lowest since February 2009) (all-time high was $136.29 7/3/2008)
Nov rig count 188
Dec rig count 181
Jan rig count 160
Today’s rig count is 137 (lowest since July 2010)(all-time high was 218 on 5/29/2012)
The statewide rig count is down 37% from the high and in the five most active counties rig count is down as follows:
Divide -62% (high was 3/2013)
Dunn -45% (high was 6/2012)
McKenzie -28% (high was 1/2014)
Mountrail -41% (high was 6/2011)
Williams -40% (high was 10/2014)