“It’s the beginning of the end for the Bakken Shale play,” petroleum geologist Art Berman wrote last month regarding the Bakken shale and its future.
This introductory paragraph caught the attention of many, including myself. After I read his piece, I reached out to Berman to investigate his claims further.
But first, who is Art Berman and does he know what he is talking about? In addition to being a petroleum geologist for nearly 40 years, he is also a keynote speaker for many industry events and consultant to the energy industry.
Furthermore, Berman frequently addresses investment conferences, boards of directors and professional societies. He is often interviewed about energy topics on television, radio, and national print and web publications including CNBC, CNN, CBC, BNN, OilPrice.com, Bloomberg, Platt’s, Financial Times, and New York Times. He has published more than 100 articles on geology, technology, and the petroleum industry during the past 5 years. Publication topics include petroleum exploration, oil and gas price trends and cycles, petroleum play evaluation, sequence stratigraphy, coastal subsidence, earthquakes, tsunamis, and petroleum geopolitics.
“I spend most of my time making maps, figuring out where to drill wells, screening deals for clients, explaining results of wells,” Berman said. “I bring a little different perspective, I’ve done this for almost 40 years and continue to earn a living working as a geologist in the oil business and not as an analyst.”
Berman said he has analyzed the Bakken numerous times over the past ten years and generally he has had positive conclusions.
“I like the play geologically, the economics as long as you are in the core area. When I looked at it recently I expected to see more of the same,” Berman said.
Berman’s recent data analysis of the Bakken, however, saw some indicators that made him look at the future of the shale play a bit differently.
“When I did the analysis I was surprised to see very strong evidence supporting what we call a depletion,” Berman said. “Results for wells that were drilled in the more recent years, 2016, 2015, 2014, their reserves are not as high as wells drilled in previous years. That’s kind of a disturbing finding.”
According to Berman, a few notable signs of depletion include an increase in percentage of gas relative to oil and a an increasing percentage of water produced.
“Those are two classic red flags that the production is basically going to decline,” Berman said.
Berman elaborated and speculated that the Bakken wells might be drilled too close together and are essentially stealing reserves from each other. He continued explaining that produced water is when “you pump the water in, do the fracture stimulation, much of that water comes back rather quickly” and then you start producing oil.
“In the case of most of these so called shale plays, they produce a lot of water that comes from the formation itself or from formations that have been fractured into,” Berman said. “To give you some idea, let’s say the Bakken has produced two billion barrels of oil over its lifecycle since the 1950’s. It’s produced about a billion and half barrels of water.”
He was quick to point out that water production is part of the natural flow of extracting oil and excess water is nothing new or earth shattering. He does believe the percentages are at a point where one should pay closer attention.
“What has been happening recently is that the percentage of water, relative to the total liquids, has been increasing,” Berman said. “You start producing more and more water and less and less oil, that’s a signal.”
Fracking costs are a signal too. Not a significant signal, rather a natural exercise when accessing oil and gas risk management.
“It costs money to produce the water, dispose of the water. At some point the economics come to a point where you just say forget it,” Berman said. “We are spending too much money getting rid of the water and we are not making enough money on the oil. “
Often times studying signals and economic indicators can produce more skepticism that is needed. By no means is Berman saying the Bakken is dead or dying even. He just sees some signs that would make him pause for a second or two.
“We are not there yet. Don’t get me wrong,” Berman said. “The Bakken has many many years of production left in it, it’s just that it’s best days are behind it.”
He then paused and introduced a hint of sternness in his tone. Nothing combative, rather authoritative.
“This should not surprise anybody,” Berman said. “Ever oil field builds to a certain point, it reaches a peak of production, and then it declines.”
According to Berman, it’s physics and declines last for years. He questioned why the message from industry spokespeople differ from science and history.
“For some reason the way these shale plays have been sold or advertised, people have the idea that they somehow never end. Show me anything on earth or life that is that way,” Berman said. “We’ve been drilling oil in this country for 150 years and there isn’t a field that doesn’t’ build, peak and then eventually decline. It’s just the way this works.”
He wondered why the state leaders would publically deflect portions of his statements on the Bakken declining. According to Berman, Justin Kringstad’s attempt to counter Berman’s claims fell short. Berman said Kringstad only used cumulative production rates.
“The problem with that is that he’s (Kringstad) saying the first eight months of wells that began production in 2016, that total production number is higher than wells in 2015, therefore the wells performance is better,” Berman said. “That’s a perfectly fine shortcut method to get a real general high level view of how things are going.”
Berman said his method is “much more detailed.”
“I actually projected out the reserves of the wells of the eight major companies, and I saw that the reserves were declining annually,” Berman said. “So when I looked at the cumulative numbers that he (Kringstad) plotted up, yeah the first eight months of 2016 are much higher, but the decline rates are much higher too.”
He aded the state didn’t address whether there was anything to his data or claims, just said he was wrong.
“You don’t have to agree with my interpretations, but just to dismiss them and discount my data is not a fair hearing,” Berman said. “Are they apples and apples or apples and oranges?”
One more layer or Berman’s argument is technology. New innovations in oil and gas are allowing for more front end extraction, which impacts a traditional wells timeline. Berman said many wells are falling off really fast.
“This is the downside of technology,. You produce a whole lot more in the early days, but you run out of it faster.” Berman said. “The best days are behind us.”
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