Posted on 01/20/2015 6:43:19 AM PST by thackney
Then turn us around... why have we been hearing this, that fracked plays are easily re-startable?
See links in Post #20 by Smokin’ Joe on the Subject.
“Obviously the answer to the problem is for us to use more oil.”
Exactly! Stop subsidizing corn growers and have them feed the world. Food is short and in demand worldwide. Use pure gasoline, not a mix.
Shut down the EPA and it’s gazillion regs on oil and its use for electricity.
Shut-in prices refer to the minimum wellhead price operators need to continue producing from a hole which has already been drilled and completed and is in production.
Prices at the wellhead must be sufficient to cover the ongoing costs of operation and maintenance, including pumping and artificial lift, as well as water, gas and steam flooding and other stimulation measures for older reservoirs.
Shut-in prices are as low as $15 per barrel in North Dakota’s Bakken, according to North Dakota’s Department of Mineral Resources. Elsewhere, however, operating costs and corresponding shut in prices are much higher.
http://www.reuters.com/article/2015/01/13/oil-shale-prices-kemp-idUSL6N0US2GE20150113
Shut-in prices are only relevant for existing wells. New wells must cover their full life-cycle costs, including drilling, completion and operating costs, plus an acceptable rate of return, before a production company will authorise drilling.
North Dakota’s Department of Mineral Resources put breakeven prices at between $30 and $75 in different parts of the Bakken in a presentation to state lawmakers. These are the prices producers must expect to receive at the wellhead before they will authorise drilling.
On this average measure, the approximate wellhead price for North Dakota’s oil producers was just $38 per barrel on Jan. 12, making production in all peripheral areas of the Bakken play uneconomic and only marginally profitable in three core counties (Dunn, McKenzie and Williams).
Breakeven rates are critical because production from existing wells is not stable. Output declines over time in a fairly predictable way, a phenomenon known as the decline curve.
Output from existing fields around the world would decline around 9 percent per year in the absence of new drilling or other capital expenditure to increase recovery, according to the International Energy Agency’s World Energy Outlook 2013.
North Dakota’s Department of Mineral Resources estimates output from a typical Bakken well falls 65 percent by the end of the first year, another 35 percent by the end of the second, 15 percent more by the end of the third, and 10 percent per year thereafter.
(Selected paragraphs above, more at the link)
It is interesting to drive around Midland today, frenzied work on houses and apartments has stopped. First month free signs have appeared on brand new apartments, hiring signs have been taken down. My business is down, but that is normal for the first of the year.
Leases aren’t perpetual they are held by production.
If the lease owner doesn’t continue to produce something to hold the lease or pay shut in fees to hold the lease they loose the lease.
Paying shut in fees can get real expensive when you have no income coming in.
They might be able to put the wells on timers, depending on the lease terms, but even that can get expensive without income coming in.
Loose the lease, you plug the wells and you loose everything, so the only alternative is to sell the lease to someone at a lose.
If someone can pick up leases at a price figuring on $45 oil, then you can turn them back on, but not buying a lease based on $85 when you can only get $45-$50.
The good news if the wells are P&A’d, someone can get a new lease and do a reentry on the well at a much cheaper cost than new drilling.
Interesting...and certainly contradicts what I have previously read. But I don’t think anyone is claiming the tight rock is magically made more porous than sandstone by fracking. Rather, the physical act of effectively breaking the rock in two, and not allowing the pieces to come back together, due to the fracking sand, creates large gaps between pieces of rock. And the theory is these propped open gaps will behave differently than porous rock.
Time will tell...maybe. It may not even get to the point where wells are shut down.
Who knows.
But putting that aside, don’t fracked wells have a much steeper decline on the production curve? That alone makes a fracked well a much shorter play, and easier to react to price changes than a conventional well.
Steep initial decline
That alone makes a fracked well a much shorter play,
But they should produce for decades.
and easier to react to price changes than a conventional well.
The tight formations like shale with the long horizontals and many multi-stage hyrdo-fracs are very expensive compared to traditional wells. It is tough to spend $8 million putting in a well then shutting down your cash flow to pay off the money used to get to that point.
By the way, "fracked well" is a poor term. Traditional type plays are often hydro frac'd as well. Most wells today will be hydro frac'd in their lifetime.
In a way, I interpret this as good news. Yes, it is bad if no new drilling is occurring...and somebody is left holding the bag with a lot of idle equipment. But the shut-in prices look low enough that alot of the producers with already drilled wells will not completely lose their shirts.
And the short life cycle of the fracked wells, along with the increasingly short drilling time required on the front end, should make the Bakken drillers capable of responding to prices if they start to climb again.
My point is, don’t expect a lot of Bakken wells to get shut in waiting for higher prices.
I would agree with that. If I had a well already drilled and I could still turn a profit, I’d definitely keep pumping...and not deliberately hold out for higher prices. Bird in the hand...
Cash flow. Cash flow is King.
Take away the steep initial decline of the shale well and look at a more simple example.
Have a well that would produce 50 barrels a day for 25 years, then just stop. Not real life, but it helps make this point understandable.
If you shut it down for a year, waiting for a higher price, you go a year without income, but still paying on the debt of the well, shut-in fees, etc.
Now instead of producing from year 1 to year 25, you produce from year 2 to year 26.
If you were running the well from the beginning, you still would have had income in year 2. What you have done is moved your income from year 1, to year 26.
Reality is more complicated than that, it is a declining flow rate so you get a piece of year 1 in year 2, another piece in year 3, etc...
Midland learned its own lessons. Jackrabbits in bank parking lots, pulling tumbleweeds out from under your car so you could drive, the Hilton closing down one of its towers and struggling to keep the operation going...
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