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Kimmeridge - how Permian basin development has evolved

Friday, August 24, 2018

Development in the West Texas Permian basin is arguably going into a third phase of 'factory' type development, with much closer well spacing targeting multiple 'horizons' within the same square mile, said Neil McMahon of Kimmeridge Energy.

The Permian Basin of West Texas is arguably now in a very different stage of development to the early days of fracking, with the drilling intensity going to a much higher level, looking more like manufacturing than it did before, said Neil McMahon, managing partner with Kimmeridge Energy.

He was speaking at the Finding Petroleum forum in London on Feb 21st, '
Geologists often think they are working in an 'old' industry, where everybody knows everything there is to know. But the way companies are working today does not fit with the old knowledge, he said. 'The science is embryonic, our understanding of how oil is generated is embryonic, and how oil migrates is embryonic.'

'All my training, all my work, from the early 1990s at BP, I've frankly thrown out the window because it is not that relevant any more to modern understanding of petroleum systems, how oil is generated and how oil is migrated,' he said.

Understanding petroleum systems is important because the most important factor in governing whether there will be oil in a reservoir is whether the source rocks were in the right temperature 'window' over geological time, so they would turn into gas or oil.

This is a more important factor than the thickness of the reservoirs, he said.

Also, the aerial extent of the source rock is not as important as the aerial extent of the source rock which is in the right window.

Geologists use this understanding to try to define 'hotspots' within the basin, where oil is most likely to be. These are not necessarily the deepest part of the basin.

Understanding West Texas

Texas is a good place to start for an oil company, since over a third of the US onshore oil reserves are there. Texas is not as expensive to operate as Alaska, and not as anti-fracking as California. And about 40 per cent of the oil in Texas comes from the West Texas Permian basin, he said.

West Texas can be divided into four sub basins, all together making up what is known as the 'Permian'.

These are the Delaware basin, where 'most of the action is happening today'. The Central Basin Platform, or CBP, which is the historical centre of West Texas oil industry going back to the 1920s. There is also the Midland Basin and the Eastern Shelf.

All these four still have 'significant production per square mile.' In some areas, particularly the Central Basin, there has been over a million barrels of conventional production per square mile.

The Permian can be considered a 'perfect petroleum system,' with an enormous volume of resources and production coming from very few fields, and that was true before unconventionals were developed.

Compare it with Kansas, which has significant oil production, but most of the oil has migrated into Kansas from basins outside. 'I would argue that it is not a perfect petroleum system,' he said.

History

The first phase of development of the basin, starting in the 1920s, could be called the 'main conventional phase.' It was initially focussed on the Central Basin Platform, the Delaware basin to the West, Midland basin to the East, and the Eastern Shelf.

This was followed by a period just before 2000, when a lot of vertical fracking started to take place, looking at lower quality reservoirs around the big oil fields.

After 2000, horizontal drilling was first tried through the Bakken and Barnett shales. Companies started targeting reservoirs around or below the main fields, which had a lower porosity and permeability.

Increasing intensity

We are now arguably entering a second phase of unconventional development, focussed on the Delaware Basin, Mr McMahon said. Companies are placing wells much more closely together than they have ever done before.

The Delaware basin currently has 16 per cent of all of the horizontal rigs in the US, and so probably 16 per cent of current drilling activity. 'That's going to go up and up,' he said.

The best parts of the Delaware basin can work with $30 oil prices, with the most stacked pay and best overall economics.

There was a massive ramp of in activity in 2017, with companies going in full 'development' mode, after doing all the de-risking of the reservoirs earlier.

To illustrate the pace of development Kimmeridge has used satellite imagery to compare a picture from January 2007 to January 2018 in the Delaware basin, which shows how many more wells, roads and pipelines there are.

US drilling permits often require companies to drill a new well at least every 120 days or risk losing some of their lease, which also adds to the pressure to keep drilling.

Delaware has multiple different formations, which makes it different to formations such as the Eagleford shale play, which is largely a 'one formation unconventional play' and now 'getting towards mature mode'.

Many parts of the Permian have many levels, described as Wolfcamp A upper and lower, Wolfcamp B upper and lower, Wolfcamp C and D. So if there are multiple wells into each of those, within the same lease block, '
This is what I mean by how exponential the drilling activity is going to take place'.

As an example, Energen Resources Corporation is currently targeting many different levels in the 'Wolfcamp' reservoirs of the Delaware basin, with laterals all at different levels. The company is planning 16 wells just to go into the 'Wolfcamp A' horizon on their lease.

Similarly, Resolute Energy is planning 36 to 48 wells per square mile in its lease in Reeves County, to be drilled over the next 10 years.

'It shows you how the industry is taking these mature old basins and moving them forward,' he said.

Tracking source rock

Kimmeridge is making a lot of effort to track which source rock the oil in the reservoirs is coming from, using geochemical methods. 'We're coming to the era of the geochemist,' he said.

The studies show that about half of the oil is moving moves vertically (upwards) rather than laterally within the reservoirs, coming from older and deeper source rock systems, going through microfractures rather than through faults.

For example, because the Central Basin Platform is sitting on a high, there is very little Permian age strata which has been in the temperature window where it would generate oil, he said. So the oil can only have come from an older source rock.

This is something 'the industry hasn't caught up with yet,' he said. 'It is a different way of thinking about migration to the standard North Sea approach.'

Source rock typing is 'an absolute must in every basin,' he said. 'Not many people do it, they say 'it's oil, do we care where it came from'. There's a huge amount of complexity in basic geochemistry.'

'We don't fully know how oil forms, we don't fully know the initial migration, and the full extent of vertical vs lateral migration. It's something you'll see develop over the next few years, as majors come into the basins and start putting money behind it.'

A similar pattern has been seen in the Anadarko Basin in Oklahoma, where 'hundreds and thousands' of wells were drilled, he said. 'So pretty much the same rocks and the same targets, but you've got a huge distance between them,' he said.

Typically unconventional plays are discovered by independent companies, not majors. But when the majors arrive, 'that's when you'll see a lot more science behind it. You have specific intervals that are well understood and mapped out,'

'You're getting these multiple benches as people understand where the data is.'

Woodford and Barnett

Building on this geochemical knowledge, there is likely to be a lot more focus on the Woodford and Barnett shales, which sit below the Permian, with the Barnett above the Woodford.

The Woodford shales can be as deep as 16,000 feet, beyond the typical 11,000 feet depth limits of unconventional drilling, so are usually ignored, he said. But in 2016 a company in the Delaware Basin called Jagged Peak drilled a well which started to look at the Woodford.

The well fracking had some problems, with the full lateral not getting fracked. But the fracking that did occur led to 'pretty impressive' volumes. It has 'given people a lot of focus on Woodford and Barnett.'

'If these results keep going I would argue we're going to see a third phase of horizontal drilling in the Permian basin focussing on these older, source rocks around the Woodford and the Barents.'

The industry had to drill 700 wells into the Wolfcamp/Bone Springs in the Delaware before it became economic. 'So it takes a lot of effort and it take a lot of pain to get there. But once you get there you can get your cost down to $30 barrel for the acreage in the core of the play.'



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