SEG Presentation: Case Study – Appalachian Basin

Case study_Appalachian Basin_SEG 2014_v2_10-24The last presentation from our SEG Presentation Series is the narrated presentation: Case Study – Appalachian Basin.

Take a few minutes to learn more about this program and how we used predictive analytics to depict the most (and least) prospective areas for leasing, drilling or further G&G study in the Marcellus shale, resulting in improved exploration cash flows.

Click here or on the slide image to view the presentation.

NEOS Article in E&P: What’s Lurking in Your Basement?

EPCover

 

 

An article – entitled, What’s Lurking in Your Basement – was just featured in the January 2015 issue of Hart’s E&P magazine.

NEOS has been advocating a multi-physics approach to basement imaging for some time, as variations in basement topography, faulting, and composition can all play a big role in influencing source rock maturity and reservoir trapping mechanisms on an areal basis.

To access the article, click here or on the image at left.

For more blog posts related to the importance of basement, click here. In particular, you might want to take note of our two narrated slideshows on the topic (from SEG and from July 2014) .

Alternative Exploration Tools in a Low Price Environment

Geophysical Survey Prices

In today’s world of low commodity prices, savvy oil & gas producers are looking at alternative means through which to execute their exploration programs.  Airborne-acquired, multi-measurement interpretation (MMI) methods offer one such path to low-cost, insight-rich imaging of the Earth’s subsurface.

Take the example shown above.  Let’s assume that an exploration manager wants to assess the prospectivity of a 5,625 sqkm (2,170 sqmi) area of investigation in which there are three particular areas of interest totalling 1,680 sqkm (650 sqmi).  Let’s further assume that not all that much is really known about the subsurface geology and how regional prospectivity varies throughout this area of investigation.

In a conventional, “no one ever got fired for shooting seismic” approach (shown on the left), the exploration manager might license 3-D seismic data (if it exists in a contractor’s data library) or, given the specific areas of interest and the unique imaging objectives in each, commission an exclusive survey.  Depending on one’s assumptions about the type of survey and the commercial model associated with it, this program might cost the exploration manager upwards of $50 million.

In a more progressive approach (shown on the right), the exploration manager might first commission an airborne geophysical survey over the area of investigation.  In North America, this might require an outlay of $3 million.  Yet by making this up-front investment, and obtaining a series of non-seismic, multi-physics datasets which can be simultaneously integrated and interpreted, this exploration manager might be able to initially highgrade the acreage throughout the entire area of investigation, including within the three specific areas of interest.

What she might learn in the process is that the area to the far west of the AOI is not prospective at all and that, as a consequence, she can save the cost of shooting 3-D in that particular area.  She might also learn that only a portion of the northern area is prospective and thereby reduce the footprint of that 3-D program accordingly.

In the end, by making the $3 million up-front investment to highgrade acreage, this savvy exploration manager will end up reducing the ultimate cost of her seismic program by more than 40%, saving $20 million in the process.  All this pays for the regional airborne multi-physics program several times over, not to mention the added benefits of reducing the cycle time and HSE risks associated with permitting and acquiring data over a large area.

To learn more about the neoBASIN regional reconnaissance and acreage highgrading tool, visit the Resources page of our web site (click here) and read some of our technical papers, articles, and case studies or watch our narrated slideshows, including this primer on MMI methods from the recent SEG conference.

Oil Price Bust #4: Impact on 2015 USA Production

WTI

 

Since the start of July, oil prices have fallen from nearly $110 per barrel (WTI) to $45. While drops of this magnitude have happened before (60% in this case; more than 100% in the global financial crisis of 2008-09), the pace of this decline has taken many by surprise. There are lots of articles out there as to why it’s happened – Saudi’s flexing their muscles in a bid to maintain market share; slowing demand in Europe and Asia; collusion between the USA and the Saudis to ‘pressure up’ the Russians and the Iranians – among others.

For me and many others in the Baby Boomer oil patch cohort, this is Bust #4. The first occurred when many of us were in college or just about to graduate (1985-86) – prices dropped into the single digits; job offers were withdrawn; and massive layoffs hit the industry (Exxon, my employer out of college, laid off 30% of its technical staff in Exxon USA the Friday before I started my first day with the company).

Prices imploded again during the Asian financial crisis of 1997-98. The impacts were similar, with bankruptcies soon to hit the geophysical industry (recall PGS). Then we had Bust #3 during the global financial crisis. And now we’re onto Bust #4.

Without wanting to be so bold as to put forth an argument that “it’s different this time” (though I think it is), let’s simply take a look at what the impact of this price decline is likely to be on USA production in 2015.

First, a few bits of numerical context.  The world produces and consumes around 80 million barrels of oil every day. The top three producers – each of which produces around 10 million barrels per day – are Russia, Saudi Arabia and the United States (this was the order in 1Q2014).  During 2014, the U.S. vaulted to the #1 spot, with production exceeding 11 million barrels per day.  Various financial analysts projected the U.S. would be producing 13 million barrels per day by the end of the decade.

This surge in U.S. production – driven by the shale  boom – upset the Saudis and other OPEC producers as it displaced the need for their products in the U.S. and other importing nations around the world.  So, as they have before, the Saudis opened up the taps to keep the market oversupplied and force out the high-cost producers.  The best guess estimates of the level of this oversupply range from 1-3 million barrels per day.

So the question is, how fast does this supply overhang come off the market?  To get a sense of this, let’s look at Continental Resources and the Bakken for a little back-of-the-envelope estimate.  As many know, the Bakken (along with the Eagle Ford) has become the epicenter of the USA shale boom.  The Bakken produces about 1 million barrels per day (from a diminimus level a decade ago).  Continental and Whiting are the Bakken’s largest producers, each pumping roughly 100,000 barrels per day.  Others in the Top Five in the Bakken are HESS, EOG and Statoil who all produce in excess of 50,000 BOPD.

With prices falling, capital budgets are soon to follow.  In December, Continental cut its CapEx targeting the Bakken by $1 billion.  Given the economics Continental has in it’s investor presentation, it’s easy to see why. With $45 oil, Continental’s Bakken wells generate ‘only’ a 10% return.

Continental Bakken

The average Bakken well costs roughly $8 million to drill, complete and frac. So if Continental cuts $1 billion from its Bakken budget (almost all of which would be targeted at drilling wells), then that’s 125 fewer Bakken wells that Continental will drill in 2015. Let’s say Whiting makes similar cuts, as do all other Bakken players. That implies to me that somewhere around 1,000 Bakken wells that would have otherwise been drilled in 2015 no longer will be. What does the average Bakken well produce? The type curves in Continental’s and Whiting’s investor presentations state that IP’s are somewhere around 850 barrels per day. So calculating it out, that implies 850,000 barrels of oil that would have come into the market in 2015 from the Bakken no longer will.

While the D&C economics of all shale plays are different, they are also fairly similar in many regards. Thus, it wouldn’t be too hard to assume that the Eagle Ford, Permian, Niobrara and other oil-rich shale plays will suffer similar declines. So with budget cuts alone, it’s pretty easy to see how the amount of supply entering the market in 2015 from USA shale plays will be dramatically reduced compared to what everyone thought just 3 months ago.

But those are new wells you say…what about wells already in production? Well, this is where the current shale bust is somewhat unique (at least compared to other oil busts of the past). When the market was heavily supplied by conventional fields, the base decline rates of the ‘swing production base’ were in the 4% per year range. But shales are different. Look at the curve below.

Whiting Bakken

You’re seeing the type curve for a typical Bakken well drilled by Whiting. You’ll note the 850 BOPD initial production rate. But after just one year, that same well is only producing 275 BOPD; and after two years, production has dropped to around 150 BOPD. So if the industry dramatically cuts back on the drilling of Bakken wells, not only will we remove upwards of 1 million BOPD that would have come into the market, we’ll also be facing a situation where – depending on the age of the well – we’re probably removing 20% of the legacy production base every year. That’s going to amount to several hundred thousand barrels per day in each major shale basin.

As this process repeats in other shale basins across the U.S. (not to mention other development projects in conventional fields around the world), we’ll remove a significant amount of supply from the market and, I would assert, the market should come back into balance pretty quickly. With USA shales now serving as the world’s ‘swing producer,’ I would argue that this time, it really is different.  Unfortunately, like all these rides down have been in the past, it’s probably going to be a pretty bumpy ride with some white-knuckle moments along the way.

SEG Presentation: Imaging the Basement

Imaging the Basement_SEG 2014_4x3The narrated presentation, Imaging the Basement, from our SEG Presentation Series is now available for viewing.

Click on the image above to learn about the NEOS multi-physics approach to mapping basement topography, faulting and composition in support of regional exploration and development drilling programs.

Visit our website for more on basement imaging.

Friday Fun: Nolan’s Fourteen – Oo-Rah!

A light exercise regime to consider when you need to stretch out the hammies and get that heart rate up a beat or two!

For the full story on Nolan’s 14 – a hundred-mile traverse among fourteen of Colorado’s premier 14,000 foot peaks (Fourteeners) in <60 hours – click here to read the post on National Geographic’s adventure blog.

SEG Presentation: Aquifer Delineation for E&P Operations

Aquifer Cover
The next presentation from our SEG Presentation Series is the narrated presentation: Aquifer Delineation for E&P Operations.

Tune in for more on the application of multi-measurement interpretation techniques to map groundwater and identify best water well locations in support of E&P drilling, fracing, and waterflooding operations.

To view the presentation click on the image or visit the NEOS website.

E&P Cost Curve

OnshoreCostCurve

The above chart appears in an article from the IMF (International Monetary Fund).  Note the position of North American shale plays on the far right side of the curve.

The detailed marginal costs of development for various shale plays (and other E&P projects) is available via this link.

The 12th Day of neoCHRISTMAS

….And one Shiny new neoBASIN!  Happy Holidays to All!NEOS_12dayXmas_12

The 11th Day – “The Twelve Days of neoCHRISTMAS”

The Twelve Days of neoCHRISTMAS

On the eleventh day of neoCHRISTMAS
some geos sent to me:
eleven Methods of acreage highgrading
ten Fixed wind planes flying
nine Uncertainty assessing
eight Global programs thriving
seven Geoscientists interpreting
six G&G measurements illuminating
FIVE LESS PERMITS!
four MMI Case studies
three Identified geo-hazards
two Clear basement maps
and a Shiny new neoBASIN
Day11

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