Geology, drilling efficiency and increased focus on the best producing areas have all contributed to the dramatic increase in drilling productivity over the last 10 years in the Bakken, argue Jilles van den Beukel (ex-Principal Geoscientist with Shell) and Enno Peters. The contribution from technology is much smaller; for a given well location the well productivity has hardly improved. This has important implications: Van den Beukel and Peters expect drilling productivity to have peaked. This will limit the rate at which Bakken production can increase, even in a future high oil price world. It will also limit the ability for US tight oil to act as a swing producer.
Every month the EIA produces an update of US tight oil and shale gas production. For each major play, the key figures are the total production and the added new well oil production per rig. In this paper we try to analyse and better understand these figures, focusing on the new well oil production per rig for the Bakken (North Dakota).
Whilst the increase in Bakken production to over a million barrels/day is impressive (at the least), we find the increase in the added new well oil production per rig (from about 100 to over 700 barrels/day) the most impressive – and intriguing. If the oil production resulting from a month of drilling can increase by such an amount over a period of 10 years (and if oil in place figures for a single play like the Bakken indeed run in the tens or hundreds of billion barrels) then this seems to carry a great promise for the future. What chance does OPEC have to reign in shale oil production in the long term if technology can give us such productivity gains?
But is technology the key driver? The question we have asked ourselves is: what lies behind these productivity gains? To what extent is it a better understanding of geology and the location of production sweet spots? To what extent is it technology, the ability to drill longer horizontal sections that are fracked in an increasing number of stages with larger proppant volumes? Do increasing efficiencies play an important role (are we just drilling faster)? To what extent does high grading play a role (reducing drilling activities to the very best areas only, with the best performing rigs, in a low oil price environment)?
We have based this work on data available in the public domain (EIA, NDIC oil and gas division), the relatively limited amount of recent overview papers on the Bakken petroleum system that have been published (e.g., Grau and Sterling, 2011) and have used shaleprofile.com, the website on US shale oil production built by one of us (Enno Peters).
The overall distribution of oil productivity and sweetspots is given in the figure below (from Theloy and Sonnenberg, 2013, except for annotation). The pattern is not overly complicated and most production comes from a limited number of sizeable areas. It is clear that the location of a well has a large bearing on its expected EUR (Estimated Ultimate Recovery). The completion of a well will obviously have an influence as well but seems unlikely to be able to fully compensate for a lack of “good geology”.
The large number of wells that have been drilled in the Bakken post 2005 ensured that the overall pattern of producing areas and sweetspots was well known by 2009 (by the end of 2009 about 1000 wells had been drilled with a good geographic spread). A key event was the discovery (EOG’s Parshall 1-36H well) of the Parshall area in 2006 after approximately 50 wells targeting the Middle Bakken in North Dakota had been drilled. This area is characterised by relatively high overpressures and is the most prolific sweet spot.
In short: the location of a well is of key importance to its EUR. The hydrocarbon productivity pattern was already well established by 2009. Establishing this pattern (and in particular the Parshall discovery) was key in getting the play off the ground. Increased knowledge of the hydrocarbon productivity pattern/sweet spot location cannot have been responsible, however, for the major post 2009 advances.
The figure below shows the number of North Dakota wells spud, for a 30 days period, per active rig. With the recent large drop in the number of active rigs we do not want to read too much in the large swings for the last few months.
Based on these data it is clear that there has been a large increase in drilling efficiency in the 2011-2015 period, of roughly a factor 2. This period coincided with a very high level of drilling activity with about 200 active rigs. This is not surprising; increasing levels of activity result in gaining experience and increasing efficiencies in virtually every industry.
There are probably a lot of reasons why drilling efficiency has increased so much. Potential components we could think of are more experience on how to drill (“learning while doing”), more sharing of best practices throughout the industry, better equipment (rigs, drilling bits, motors, etc.), less time spent on keeping producing sections exactly horizontal, less time spent on hole cleaning, increased use of batch drilling from a single location, etc.
If we now look at the average cumulative production per Bakken well (all formations, all counties) then we interpret this figure in the following way:
- the initial large increase in well productivity we attribute to learning the basics on the geology and the location of sweet spots. Pre 2008, during this geology learning phase, a relatively large proportion of wells was still being drilled in what we now know to be areas of low production.
- the limited increase in well productivity post 2008 (figure below) is in striking contrast with the large increase in rig productivity post 2008 (EIA figure at the beginning of the paper). The significant increase in drilling efficiency (which does influence rig productivity but has no bearing on well productivity) is the main reason for this. A large part of the increase in rig productivity post 2008 is not drilling better wells but simply drilling them faster.
Nevertheless, the figure above does show some real increase in well productivity (post 2008) as well.
High grading vs well quality
High grading we here define as focusing on the best areas and intervals, with only the best performing rigs and crews, in a low oil price world. Well quality we here define in a narrow sense: the well productivity for a specific location and stratigraphic interval. An increase in well quality in this narrow sense is due to technological advances (e.g., longer producing sections, more and larger fracs).
The figure below gives average cumulative Bakken well production for the Middle Bakken in the two counties with the best producing wells (Mountrail and McKenzie). In contrast to the previous figure (which showed production for all counties and intervals), this figure shows no systematic increase of well productivity with time. The production for a given area and interval seems to be relatively constant (if anything the data seem to suggest a slight decrease with time; more so for the long term production and less so for the initial production). Other areas show a similar pattern, be it that in some cases a limited increase in well quality is apparent pre 2012. This indicates that the role of technological advances (leading to a higher production per well for a given “geology”) is limited (and certainly less than what some companies’ investor presentations would lead us to believe).
This suggests that high grading is the main reason for the post 2008 increases in well productivity rather than technological advances. Drilling activities in relatively poorly producing areas have indeed markedly decreased over the 2014-2016 period and have by now virtually ceased. The final figure gives the number of wells spudded (as a fraction of the total) in the different counties. It illustrates the increasing focus on the best counties (McKenzie, Mountrail, Williams). The effect is not that pronounced, however, and we suspect that only keeping the best performing rigs also plays an important role in high grading.
For the Bakken drilling productivity (new oil production per active rig) we see the following timeline:
- The basics of the technology, horizontal wells and fracking, was developed in the Barnett shale in the 1990s.
- Subsequently, the potential of the Middle Bakken was recognised. Up to 2009 increases in new well oil production per rig came primarily from increased knowledge on geology and sweet spot location. By 2009 the overall picture of well productivity and production sweet spots was well established.
- After a brief interlude (2008-2010 oil price low and reduced drilling activity) the Bakken play took off in earnest. During 2011-2015 the active rig count was in excess of 200. During this period increases in new well oil production per rig came primarily from increased drilling performance.
- During the subsequent low oil price world, starting in mid 2014, further increases in new well oil production per rig were primarily due to high grading (drilling in the most productive areas with the best performing rigs).
Had the increases in drilling productivity been due to technological advances (an increase in well productivity for a given area and stratigraphic interval) we would have expected these increases to continue.
But they are not. They are due to better geological knowledge, faster drilling and high grading. Here, we see much less scope for further improvements:
- geologically, the play is now well established. Sweet spots are well known
- we expect drilling efficiencies to have reached their limit, after years of high activity and the recent intense competition in the services industry
- we see no scope for further high-grading now that the active rig count is down to about 30
Hence we expect Bakken drilling productivity to have reached its peak. Should oil prices pick up significantly we expect Bakken drilling productivity to drop to a level of about 500-600 barrels/day (similar to the drop in the 2009-2011 period). This limits the rate at which Bakken production can increase in a future high oil price world.
Since the Bakken production profile is quite similar to that of US shale oil in general (there are only two other major plays, the Eagle Ford, which is less resilient in the current low oil price world, and the Permian, which is more resilient), we expect our conclusions to be valid for US tight oil in general. This implies that US tight oil production is running up against its limits. This in turn will limit the ability for US tight oil to act as a swing producer in the global market. Financiers will want to see a prolonged period of higher prices before funding an industry in which they have so far mostly lost money.
Jilles van den Beukel worked as geologist, geophysicist and project manager and lastly as a Principal Geoscientist for Shell in many parts of the world. In March 2015, he resigned to become a freelance traveller and author. Enno Peters has a background in IT and maintains the website shaleprofile.com