BIG TROUBLE BREWING AT THE BAKKEN: Rapid Rise In Water Production Signals Red Flag Warning

Big trouble is brewing in the mighty North Dakota Bakken Oil Field.  While oil production in the Bakken has reversed since it bottomed in 2016 and increased over the past few years, so has the amount of by-product wastewater.  Now, it’s not an issue if water production increases along with oil.  However, it’s a serious RED FLAG if by-product wastewater rises a great deal more than oil.

And… unfortunately, that is exactly what has taken place in the Bakken over the past two years.  In the oil industry, they call it, the rising “Water Cut.”  Furthermore, the rapid increase in the amount of water to oil from a well or field suggests that peak production is at hand.  So, now the shale companies will have an up-hill battle to try to increase or hold production flat as the water cut rises.

According to the North Dakota Department of Mineral Resources, the Bakken produced 201 million barrels of oil in the first six months of 2018.  However, it also produced a stunning 268 million barrels of wastewater:

Thus, the companies producing shale oil in the Bakken had to dispose of 268 million barrels of by-product wastewater in just the first half of the year.  I have spoken to a few people in the industry, and the estimate is that it cost approximately $4 a barrel to gather, transport and dispose of this wastewater.  Which means, the shale companies will have to pay an estimated $2.2 billion just to get rid of their wastewater this year.

Now, some companies may be recycling their wastewater, but this isn’t free.  Actually, I have seen estimates that it cost more money to recycle wastewater than it does to simply dispose of it.  So, as the volume of wastewater increases while the percentage of oil production declines, then the shale companies are hit with a double-whammy… less oil revenue and rising wastewater disposal costs.

To give you an idea just how much more water is being produced versus oil in the Bakken, I went back to the North Dakota Department of Mineral Resources and looked at their data back to 2015.  Unfortunately, the data published in excel only goes back to 2015, even though they have figures published in PDF form starting in 2003.

Regardless, four years is plenty of time to show just how bad the situation is becoming in the Bakken.  In June 2015, the North Dakota Bakken produced 16% more water than oil.  However June this year, the Bakken field produced 38% more water than oil:

You will notice that overall oil and water production declined in 2016, due to the falling oil price, but as production grew in 2017 and 2018, the percentage increase of by-product wastewater surged to 32% and 38% respectively.  Here is an interesting comparison:

Bakken Oil & Water Production:

June 2015 Oil = 34.4 million barrels

June 2015 Water = 39.8 million barrels (16% more water)

June 2018 Oil = 33.8 million barrels

June 2018 Water = 46.8 million barrels (38% more water)

As we can see, while overall Bakken oil production in June 2018 was less than it was in June 2015, the volume of waster water increased by an additional 7 million barrels.

I believe there are two negative forces at work in the Bakken as it pertains to the rising volume of wastewater.

  1. As the wells and field age, more water is produced than oil
  2. Larger Frac Stages, which require more water and sand, are now being utilized to keep production growing or to keep it from falling

While a rising water cut isn’t a surprise to the industry as it is a natural progression of an aging oil well or field, the use of Larger Frac Stage wells should be a WAKE-UP CALL to investors.  Why?  Because Larger Frac Stage wells consume a great deal more water and sand to produce more oil initially, but the decline rates are even more severe than regular shale wells.

So, when the Investor Relations are bragging how the companies are using newer technology of more complex Large Frac Stage wells, this isn’t a good sign.  This means that the company is now desperate to try and grow production, or at worst, to keep it from falling.

Unfortunately, the U.S. Shale Industry is in serious trouble.  Most of the shale fields have reached a peak and when production starts to decline, especially during a collapsing oil price, I forecast a rapid disintegration of the industry.  We must remember, as the oil price and oil production falls, then company stock and asset values will plummet while the high debt levels remain.  Thus, the shale industry will have increasing difficulty in servicing its debt.

I will continue to monitor the production of oil and wastewater in the Bakken.  Please check back for updates.

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29 Comments on "BIG TROUBLE BREWING AT THE BAKKEN: Rapid Rise In Water Production Signals Red Flag Warning"

  1. Michael Kohlhaas | August 17, 2018 at 11:49 am |

    They need more toilets there. Then they can flush all that water!

    • Spanky Bernanke | August 18, 2018 at 7:35 am |

      YES! I love resolutions! But, wouldn’t we need people to procreate more so that we have more humans to operate little handles on the porcelain bowls? Then, wouldn’t those people need more oil and gas to drive to Burger King to buy food so that they can create waste that needs flushing? Dang it!
      I have an idea! Let’s just stop Wall Street from making stupid decisions! Of course, there goes my pension…..

  2. OutLookingIn | August 17, 2018 at 11:53 am |

    Disposing of this contaminated water, if not done in an environmentally safe manner, poses a significant risk to not only the environment, but eventually human health.
    Factual horror stories now exist of calamities afflicting people who live around large fracking operations. Such as turning on your kitchen tap from your water well and applying a flame to the water stream and having it burn!
    Considering the past historical negative actions of “responsible” energy corporations, they are anything but responsible. Far from it, when confronted by solid evidence of their wrong doing, they claim they ARE NOT responsible!

    • No — That was a misrepresentation. There is natural commingling. I remember my grandparents being able to do the same thing 50 years ago in an area of the Canadian Prairies where there was no drilling.

      There seems to be a peculiar, stubborn delusion in some circles that oil and gas are somehow isolated from nature. Nothing could be further from the truth. Oil was originally discovered in open pools on the surface of the ground (see the intro to Beverly Hillbillies). Natives in Northern Alberta used bitumen to waterproof their canoes. And there are visible seams in the banks of rivers that have been oozing into waterways for eons.

      • Saraa Barhoum | August 18, 2018 at 1:25 pm |

        Goes back to Biblical days too, known as pitch…

        • Yes, and where do people think Vaseline comes from? Oil rig workers used the ‘rod wax’ as a salve for first aid. It’s wonderful stuff, with numerous health applications.

  3. With the EPA under Trump’s cronies these companies don’t need to worry if they dump all this water in the rivers or lakes of America. As a result americans should invest in companies specialising in cancer treatments. I bet they are going to have a surge in clients !

  4. This sort of ties in with Steve’s article. Apparently some people haven’t figured out we live on a finite planet. Not only is Lake Mead running at a critical level but the Colorado River is also running dry.

    https://www.zerohedge.com/news/2018-08-17/leaking-las-vegas-wests-biggest-reservoir-nears-critical-threshold

  5. steve
    your analyses deal with oil production.what do you predict for natural gas?
    i have mineral rights in southwest pa(dry gas area).
    any hope?

    • senza fine,

      It’s hard to forecast what happens with Shale Gas as its production can last longer than Shale Oil. However, it depends on how the markets play out over the next 1-2 years. If there is, as I expect, a huge DEFLATION, then all prices of energy will fall. But, if you hold mineral rights they could pay off better in the future, especially when the NatGas price recovers.

      But, I have seen information on the internet that many people are not getting paid their promised shale energy royalties. Have you heard any of this?

      steve

      • yes,i am aware that some have received delayed payment, low payment or no payment.i live in texas but follow on marcellus drilling news and weekly shale.

        debt and math matter

        good work steve

  6. Steve, how does this impact natural gas production?

    • Bp1959,

      Interestingly, as a shale oil well or field ages, water and gas production increases. This is exactly what is taking in the shale oil fields. However, a lot of this Shale gas is being flared because it wasn’t economical to set up pipelines to gather it because these wells suffer huge decline rates.

      steve

  7. Alexander Iff | August 18, 2018 at 8:20 am |

    Dear Steve,
    can you write something about the Saudi Arabian oil industry, aging fields and waste water there? I believe Saudi Arabia has a larger influence on the world and US economy than the US shale oil industry.
    Thank you.
    Alex

  8. David Rhodes | August 18, 2018 at 12:22 pm |

    The reason for rising water is that the completions are using much more water with the larger proppant loading. Old completions used around sixty thousand barrels. Modern completions are now using two hundred thousand. This water is produced back, called “recovering the load fluid”. With that, the oil cut increases through the life of the well. Also, operators such as krakken, liberty, and lime rock are drilling in second tier acreage that naturally has a higher water cut.

    Nothing to be alarmed about.

  9. Gosh, so scary!!! Thanks, Steve for another great article!

  10. Ron Patterson
    08/07/2018 AT 9:31 AM
    Ghawar is not one field, it has 5 main fields, Ain Dar, Shedgum, Uthmaniyah, Hawyiah, and Haradh, and several other smaller fields. They were all drilled at different times and have different grades of oil. The lighter oil is in the north and gradually gets heavier as you move south.

    I have heard that Ain Dar and Shedgum are starting to water out but have not heard much about the other three fields. Haradh only started production a few decades ago and likely has several more decades before it starts to decline. Ain Dar and Shedgum however, are, or rather were, by far, the most productive of all the Ghawar fields.

    • Farmland,
      There is no division between the fields, it is purely administrative and relates to how they were discovered (hard to imagine 200km field, heh). Oil properties do change from south to north. Water level is ~same and is a closely guarded secret.

  11. Jon McIntyre | August 19, 2018 at 1:24 pm |

    Brilliant. Just brilliant. Solar passed parity with fossil fuel sources for residential power about four and a half years ago and the fucking brilliant minds who govern the United States choose to pump poisons into the ground and pollute everything in a very inefficient energy extraction process when we could be putting in massive solar installations, rebuilding our grid, and investing in solid state battery technology. The United States is so fucking moronic and quite frankly evil with its military footprint in eight middle east and African countries and over one million people murdered by us in that region since the turn of the century just to maintain this antiquated fossil fuel and federal reserve global banking hegemonic stranglehold. It’s fucking sickening. Fracking? Really? Give me a fucking break. Our leadership is holding us back in a SERIOUS way.

    • DisappearingCulture | August 20, 2018 at 8:30 am |

      Jon,
      Unfortunately oil from fracking has a much higher energy returned from energy invested [EROEI].
      Also solar doesn’t produce liquid fuels.
      There are other reasons we will produce oil by any method, but those are the two big ones.

  12. As long as they add more debt than water, i don’t see the problem.

  13. Steve,
    Technically speaking, Bakken isn’t a shale oil but a tight oil. Makes huge difference when it comes to water production. Unlike in shale, fluids can move in non-stimulated (frac’d) zone, providing some level of pressure support but at a cost of a higher water cut in a later well life. It also explains increasing GOR. Permeability is in microDarcy range, not nanoDarcy.
    Quite a few “shale” formations aren’t source rock, actually.
    That doesn’t mean all is rosy with finances or long-term prospects, of course.
    Pls feel free to contact if in a need of a technical feedback, will be glad to help.

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