COLUMN-Bakken output may be boosted by closer oil wells: Kemp

Wed May 8, 2013 5:51pm IST

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By John Kemp

LONDON May 8 (Reuters) - North Dakota's leading oilfield operators hope to squeeze much more oil from its shale formations by drilling wells closer together - a bold experiment that could raise ultimate recovery by billions of barrels if it succeeds.

Oil and gas wells drain hydrocarbons from a fairly large area, although it is impossible to know the exact extent since the field cannot be observed directly. This poses a tricky problem for operators and regulators.

Drill wells too close together and they interfere with one another, draining oil and gas from the same parts of the formation and reducing their efficiency. Drill wells too far apart, and some valuable oil and gas will be left behind in parts of the formation not near enough to any well bore to be recovered.

POOLING AND WELL SPACING

In the early years of the oil industry, landowners and developers raced to sink as many wells as possible following each new discovery, aiming to extract as much oil as quickly as they could before someone else pumped it first.

Under the common law "rule of capture", the person who brought the oil to the surface owned it, regardless of exactly which land it came from under.

The result was a chaotic race that resulted in closely spaced derricks that came to define the early oil industry and did immense damage to the environment as this photograph reproduced in the National Geographic shows. ()

Producing oil this way was grossly inefficient. Too many expensive wells were drilled, each producing little oil and gas. Overproduction resulted in a swift plunge in field pressure. Water would encroach on parts of the field, rendering further production uneconomic and stranding pockets of oil and gas behind.

Beginning with Kansas, New Mexico and Oklahoma, states started to enact regulations in the 1920s and 1930s to make production more efficient and conserve valuable resources by restricting the number of wells that could be drilled in any given area and requiring mineral owners to work together and share the proceeds from a common pool or oil field.

To this day, oil and gas regulators in many states are called conservation commissions or conservation departments (eg the Oil and Gas Conservation Division of the Kansas Corporation Commission, and the Wyoming Oil and Gas Conservation Commission).

The petroleum industry uses pooling to join together small tracts or portions of tracts for the purpose of securing sufficient acreage to comply with spacing regulations.

It uses unitisation, or field-wide agreements, to support secondary recovery operations such as waterflooding or tertiary recovery with carbon dioxide injection. ("Compulsory Pooling and Unitization with an Emphasis on the Statutory and Common Law of the Eastern United States" 2007)

With the exception of Texas, all oil and gas-producing states now have provisions for compulsory pooling and unitisation and also enforce spacing and drilling regulations that limit the number and distribution of wells that can be sunk.

In Texas, a bill to require unitisation in certain circumstances for oil, gas and carbon dioxide storage operations is pending before the state House of Representatives (HB 100) but stands little chance of becoming law before the end of the session.

Compulsory unitisation has sparked a fierce debate between opponents (angry about the infringement of private property rights) and proponents (who argue unitisation would enable the state to match the much higher recovery rates achieved in other states with compulsory unitisation such as Louisiana).

In the rest of the country, unitisation, pooling either voluntarily or if necessary by compulsion, and well-spacing orders have long been accepted as normal.

NORTH DAKOTA CENTURY CODE

North Dakota enforces fairly typical rules on well-spacing and unitisation.

Chapter 38 of the state's Century Code gives the North Dakota Industrial Commission powers to "(promote) greater ultimate recovery ... and to encourage and authorise cycling, recycling, pressure maintenance and secondary recovery operations in order that the greatest possible economic recovery of oil and gas be obtained".

Before drilling any oil or gas well, a permit must be obtained (Century Code 38-08-05). The Commission "shall set spacing units" according to the code "when necessary to prevent waste (and) to avoid drilling of unnecessary wells". (CC 38-08-07)

Voluntary unitisation agreements are authorised and exempt from antitrust rules provided they are approved by the commission (CC 38-08-09).

When two or more separate mineral owners share rights within a single spacing unit, they may agree a voluntary pooling arrangement. "In the absence of voluntary pooling, the commission upon the application of any interested person shall enter an order pooling all interests in the spacing unit for the development and operations thereof." (CC 38-08-08)

TIGHTER SPACING, HIGHER RECOVERY?

North Dakota's Administrative Code contains standard spacing regulations (AC 43-02-03-18). But most operators planning to drill and frack a horizontal well in the Bakken and Three Forks formations have applied for a customised spacing order for their intended operation.

As in other states, spacing units are meant to reflect the distinct geology of the formation and the area each well is likely to drain without interfering with other wells.

But now operators are pressing the Commission to approve more, smaller spacing units and permit them to sink many more wells into each one, targeting different formations (Bakken, Three Forks) and different layers within each formation.

NDIC has generally approved one well per 1,280-acre spacing unit (one square mile) for each formation or two adjacent 640-acre sections. But some companies have been allowed to drill one well per 640-acre section. Some have even "downspaced" to two wells per 640-acre section (320-acre spacing). Now some are experimenting with 160-acre spacing patterns, according to consultants at Ryder Scott.

The environmental impact is minimised by drilling all the wells from a single location.

Continental Resources, one of the pioneers of Bakken drilling, is currently testing a programme that would sink 14 wells into every 1,280-acre spacing unit - four into the middle Bakken layer (320 acre spacing), three into the top layer of the Three Forks, four into the next layer down, and three into the layer below.

The honeycomb spacing pattern is explained on slides 69 and 71 of its September 2012 presentation to investors. ()

Drilling results support 320-acre spacing, according to Continental, and engineering simulations show that even 160-acre spacing might be profitable.

Well-spacing might seem esoteric. But the basic idea is that fracked horizontal wells are draining smaller areas than once thought and can be put closer to one another without interference. If true, drilling costs could fall dramatically (closer spacing is cheaper and more efficient) and far more oil could ultimately be recovered.

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