Crude oil producers in the Bakken region responded to the oil price collapse with drilling cutbacks and a laser-like focus on sweet-spot areas with high initial production rates. It turns out those oil sweet spots also produce a lot of associated natural gas. But there’s not enough infrastructure in place to deal with the extra gas, and that’s slowing North Dakota’s efforts to reduce flaring (burning gas that can’t be utilized for various reasons). Today, we consider the multiple, domino-like effects that low oil prices are having on one of the U.S.’s most important tight oil plays.
By almost any measure, the Bakken region has been a super-success story. In 2008, before the shale revolution, the Bakken was producing less than 200 Mb/d of crude and about 250 MMcf/d of natural gas, on average; the latest (July 2015) data from the North Dakota Pipeline Authority (NDPA) showed crude production is 1.2 MMb/d and gas production has soared past 1.6 Bcf/d--six-fold increases for both hydrocarbons. With that kind of upstream growth, it’s not surprising that the midstream sector struggled to keep up. As we’ve blogged about often, the lack of oil pipeline capacity in 2011 led to the frenetic development of rail loading terminals (see Crude Loves Rock’n’Rail), and the dearth of gas pipeline capacity resulted in a significant amount of wasteful gas flaring—and a push to quickly develop new gas processing plants and gas pipeline capacity. Flaring usually happens when infrastructure to capture the gas and transport it to market haven’t yet been developed (see Not Fade Away) By mid-2014, midstream capacity was finally catching up with upstream production—just in time for the collapse in oil prices.
When oil prices went south, Bakken producers slashed drilling; the drill-rig count in North Dakota, the heart of the play, stood at only 69 as of late September 2015 (down from 186 at the same time last year). Producers also focused their drilling on crude-oil “sweet spots” where they would get the highest initial production (IP – usually the first 30 days of output) rates—that approach provides quick inflows of needed cash and quicker breakevens on drilling/completion investments. It turns out, though, that the crude sweet spots also generate unusually high volumes of associated natural gas.
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About the song
“One Thing Leads to Another” was written by Cy Curnin, Rupert Greenall, Jamie West-Oram and Adam Woods, and appears as the first track on The Fixx's second studio album, Reach the Beach. It was released as a single in August 1983, and went to #4 on the Billboard Hot 100 Singles chart. Personnel on the record were: Cy Curnin (vocals), Rupert Greenall (keyboards), Jamie West-Oram (guitar), Adam Woods (drums, percussion) and Alfie Agius (bass).
Reach the Beach was recorded in 1982-83 at Farmyard Studios in Buckinghamshire, England, with Rupert Hines producing. Released in May 1983, the album went to #8 on the Billboard Top 200 Albums chart. It has been certified Platinum by the Recording Industry Association of America.
The Fixx is an English new wave rock band formed in London in 1979. Singer Cy Curnin and drummer Adam Woods had previously played together in a band called Portraits, which released two albums for Ariola Records. The Fixx has released 10 studio albums, four live albums, 10 compilation albums and 21 singles. The band has regularly toured the world with its classic 1980s lineup, but touring is on hold this year due to COVID-19.
Comments
Housley,
Rather than the shale oil companies suddenly finding their sweet spots have a higher GOR, than their prevously drilled wells. Would a more likely reason for increasing GOR, especially in these times of low oil prices and the shale oil companies looking for every dollar they can find, that the wells being brought online, are being run with wide open chokes? This will give the higher initial flow rates and high GOR, that are being achieved. The down side will be a steeper drop off in production and an earlier end of life for the well.
My impression about the shale oil industry, is to survive for today, and don't be too concerned about paying back their bond holders in 4 to 5 years time. So they will do what ever it takes to look good in the current enviromnment, and worry about tomorrow, tomorrow!
I doubt, any of us have a real answer to the question right now. But time will tell if the decline rates rise even higher than they have been.