July 2018, Vol. 245, No. 7
Features
Innovation, Technology Reshape North Dakota’s Bakken Shale
Digital Oilfield
By Richard Nemec, Contributing Editor
While North Dakota was riding out the most recent boom-bust cycle in the oil patch, energy industry officials in the state were learning on the job, trying to figure out ways to work smarter as margins and cash flows were dissipating for everyone. Before the turnaround developed this year, the oilfield was strewn with casualties. Nevertheless, billionaire oil pioneer Harold Hamm and his teams at Continental Energy Resources Corp. looked around and saw opportunities to create better mousetraps in exploring and producing oil and natural gas.
That’s why as prices continued to turn upward in 2018, by nearly mid-year the outlook in the Bakken Shale smelled like growth. The average drilling rig was doing the equivalent work of three before the price downturn in 2014-16. Drilling times from spud to completion of new wells were slashed to less than two weeks. Hydraulic fracturing has become faster and more productive.
“The price crash was probably the best thing for the industry; we never would have gained the efficiencies that we have today without it,” Hamm, who has separate engineering and geology departments named for him at two state universities in North Dakota, told the Williston Basin Petroleum Conference (WBPC) in late May in Bismarck. “We decided we would keep our teams together, not lay anyone off, and we didn’t. We kept it together and gained efficiencies you would not believe.
“We brought the cost of producing a barrel of Bakken crude down to a break-even price of $26/bbl,” says Hamm while reminiscing about his early days in the Bakken as an Oklahoma-nurtured young entrepreneur in the oil patch. He noted that the Bakken Shale is a good place to be an “explorationist.”
Bullish Outlook
Other speakers at the North Dakota conference underscored the growing bullishness among industry leaders as the national head of the U.S. Energy Information Administration (EIA) Linda Capuano reported that she expects continued record natural gas production, further moderating U.S. gas prices. The EIA administrator sees oil production worldwide increasing by 2.4 million b/d this year and 2.2 million b/d next year. Correspondingly, U.S. net oil imports will continue to decrease while exports keep rising, Capuano says.
At the state level, Lynn Helms, oil/gas supervisor and director of the Department of Mineral Resources, carried out discussions with many of the key producers to shape the basics of his outlook, calling for moderate rig count growth into 2020 and then an acceleration after that. Helms estimates that $127 billion has been invested in North Dakota oil and gas since early in the 20th Century. And he adds that Bakken well productivity tops the nation.
A long-time player in North Dakota’s oil/gas patch, which now stands as the nation’s second biggest oil producer, Helms sat back and grinned for much of the final morning program at the WBPC confab, listening to industry executives, CEOs and others, predict great things for the Bakken, which Helms described as only being in the end of the first quarter as far as its full potential is concerned. Three-quarters of the play’s shelf life is still ahead.
Helms speaks in superlatives when it comes to the Bakken potential for growth, but he is realistic about the fact that its current adequate takeaway capacity will soon be full, and the state and industry at this point are behind schedule for planning, permitting and building all the infrastructure that will be needed. There is at least $3 billion in the pipeline for new gas gathering and processing infrastructure through the end of 2019, but there is a real need for more gas transmission capacity and eventually another oil pipeline the equivalent of the Dakota Access Pipeline (DAPL), which is operating at near-maximum capacity while court challenges trying to stop its operations are still active.
Takeaway Capacity
“One of the things we have to start thinking about seriously is how our future oil supplies are going to get out of North Dakota,” Helms says. Noting that the state in 2018 has excess pipeline and rail capacity, he says that based on current production growth projections, by 2020 there will be no more excess. An expanded DAPL and added refining capacity in the state won’t meet the need lying ahead. “Either we return to using a lot of rail cars, or we need to begin two years ago planning the next crude pipeline out of the basin. That means the proposed Keystone XL or some other options that industry has in mind.”
For Helms and other operators, such as Jack Stark, president at Continental, the recalibration driven by the commodity price nosedive lives on. “The Bakken just keeps getting better, better than ever,” says Stark, calling the Williston Basin “America’s quality oil play.”
For Stark, the storyline on the Bakken is consistent and just keeps getting better, chalking it up to what he calls the “tenacity and ingenuity “ of the industry, considering the pressures applied from the falling global prices in recent years. Stark sees “step-changes” in recent months and years in the Bakken, spurred from within among the various operating companies that have held and expanded their acreage in the play. Stark speaks as the head of the top leaseholder and producer in the Bakken. Sixty percent of Continental’s capital investments for 2018 were slated for the Bakken ($1.2 billion).
Amid the growing success that is over-hyped, according to some skeptics, all the operators appear to be benefitting from what Stark and others see as native intuition and hard work. “The rock hasn’t changed” he reminds his audience. “This all happened through technology; it is what you do with the rock that makes the difference, interconnecting with it, if you will. That is what has manifested in step-changes in performance [doubling of returns-per-average-well 2017 to 2018].”
For Continental, one of the operating changes involves using more perforations/feet of pipe in fracking jobs, Stark points out. Along with the increased volumes of proppant, density of perforation – one every 10 yards rather than one every 60 yards – has been a game-changer for Stark. As a result, Continental’s recovery factors are off the charts, jumping from 3%-5% to 15%-20% of the oil in place, according to company statistics. “That’s a huge number; the ‘size of the prize’ is huge here,” he says.
“We’re doing a much better job of stimulating the rock,” Stark says. On a more macro basis, what the crews for all the operators are doing is taking the Bakken “to a whole new level,” he says. “It is happening across all of the companies.” To underscore his point, Stark displays a chart showing an array of new wells that have produced in excess of 100,000 bbls their first 90 days. “It is tending to push the economics up across the whole basin,” Stark says.
Permian Comparison
Stark deconstructs Bakken crude oil in comparison to the Permian Basin in west Texas and southeast New Mexico. There is a much higher gas proportion among the Permian oil volumes than in the Bakken, says Stark, reminding his audience that the Bakken is the most oil-rich play in the United States. The Bakken average oil proportion is 52%, while in the Permian the oil proportion is about 32%, Stark says. “The Bakken is just a lower cost barrel to produce, compared to the Permian,” he says, adding that the Bakken production is much more similar in its quality of composition, and that makes it very attractive to refiners internationally, particularly in Europe.
“At Continental we expect 2018 to be a breakout year, and we think that will be true for the Bakken overall,” Stark says.
Sharing Stark’s bullishness on the Bakken were a host of other CEOs and executives outlining their thoughts on what several called a “transformation and resurgence” that has been fueled by technology breakthroughs involving pipeline scanning and use of drones that prompted some to label the Bakken as the “digital oilfield.” This is exemplified by a global giant like Caterpillar which has more than 15,000 pieces of oil/gas equipment worldwide, and all of them are being equipped with electronic monitoring and controls aimed at having smarter, better operating machines, many of which are monitored remotely around the globe.
Saying there is no doubt that the United States has achieved energy independence, Marathon Oil Corp. executive Mike Henderson singles out technology as playing a significant role in the resurgence of the Bakken, which in the eyes of Marathon’s executive team has become the “benchmark” for America’s “high-tech shale oilfield.” He classified the Bakken as “evolving” and one of the top unconventional basins in the United States, competing at a very high level.
After pulling back its activity in the Bakken in 2014-16, Marathon has come back with the attitude that it will “never be satisfied with the status quo,” says Henderson, vice president for reserve plays in Oklahoma and North Dakota. When the company was “downshifting” in the Bakken, its operating teams became much more focused on creating new ways to improve their approach to the business. As a result, Henderson says they found new ways to maximize well productivity that are paying big dividends in 2018.
Having produced more than 100 million bbls over the years in the Bakken, Marathon at one point of the price depression went down to one rig in 2015-16, and Henderson says “that is when the story got interesting for us.” He says the company’s Bakken teams really pushed the envelope, creating some of the “best-in-basin” new wells in the Bakken last year and in 2018.
Digital Oilfield
In the midst of several thousand industry attendees at the WBPC, Henderson laid our Marathon’s recipe for success that has exemplified the past two years. He called out subsurface understanding, data sets, and modeling as keys for the swing upward in well productivity and profitability. “Quite often we get asked what is the ‘secret sauce’, and I can tell anyone that it is two parts people [individual and team innovativeness] and one part technology,” says Henderson, adding that in the recent down years he has witnessed the coming together of people and technology.
Important to the people part of the equation is culture, Henderson opines, stressing the need for a culture that encourages and allows people to take ownership. Without this internal environment, companies will never realize the full potential of new technology. “[Marathon’s] Bakken team pushed to the limits and did not hesitate to explore new dimensions. That’s our secret sauce.”
New technology and the smart application of it are essential for operators like Marathon to move forward, Henderson says. Workers have to think differently and act differently to make the right moves for achieving better results. “That is the driver of better performance,” he says. “We have to take advantage of the link between technology and operational excellence.”
Marathon has focused its innovation on subsurface work because that is what makes the E&P sector so unique and challenging. But Henderson makes the case for putting equal amounts of focus on data sets and their better use. “We can answer the critical questions with the data we have today, but we need to look at that data differently; we don’t suffer from a lack of data, so it is more a question of how we take all of this data and do something different with it.”
Other industries from health care to the Internet have already figured out how to manipulate their data sets, and the oil/gas industry needs to do the same, Henderson says. “We can use this data, coupled with science and physics and be much more accurate and efficient in finding and producing oil and natural gas,” he says.
The future of the industry lies in the digital oilfield, which Marathon and other operators are already experiencing. Marathon’s control center in the Bakken sports dashboards and specialized data that allow operators to quickly interpret masses of information, according to Henderson. “This real-time data is only as good as your ability to tackle it,” he says.
ConocoPhillips’ Erec Isaacson, vice president for the Rockies business unit, agrees that the industry has made considerable progress despite low commodity prices in technology, innovation and optimization, and this includes the effective use of what he calls “big data analytics.” For Isaacson, interpreting and applying these analytics have become somewhat routine in the industry. “It was just a talking point two or three years ago.”
He says the use of innovation and efficiencies has make $65/bbl oil the equivalent of $100/bbl oil in today’s environment where industry wide efficiencies have slashed production costs by 35%. With the efficiencies now in place, one rig is the equivalent of three rigs just a few years ago. Isaacson’s one caveat, however, is “don’t let up, keep innovating” because the world is still oversupplied with oil in 2018.
The fact that North Dakota’s somewhat remote pot of black gold is ever-more connected to the global oil/gas markets is both encouraging and daunting, and the many executives and engineers who helped deconstruct the Bakken at the three-day WBPC were bullish but not brash. They tempered their enthusiasm with doses of reality as well. They laid out various recipes of success, all of which embody the concept of a digital oilfield.
For the Bakken, Whiting Petroleum Corp. CEO Brad Holly, a veteran in the E&P world who joined Whiting within the past 12 months, stated one of the advantages of the North Dakota play was “regulatory certainty” that he sees as provided by state and local officials who have created what Holly calls “a very cooperative environment with sensible rules.” Innovation and technology can make a greater difference in such an environment, he and other speakers emphasize.
Over at one of the major long-time operators in the Bakken, Houston-based Oasis Petroleum Corp. CEO Tom Nusz says his firm’s 15-year history of drilling in the Bakken from its emergence as a major U.S. shale play has helped it thrive even during some of the worst months of the recent price crash. Today it has carved out service and midstream units, taking the latter public in 2017 as Oasis became the fourth largest producer in the Bakken.
Oasis remained free-cash flow positive during the commodity price downturn, hedging much of its production in 2014-15, Nusz says. While it was protecting its balance sheet, its operators were slashing well costs by 30% and increasing well recoveries up to 50% or more, he says. Costs for finding new supplies are 50% less and recovery margins are what Nusz calls “very attractive.” He says Oasis has about 15 years of supply in the Bakken core, and up to 30 years in the noncore acreage.
“Since the downturn, what we have seen is a lot of activity outside the core with some pretty interesting results,” says Nusz, predicting that both oil and gas volumes are going to grow significantly in the future. And this equates to expansion for Oasis Midstream Partners, which is building a lot of gas processing and pipelines in the Bakken.
All in all, oil and gas veterans are exhibiting a renewed confidence based on the recognition that technology and innovation now define the oilfields of the nation. And just about anything is thought to be possible in 2018 and beyond. The stakes and the possibilities are high. P&GJ
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