1. No category

Trisha Curtis, Director of Research, Upstream and Midstream
Energy Policy Research Foundation, Inc. (EPRINC)
DUG Bakken and Niobrara - Hart Energy - Denver, CO
April 2nd, 2015
Bakken - Diamond in the Rough
Appreciating the complexities of Bakken crude in a low oil
price environment
Photo by Trisha Curtis
2
About EPRINC
•
www.eprinc.org
•
Oil and Gas Journal
•
Embassy Series
•
Presentations at Imperial College
London, Colombia University, Wyoming
Pipeline Authority, EPA, Oxford Institute
for Energy Studies
•
Infrastructure Paper
http://eprinc.org/wpcontent/uploads/2013/10/EPRINCPIPELINES-TRAINS-TRUCKS-OCT31.pdf
•
Department of Energy – Quadrennial
Energy Review
•
Department of Defense
•
Rin App http://eprinc.org/2014/02/rinsaround-rosy-app-available-ios/
3
What sets the Bakken apart?
• Globally coveted rocks
• 10,000 plus feet so more expensive to drill
• Break evens vary
• Good and stable crude quality
• Distance from markets – cost of transportation
• Rail accidents
• And other crudes going to those markets (has to go east or west)
• Bakken’s complexities make it tricky in the short-term in a low oil price
environment
• The Bakken is the best known shale/tight/unconventional oil play in the world and
there is still a lot to learn. Long-term attraction/investment will continue
• This is a boom and bust business. Right now it is busting, but it will boom again
------• Broader market
• Put Bakken in context
• Issues
4
North American Oil Production
14000
Thousand Barrels Per Day
12000
Canadian Crude Oil
Production
10000
8000
6000
4000
2000
U.S. Field Production of Crude
Oil Mbbl/d
U.S. 9.226 mbd (Dec 2014)
Canada 3.677 mbd (Oct
2014)
North America = 12.9 mbd
0
Source: EIA
5
When oil prices started to slip
Several events taken together along with lowered
expectations of Chinese and European economic
growth caused oil prices to weaken
• 9 mbd plus U.S. production
• Some strong non-OPEC production in 2014
• significant volumes of crude moving from the
U.S. to Canada displacing African barrels
• Libyan crude unexpectedly comes on the
market
• ISIS is pushing barrels on the market
• Draghi spooks markets with negative inflation
expectations for Europe in Jackson Hole Sept
2014
• People begin to actually believe the negative
data out of China
Saudi’s take…
Source: Energy Aspects, Aug 24th, 2014, WSJ Nov 4 2014
6
EPRINC Production Evaluation…what production could be…
20
Potential
outcome
with decline
in prices
18
16
Production mbd
14
12
10
8
6
4
2
0
2000
2002
2004
2006
2008
2010
0-25
2012
2014
25-35
2016
2018
35-42
2020
2022
42-50
2024
2026
2028
2030
50+
Source: EPRINC/Ponderosa
7
7
CAPP’s Canadian crude oil forecast
EPRINC LINE 2015 likely to
be revised
slightly lower
with additional
postponements
and
cancellations in
some future
projects
Source: CAPP 2014, “Crude Oil Forecast. Markets, and Transportation”
8
US Crude Oil Production and 2015/2016 Possible Projection
12000
Likely trend
prior to oil
price drop
10000
8000
6000
4000
Dec 2014 (latest
available data) oil
production was just
above 9.2 mbd
2000
Possible
outcome of
modest
growth with
a slight
uptick in
late 2016
should
prices begin
to improve
Apr-16
Mar-14
Feb-12
Jan-10
Dec-07
Nov-05
Oct-03
Sep-01
Aug-99
Jul-97
Jun-95
May-93
Apr-91
Mar-89
Feb-87
Jan-85
Dec-82
Nov-80
Oct-78
Sep-76
Aug-74
Jul-72
Jun-70
May-68
Apr-66
Mar-64
Feb-62
Jan-60
0
Source: EIA, EPRINC
9
9
U.S. exports of crude oil
Bakken and Gulf Coast
crude being sent to eastern
Canada pushing out light
MENA barrels further
Over 500,000 b/d to
depressing prices
Canada in Jan with most
to eastern Canadian
refineries – capacity
about 800,000 b/d
600
Thousand Barrels Per Day
500
400
300
Gulf Coast (PADD 3)
Exports of Crude Oil
Mbbl/d
U.S. Exports of
Crude Oil Mbbl/d
200
-over 100,000 b/d from
ND
100
Nov-14
Jul-14
Mar-14
Nov-13
Jul-13
Mar-13
Nov-12
Jul-12
Mar-12
Nov-11
Jul-11
Mar-11
Nov-10
Jul-10
Mar-10
Nov-09
Jul-09
Mar-09
Nov-08
Jul-08
Mar-08
Nov-07
Jul-07
Mar-07
Nov-06
Jul-06
Mar-06
Nov-05
0
Source: HPDI Aug 2014
10
OCT - 1 4
JA N - 1 4
AP R- 1 3
J UL - 1 2
OCT- 1 1
JA N - 1 1
AP R- 1 0
J UL - 0 9
OCT - 0 8
JA N - 0 8
AP R- 0 7
J UL - 0 6
OCT - 0 5
JA N - 0 5
AP R- 0 4
3000
J UL - 0 3
OCT - 0 2
JA N - 0 2
AP R- 0 1
J UL - 0 0
OCT - 9 9
JA N - 9 9
AP R- 9 8
J UL - 9 7
OCT - 9 6
JA N - 9 6
AP R- 9 5
J UL - 9 4
OCT - 9 3
JA N - 9 3
AP R- 9 2
JUL - 9 1
OCT - 9 0
JA N - 9 0
Thousand Barrels Per Day
U.S. imports of Canadian crude oil
3500
Dec 2014 - 3.3 mbd
2500
2000
1500
1000
500
0
Source: EIA
11
Cushing stockpiles and WTI
60000
50000
$160
$140
$120
Thousand Barrels
40000
30000
20000
$100
$80
$60
$40
10000
0
$20
Weekly Cushing
OK Ending
Stocks excluding
SPR of Crude Oil
Thousand
Barrels
Cushing OK WTI
Spot Price FOB
$/bbl
$-
Source: EIA
12
1/07/2000
6/09/2000
11/10/2000
4/12/2001
9/14/2001
2/15/2002
7/19/2002
12/20/2002
5/23/2003
10/24/2003
3/26/2004
8/27/2004
1/28/2005
7/01/2005
12/02/2005
5/05/2006
10/06/2006
3/09/2007
8/10/2007
1/11/2008
6/13/2008
11/14/2008
4/17/2009
9/18/2009
2/19/2010
7/23/2010
12/22/2010
5/27/2011
10/28/2011
3/30/2012
8/31/2012
2/01/2013
7/03/2013
12/06/2013
5/09/2014
10/10/2014
3/13/2015
# of Rigs
U.S. rigs and WTI
2,500
$160
$140
2,000
$120
1,500
$100
$80
1,000
$60
500
$40
$20
0
$-
Oil
Gas
Total
Cushing OK WTI Spot Price FOB $/bbl
Source: Baker Hughes
13
Permian takes the biggest rig dive
600
500
Williston Total
400
300
Permian Total
Eagle Ford Total
200
100
0
Source: Baker Hughes
14
Shale oil play production
2,000,000
Permian 1.7 mbd
1,800,000
1,600,000
1,400,000
Barrels Per Day
Eagle Ford 1.5 mbd
1,200,000
1,000,000
North Dakota
1.2 mbd
800,000
600,000
400,000
Colorado 251,000 b/d
200,000
North Dakota
Permian Basin
Wyoming
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
Jul-07
Apr-07
Jan-07
Eagle Ford
Oct-13
Wyoming 216,000 b/d
-
Colorado
Source: HPDI March 29, 2015, EIA, NDPA
15
ND Crude Forecast
16
Able to sell more bonds and take on more debt
Source: Deep Debt Keeps Oil Firms Pumping Producers Have Increased Their Borrowings by 55% Since 2010
By ERIN AILWORTH, RUSSELL GOLD and TIMOTHY PUKO January 6, 2015
17
17
Drilling more and completing less
• Recent conference calls suggest completion costs are roughly 60% of
well costs
• Pressuring service costs lower, drilling, but not completing
• Refracing can work, but need to test it and need a good wellbore to
start with
• ND wells waiting on completion are about 1,000 and likely similar
across the country
• Reservoir performance, completion best practices, and cost reduction?
• Job losses and ability to quickly turn on production…?
18
Technology advances and then oil prices drop
Source: Continental Resources March Investor Presentation, Permission granted
Source: The American Oil and Gas Reporter, Dec 2011; Continental Resources November 2014 Investor Presentation; Cosima Theloy and Steve
Sonnenberg, SPE Paper 168870, presented Denver Aug 2013, “Integrating Geology and Engineering: Implications for Production in the Bakken Play,
Williston Basin”
19
19
A little dive into ND data
January 2015 – 825 wells WOC
Dec – 750
Nov – 775
Oct 2014 – 650
Sept 2014 – 610
Source: NDIC
2014 avg - 646
2013 avg - 478
20
20
Infrastructure
and Pricing
21
January 2015 Williston Basin Crude Transportation
Williston Basin Production: 1.3 mbd
North Dakota: 1,190,511 b/d
South Dakota: 4,686 b/d
Eastern Montana: 78,000* b/d
Tesoro Refinery: 68,000 b/d
Truck to Canadian Pipeline: 12,000 b/d
Rail: 762,258 b/d
Pipeline: 472,939 b/d (up about 40,000 b/d from Aug 2014)
Source: NDPA, EPRINC Estimates
22
Low
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
Jul-07
Apr-07
Jan-07
Barrels Per Day
Williston Basin Rail Estimates
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
-
High
Source: NDPA
23
EIA’s New Rail Data
Source EIA March 31, 2015:
24
Regional Pricing Disparities
Source: Map from AFPM, Flint Hills, EIA, CME Group, and estimates
25
Price Comparison
$160.00
$140.00
$120.00
$100.00
$80.00
$60.00
$40.00
$20.00
WTI
Bakken (North Dakota Light Sweet Flint Hills)
WCS (Western Canadian Select)
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
$0.00
Brent
Source: EIA, Flint Hills, CME Group,, Bloomberg
26
Bakken netbacks under pressure
Good crude, but not
close to major
markets
$57
4/1/15
$34
West Coast by
Rail $10 - $15
Gulf by Rail
$10 - $15
Gulf by Pipe
$11*
Cushing by Rail
$10 - $15
Cushing
$50 by Pipe
$9*
$57
East Coast
by Rail
$10 - $15
$55
Source: Flint Hills ND Light Sweet, *Estimates from RBN blog Feb 2015
27
27
Refining/Downstream
28
Bakken Quality Comparison
Source: Continental Resources March Investor Presentation, Permission granted
29
Bakken crude quality
In comparison to other light sweet crudes being produced
in the U.S., the Bakken shakes out well
• Natural fit for more simple East Coast refineries
• Good resid cracking feed properties
• East Coast will continue to be a long-term home for
Bakken crude
• Decent distillate yield
• High level of reformer feed can cause some naptha
handling issues
30
Bakken Pipeline and Refinery Capacity
Source: NDPA
31
Bakken transportation optionality
Rail…
32
Do exports matter for Bakken crude?
Yes. Not as important as Gulf, but more room
for Bakken crude to move throughout the U.S.
Source: Drilling Info and EOG Investor Presentation
33
Additional Challenges
and Regulatory
Uncertainty
34
Oil Conditioning Rules Effective April 1, 2015
35
BLM Fracking Regulations
It is really going to be about implementation
Really seems to be about proper casing and
frac water management
Submit detailed information about the
proposed operation, including wellbore
geology, the location of faults and fractures,
the depths of all usable water, estimated
volume of fluid to be used, and estimated
direction and length of fractures, to the BLM
with the APD or a Sundry Notice and Report on
Wells (Form 3160–5) as a Notice of Intent
(NOI) to hydraulically fracture an existing well;
Source, USGS
http://nationalmap.gov/small_scale/printable/images/pdf/fedlands/DOI_ALL_2.pdf
Source: http://www.gpo.gov/fdsys/pkg/FR-2015-03-26/pdf/2015-06658.pdf
36
Crude by Rail Accidents
LAC MAGENTIC: AP PHOTO/THE CANADIAN PRESS, PAUL CHIASSON
http://usnews.nbcnews.com/_news/2013/12/30/22113442-mile-long-traincarrying-crude-oil-derails-explodes-in-north-dakota?lite
37
Continued…
•
•
•
•
•
•
•
•
•
•
•
•
•
July 6, 2013, a run-away train crashed and exploded in Lac-Mégantic, Quebec, killing 47 people and destroying parts of
the town
November 8, 2013, about 12 cars derailed in a unit train of 90 cars carrying crude oil near Aliceville, Alabama (45 miles
SW Tuscaloosa). Nobody was injured, but three of the cars exploded.
December 30, 2013, a train hauling grain derailed near Casselton, ND hitting a 106 car unit train of crude oil which
caused 18 crude tank cars to derail causing a massive explosion and fireball
January 7, 2014, a Canadian National train jumped tracks in Plaster Rock, New Brunswick. 15 cars derailed and caught
fire. The train was carrying propane and crude oil from Western Canada
January 20, 2014, a CSX train derailed in Pennsylvania on a railroad bridge and close a busy expressway (Schuylkill), but
did not leak any crude oil.
January 31, 2014, a CN train carry heavy Canadian crude and other products derailed and leaked in New Augusta, MS
February 13, 2014, 21 of 120 NS cars carrying heavy Canadian crude derailed in Vandergrift, PA
April 30, 2014, oil tanks cars on CSX derailed and caught fire in Lynchburg, VA (3 of 15 cars that derailed caught fire).
Nobody was injured by 300 people were evacuated temporarily
January 31, 2015, tank cars derailed in CSX in Philadelphia, PA, but did not rupture
February 14, 2015, 29 of 100 cars derailed on CN in Timmins, Ontario transporting crude and product, 7 out of the 29
caught fire
February 16, 2015, 26 cars in a 109 CSX unit train carrying Bakken crude derailed in Mount Carbon, VA. 19 of the 26 cars
caught fire. A home was destroyed and a person was injured. Drinking water was contaminated. The psi was said to be
13.9 which would be above the new standard to set to be implemented in ND in April at 13.7.
March 5, 2015, 21 of 105 carrying Bakken crude derailed on BNSF in Galena, IL. At least 2 cars caught fire
March 7, 2015, 39 cars derailed on a 94 car CN train in Gogama, Ontario carrying heavy Canadian crude. 7 cars caught
fire and 5 entered the Makami River
38
Recent Sandia Report
“This initial investigation identified gaps
in important crude oil characterization
data, uncertainty regarding how best to
sample and analyze crude oil to ensure
that its properties are accurately
determined, and deficiencies in the
understanding of how crude oil
properties impact its potential for
accidental ignition, combustion, and
explosion.”
39
Conclusions
• Bakken’s complexities will continue and potentially
be exacerbated in a low oil price environment
(drilling costs, transportation costs and issues, etc.)
• In the long run, the Bakken is a stable and well
understood production platform which will attract
long-term investment
40