The changing oil patch

[Dave Grubb]

Extracted from a long article in today's WSJ:

Major oil companies and smaller shale producers including Chevron Corp. , Devon Energy Corp. , Baker Hughes and EOG Resources Inc. are recruiting computer scientists, who develop algorithms and other tech tools.

At Devon’s WellCon center—short for well construction—in Oklahoma City, a small team of engineers and scientists monitor every well the company is drilling and fracking across the U.S.

From several screens, Kyle Haustveit, a 28-year-old completions engineer—he has a bachelor’s in petroleum engineering—watches the company’s “Showboat” development, where five rigs are drilling 24 wells in a complex project in Kingfisher County, Okla., that will tap multiple layers of rock simultaneously.

One screen displays the progress as a 2-mile-long horizontal well is drilled 10,000 feet underground. A graph tracks the budgetary impacts in real time using customized software. If the drill bit goes outside the sweet spot where the company believes oil and gas to be—an area sometimes no more than 10 feet across—dollar signs tick up and a call is made to workers in the field to adjust equipment.

Another screen tracks four fracking crews working within a square mile. Mr. Haustveit is collecting data on how the sand, water and chemicals the crews pump to release oil and gas from the rock affect the pressure on the other wells. He will feed it, along with microseismic and acoustic data captured by fiber optic cables, into a program that will use machine learning to determine the best way to frack to produce the most oil as quickly as possible.

“I grew up in a small town in North Dakota, so I thought all oil and gas happened in the field, “ Mr. Haustveit said. “I didn’t have a clue that this is what it would be like.”

The center was manned by about 80 people monitoring 40 rigs before the 2014 oil bust. Today, roughly a dozen people monitor the company’s 21 active rigs. Tony Vaughn, Devon’s chief operating officer, said the transition was difficult but has improved the company’s operational efficiency. “It required a lot of people with an old-school mind-set to leave the company, frankly,” he said.

Devon has around 3,100 employees, down from 5,500 in December 2014. The company laid off 300 workers in April.

I have been going through this same "reevaluation" and "remaking" for many years and sadly the ones that end up having to leave simply because they cannot change are often the oldest and most loyal employees. The biggest problem is that they can, in their refusal to change, block progress and endanger a companies future.

As an aside, of our two well sites one continues to produce, the one at the cottage has been shut down now for about 3 months.

[TxMusky]

One of our customers in Colorado and also in Canada put 15 wells on each pad they build. At a safety meeting for anther of out customers in the Permian Basin they are going to put 20 on each pad, below ground level, and will drill each and then frac all of them at one time. When it is all done the wells will not be seen above ground and will have a steel grate covering the "pit" that all of the wellhead will be sitting in. They said the pits are concrete lined and will be about 15-20 feet deep and about 10 -15 feet wide. All wells will be drilled on the site one right after the other.


As far as telemetry, that is our name for it, tank batterys and gas collection sites have been hooked up digitally for years. The workers in the main office can monitor the outputs and pressures from hundreds or even thousands of miles away. On the drilling side, I havent been in that neighborhood for years thank God, it is about time they were held accountable for keeping things straight. At first glance you would not think a thing about how crooked the hole can become, and running too much weight on the bit will make the hole drill faster, but it can also cause the hole to go off to the side. If it starts going a few degrees off of center, you have to take some weight off of the bit.


Anyway the problem with having a "dog legged" hole shows up in the production side of the well. If the hole is swaying back and forth when you put the production tubing n the hole and then put rods and a pump jack going up and down constantly, the crooked hole forces the rods to rub on the tubing creating holes and wearing out a rod to the point where it breaks. Very expensive to pull rods and tubing, average cost around here is about 14,000 plus cost of rods, tubing and sending pump in to be rebuilt.


Good find Dave, glad to see that nerds have found a home in the patch. Good place for them too, in an office off site so they don't hurt themselves or one of us.


Why is the well down at the cottage?

[Dave Grubb]

Why is the well down at the cottage?

This is only my guess since I haven't seen anyone to ask---I think they have recovered their development costs and are now willing to wait on high prices.

The production at our other wells is also down from the production levels of a year ago. That could be depletion but I suspect it is managed.

The two well sites are owned by different companies.

The wells at the cottage, which I have had more continuous contact with the people, has undergone an almost total change in personnel. At this point I have no contact to go to for news---if I call the local number, someone in Denver answers and I am just a voice.

With the wells at the cottage shut down the well tender doesn't even come around. Of course, that is another job that could be done in Denver or Houston.

Their former staging yard is now vacant and for lease.

[TxMusky]

They might have run out of money or have put their money into new leases elsewhere, happens a lot. I think we discussed that in the contract they are obligated to produce the well or lose the lease, that is still in effect. The timeline varies so I have no idea of the specifics, but I know out here it usually is around 60 days that a well can be down and if nothing is being done the lease is forfeited. Your managed idea is what I am thinking as well, wait for the market to decide what it is going to do and then open the valve. Costs can get crazy in a hurry and if it is not profitable, they will shut the well in. Of course that also has it's own downside, wells sitting down for too long can cause all of the tubulars in the hole to deteriorate from corrosion and bacteria.



The bobcat under the pumpjack pic I posted a while back was one of those leases, the new company that formed from a split, was trying to retain the lease by producing into temporary tanks to show production. The lease holder wanted them to lease a several sections from them instead of the 640 acres this lease was on. It was going to cost at least a million to lease the "package" and they wanted to find out if it was going to be worth it or if it would be better to forfeit the lease.

[wacojoe]

If a lease is forfeited does that mean the mineral rights owner or owners have full control of the well and can go looking for another production company? Does the old lessor have to leave all his tanks and production equipment?

[TxMusky]

Yes and Yes. If a company who has the lease decides to sell it, they can get paid for all of their equipment by selling the "package".

[Billy_Rightwing]

Tks TM now I'm understanding what you all are talking about a little better.

[mgrist]

One screen displays the progress as a 2-mile-long horizontal well is drilled 10,000 feet underground.

How is that figured out? They are basically or could be pumping oil from a piece of land two miles away. Do land owners above this horizontal drilling process have any rights?

[TxMusky]

It is a science actually. They drill horizontal to a pre determined depth and then start angling off sideways. Using math they know where they should be horizontal, just kidding they have tools to figure that.....and then once they are horizontal it is just a matter of calculating how much pipe you have put into the hole. Every single joint is measured down to the nearest 1/10th and all of the drill collars and the bit are included. When the pipe measurements get to the depth you want, they call a "logging truck" who runs many different sets of tools down on a wireline to "log" the hole. Depths, temps, 't anything you want to check is done with that truck. When everybody is satisfied, they lower a tool that is called a "perf gun", that shoots "bullets" out from all directions to punch holes in the casing as well as the formation. After all of that is removed they call a frac job in and frac the wellbore.


Yes they are pumping oil all along the horizontal section for 2 miles, not just at the very end of the hole. Wherever the hole goes the mineral rights owner is paid for the entire 2 mile strip, as it is included in the land lease. You usually can't just lease 5 acres, you have to do it in blocks or sections. That is determined when the lease is first signed before drilling ever starts.


The land owners, if they do not also own the mineral rights, only get what is called "surface damages". They are paid for the land used for the roads, drill pad and any other pads that are on the surface. Some are real jerks and will also limit how far off of the road you are allowed to lay a flowline, say 5 foot, and I have actually seen them spend days out there measure the width of the road and how far out the pipe is laying.

[Dave Grubb]

How is that figured out? They are basically or could be pumping oil from a piece of land two miles away. Do land owners above this horizontal drilling process have any rights?

Yes---to a degree, which is limited. If interested read about "the right of capture"---which in a nutshell says---if they get it, it's theirs.

A landowner can refuse to sign a lease as part of a "unit"---and they will drill around them--but they still capture the gas and the land owner gets squat.

In our case, we have only sold the rights to the NG in the shale level (about 6500'), we retain the mineral rights above that including coal and the methane in the coal veins.

[TxMusky]

Did you sell the rights or are you allowing them to lease the rights and pay you a percentage of the production for a set amount of time?

[mgrist]

Yes---to a degree, which is limited. ---which in a nutshell says if they get it, it's theirs.
.

That's basically what I figured, no, exactly what I figured. Thanks!