Quantifying The Total Costs Of Recycling Water In Tight Oil Plays To Determine How A Treatment Program Will Affect Overall Well Economics

Transcription

1 Quantifying The Total Costs Of Recycling Water In Tight Oil Plays To Determine How A Treatment Program Will Affect Overall Well Economics Phil Winner, President, Layne Energy Services 1

2 ACKNOWLEDGEMENTS Layne Christensen Corp Our clients Ken Carlson, Colorado State University (Colorado Energy Water Consortium) George Kast, Produced Water Solutions Zane Meekins, Cawley Gillespie and Associates Jeanie Oudin, Wood Mackenzie Jim Raney, Anadarko John Seidle, MHA Petroleum Consultants 2

3 WHAT SUCCESS LOOKS LIKE 3

4 Oil $/ Bbl OVERVIEW Oil and Gas Prices 2008 Economic crash Gas $/ Mcf 2011 Shale gas crash 2008 Economic crash Conventional gas 2011 Shale gas crash Unconventional oil has the most activity AND uses the 5-10x the water as vertical wells! Conventional oil Unconventional oil Unconventional gas 4

5 OVERVIEW Unconventional oil plays Marketing Ground Stabilization Pipeline Rehabilitation Legal HR Safety IT Finance Sustainability Diamond Core Drilling Plant Construction 5

6 OVERVIEW And so these men of Hindustan Marketing Ground Stabilization Pipeline Rehabilitation Legal HR Safety IT Finance Sustainability Disputed loud and long, Diamond Core Plant Drilling Construction Each in his own opinion Exceeding stiff and strong, Though each was partly in the right And all were in the wrong 6

7 OVERVIEW Requires focus on full cycle economics of water. Sourcing to disposal, cradle to grave. Goals: Add value in two ways Tangible: Cost saving adds monetary value, Intangible: Increase sustainability, become operator of choice, maintain public trust. Trends in controlling water costs: Increased interest in fracking with formation (produced) water. Lowers initial cost, lowers treatment cost, minimizes formation damage. Ability to cross-link relatively high-salinity brines. Marketing Ground Stabilization Pipeline Rehabilitation Legal HR Safety IT Finance Sustainability Diamond Core Drilling Plant Construction Logistics optimization: Reduces trucking and local impact. 7

8 E&P WATER CYCLE Transfer Treatment Courtesy of Jim Raney, 2012 Anadarko Director, Engineering Global Engineering & Technology, with permission Chairman, API Committee for the Standardization of Oilfield Equipment and Materials (CSOEM) 8

9 INTEGRATED SOLUTIONS SOURCING Hydrology and new wells Collector wells Recycled water 9

10 INTEGRATED SOLUTIONS TRANSFER Temporary: Rapid deployment flat hose, high volume, low impact Permanent: Buried steel or poly pipe 10

11 INTEGRATED SOLUTIONS TREATMENT Mobile and scalable Oil/water separation Filtration Chemical treatment, biocides Distillation, evaporation 11

12 UNCONVENTIONAL OIL Source: Used with permission from J.Oudin, Wood Mackenzie, Water Management for Shale Plays Rockies: Home to two major unconventional oil plays: Bakken Niobrara Integrated water management: What is the size of the prize? 12

13 BAKKEN EXAMPLE Historically, drilling economics focused primarily on forecasts ( decline curve ) of oil and/or gas rate. Why the interest in water? Hz wells use 5-10x more water than vertical wells, Most wells now are Hz wells, and High oil prices have increased and intensified activity. Source: with permission from J. Seidle, MHA Petroleum consultants, 2012: Economics of Selected US Shales 13

14 WATER LIFE CYCLE Bbls water/month WATER PRODUCTION Frac water Produced water Months About 30 years Approach: apply decline curve economic analysis to evaluate water cost savings. Production data sources: NDIC (Bakken), K. Carlson, CSU, 2 nd Water Management for Shale Plays, Assessing specific shale plays-niobrara Frac volume sources: J. Oudin, Wood Mackenzie Bakken Shale Water Management for Shale Plays, Niobrara: Western Resource Advocates. Water forecasts by Cawley, Gillespie, Associates. 14

15 WATER LIFE CYCLE CUMULATIVE WATER PRODUCTION Niobrara forecast to dewater faster than Bakken 50% of flowback water recovered in first 2 years 70% of flowback water recovered in first 5 years Months Large change in water production over time impacts: NPV of operating expenses Facility requirements Supplemental source requirements 15

16 WATER COST STRUCTURE Source: Used with permission from J.Oudin, Wood Mackenzie, Water Management for Shale Plays Source: Produced Water Solutions, George Kast Source: Halliburton, N. Colorado Bus. Report 10/19/12 Explanation: Water Cost Structure Capital investment: Frac Water (Source), direct impact on NPV Expense (LOE): Produced water, expensed over life of well. Must be discounted to see NPV impact Source: 16

17 COST SAVING SENSITIVITY NPV of total savings Bakken savings per well NPV of total savings Niobrara savings per well Assumes base case frac water cost of $3.80/Bbl for 71.5 Mbw = $272,000 Frac water cost = $0 (100% savings) Frac water cost = $136,000 (50% savings) Frac water cost = $272,000 (0% savings) Assumes base case frac water cost of $1.63/Bbl for 100 Mbw = $163,000 Frac water cost = $0 (100% savings) Frac water cost = $81,500 (50% savings) Frac water cost = $163,000 (0% savings) Expense Reduction ($/Bbl) Every 10 % cost reduction in frac water adds $27,000 of value Every $1.00/Bbl of water handling savings adds $50,000 of value Expense Reduction ($/Bbl) Every 10 % reduction in frac water costs adds $16,000 of value Every $1.00/Bbl of water handling savings adds $30,000 of value 17

18 COST SAVING SENSITIVITY NPV of total savings Annual Bakken savings (1,700 wells*) NPV of total savings Annual Niobrara savings (500 wells) Frac water cost = $0 (100% savings) Frac water cost = $136,000 (50% savings) Frac water cost = $272,000 (0% savings) Frac water cost = $0 (100% savings) Frac water cost = $81,500 (50% savings) Frac water cost = $163,000 (0% savings) Expense Reduction ($/Bbl) Expense Reduction ($/Bbl) Every 10 % cost reduction in frac water adds $47.5 MM of value Every $1.00 /Bbl of water handling savings adds $100 MM of value Every 10 % cost reduction in frac water adds $8 MM of value Every $1.00 /Bbl of water handling savings adds $12 MM of value *Source: Used with permission from J.Oudin, Wood Mackenzie, Water Management for Shale Plays 18

19 SUMMARY AND CONCLUSIONS Significant value can be created by reducing water management costs. Bakken: $200 MM $300 MM in gross, un-risked annual savings. Niobrara: $40-$50 MM in gross, un-risked annual savings. Standards yet to be set for managing large volumes of water at lowest possible cost. Integrated water management has best potential to provide lowest costs solution. Best way to evaluate options and alternatives to optimize logistics. Greatest economic benefit comes from reducing capital for frac water. Well over half of total water handling costs in transportation. Puts premium on transfer, storage, and pad drilling/logistics. Marketing Ground Stabilization Pipeline Rehabilitation Safety and sustainability Legal earns HR public Safety trust and IT is key to Finance sustaining long term operations. Sustainability Diamond Core Drilling Plant Construction 19

20 INTEGRATED SOLUTIONS Sourcing Transfer Treatment PHIL WINNER President, Layne Energy LAYNE water + mineral + energy 1675 Broadway, Suite 2260 Denver, CO Office: x101 Cell: phil.winner@layne.com layne.com 20