Tuesday, September 25, 2018Canada's Leading Online Business Magazine

PetroBakken

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How PetroBakken took a chance with an upstart technology and unlocked the Bakken

The Bakken formation in south-eastern Saskatchewan, Canada, is fast becoming a major hotspot for onshore oil. Lesser known than the celebrated oilsands, the Bakken formation is a 350 million-year-old underground layer of rock that spans Montana and North Dakota to the south, and southeast Saskatchewan to the north. Discovered in the 1950’s, its vast reserves of petroleum were only recently accessible through technology. As early as 1974, it was postulated that the Bakken could contain vast amounts of oil, but it was a 1995 field assessment for the U.S. Geological Survey (USGS) that said there may be as many as 503 billion barrels of oil in the Bakken Formation. Compare this with the 125 billion barrels at the Ghawar field in Saudi Arabia and 7.8 billion barrels at Alberta’s Pembina Cardium, and the significance of the Bakken becomes clearer.

One way to look at the Bakken is as a wedge which starts out in North Dakota and comes to an end in Saskatchewan. Oil generated migrates to this wedge and has nowhere else to go, so it accumulates in an area in south-east Saskatch­ewan (near Weyburn). The trapped oil covers a large area known as the Bakken resource play, and because it is a thinning wedge, oil is perva­sive in that area.

The Bakken is an anomaly, in that it has been known to have oil in it for years, but because of the complexity of the geology, has been resistant to traditional drilling methods and has yet to yield its (full) potential. However, recent massive fluc­tuations in the global price of oil have been the necessary impetus to accelerate the area of alter­native recovery technology. Considering what has happened with the price of oil in the last couple of years, it becomes apparent why companies are far more interested in investing in a tougher recovery field than they were even 10 years ago. With the cost of oil being 60 or 70 dollars a bar­rel—or 100 dollars as it was a year ago—suddenly companies are keenly interested.

In terms of initial oil in place, the Bakken is saturated. In terms of quality, the light sweet crude in the Bakken is extremely light and mar­ketable. And in terms of potential, let’s look at it this way: if just a small percentage of the oil in the Bakken is recoverable, the province of Saskatchewan—already the second largest oil-producing province in Canada—would probably double their existing reserves.

The challenge with the oil in the Bakken, however rich in resources it may be, is that it is ex­tremely difficult to extract. In the simplest of terms, the Bakken formation is a sequence of siltstones and sandstones that are sandwiched between two layers of organic rich shale. It is similar to an Oreo cookie, in that there is a layer of black shale above and below the siltstone, or the sweet stuff, which contains the oil. The siltstone has a very low poros­ity and permeability, which means the oil located in the pores of the rock does not readily flow out of the rock. There is a vast amount of oil generated in the Bakken shale adjacent rock to the siltstones encased in these sheets of non-porous Bakken shale. Because of the poor permeability of these siltstones containing the oil, traditional drilling methods cannot yield adequate quantities to jus­tify or offset the cost of drilling.

The challenge of the Bakken

That drilling challenge is being met by PetroBak­ken. In August of this year, Petrobank Energy and Resources Ltd. merged with Tristar Oil & Gas Ltd. to create PetroBakken, with the purpose of focusing on extracting light oil from the Bakken. PetroBakken is a premiere operator in the Ca­nadian sector of the Bakken and has developed innovative technological techniques to unlock the reserves. Gregg Smith is President and COO of PetroBakken, a company that has a greater proportion of its production coming from the Bak­ken than any other material producer. According to Smith, the PetroBakken team has great “ex­pertise in terms of getting marginal reservoirs to give up their reserves. The Bakken is an excellent example of an oil reserve that was known about for a long time, but required innovative technol­ogy to release it.”

In the main play area of Saskatchewan, there is approximately 5 billion barrels of available oil in the ground. Smith was given estimates by (con­ventionally conservative) reserve auditors two years ago that have already been exceeded, yet his wells are still only booking 12 per cent of the original oil in place.
The question that PetroBakken endeavours to answer is this: how to go from 12 per cent recov­ery to the 35 per cent recovery range (35 per cent being the typical expectation for ultimate recover­ies from a conventional oil field)? The answer is enhanced oil recovery (EOR) schemes. “We think our well performance is superior. By applying our technology, we are getting more out of the Bakken.

Enhanced Oil Recovery

The first wells drilled in the Bakken were on land owned by PetroBakken (then Petrobank). “We had exposure in the play early on,” explains Smith. Early attempts at ‘fracing’ (a method used to stimulate production in oil and gas wells whereby fluid is pumped into the well at pressures high enough to fracture the oil-bearing formation) did not work that well, but PetroBakken continued to accumulate land and participate in ongoing operations. That gave the team at PetroBakken the opportunity to see how well other technolo­gies did, and did not, work. The team saw that the method of using a single, massive frac could be improved upon. From this came the idea to use a series of multi-staged fracs, and using Packers Plus, a licensed multi-stage fracing technology.

“It is technology that has unlocked the po­tential of the Bakken,” says Smith. To access more from this poor oil reservoir, PetroBakken uses an innovative and progressive horizontal well completion technology made by Packers Plus, which essentially permits the company to pump sand at high pressure into the well, crack­ing the oil-rich rock and allowing the oil to flow out. The horizontal wells provide for maximum exposure to the reservoir and the new comple­tion techniques allow fracing of the siltstone along the full extent of the horizontal wellbore. This technology has the ability to stimulate hori­zontal wells with multi-stage fracs, which has unleashed the reserves in the Bakken.

The results were astounding. Without the multi-stage fracture stimulations, a typical well would produce in the neighbourhood of 20 bar­rels per day (bpd), or a really good well would produce 50 bpd. After the application of these multi-staged fracs, PetroBakken’s wells were pro­ducing, on average, more than 200 bpd initially.

“PetroBakken and another company own the majority of the land in the play,” says Smith. “We have been the technology leader. We brought Pack­ers Plus to the Bakken, and with that, achieved very strong performance out of our wells with this new idea of drilling parallel horizontal wells out of a single, vertical well, and then doing multi-staged fracing in each of these horizontal well bores.

“It allowed us to find the most cost effec­tive way to deliver a high number of fracs,” says Smith. With the old technology, “we could drill a single- leg horizontal well with high intensity fracing along the length of it, for about $1.7 million.” Alternatively, “we can drill bilateral wells with Packers Plus in both horizontals, which reduce our inter-well distance at the same time and dramatically increases the number of fracture stimulations, for only $2.3 million. This results in a dramatic increase in the number of fracs per section of land on the Bakken, for a relatively minor increase in cost for each well. In short, more frac stimulations in the Bakken sec­tion improves the production performance, and the most capital efficient method of increasing that frac intensity at this time is through these long, bi-lateral horizontal wells.

Unlocking the Bakken

“It is common knowledge that there is a lot of oil in the Western part of North America, but it’s diffi­cult and expensive to get out of the ground,” says Smith. What differentiates the Bakken is that it needs a large number of small fracs to get it to produce. This led PetroBakken to drill bilateral wells with high intensity fracs along the length of each well, each of which is 1400 metres long.
The unconventional nature of the Bakken formation is its extensive area that is oil satu­rated but with very low permeability formation. Increased exposure requires Packer’s Plus multi-stage, high-intensity fracing and the drilling of bi-lateral wells. “It’s a beautiful, simple system,” says Smith of Packer Plus technology.

To put it in layman’s terms, it is drilling a mile down and a mile horizontally, then divid­ing that up into 20 different segments, and then have each segment produce oil. It is essentially a tubing string with a series of inflatable packers along its length. Once the tubing string has been placed into the horizontal length of the hole, a series of packers are inflated along its length, cre­ating isolation points to separate portions of that horizontal length. In between those packers are closed ports that allow for fracing of the various isolated intervals.

“You are sequentially dropping bigger balls that open ports along the length so you can sequentially frac backwards from the toe of the horizontal to the heel of the horizontal,” says Smith. “We are using the packers to create iso­lated intervals. Every time a ball sets in a seat, it isolates anything further down the length of that horizontal and then opens the port associated with the seat that the ball just set in. Now the well is being fraced through the port in that isolat­ed interval.”According to Smith (and the numbers back this up), this multi-stage fracing is a new stage in the development of the Bakken.

Success breeds success

The Canadian oil fields are quickly and rightly gaining an international reputation for fostering small start-up companies and spurring innova­tion. It is a conceit amongst the oil and gas indus­try, that if new reserve technology isn’t born in Canada or Norway, it’s probably not worth much attention. The owners of Packer Plus lived up to this. They saw that the “easy” targets, the more conventional oil fields, had long ago been solved, so to speak, and so they set out to figure out how to exploit reserves from the hardest to reach and more challenging oil deposits. They saw a need for technology to be developed in the area of “tight” reservoirs, and fortune smiled when the two companies met. PetroBakken staff met with the owners of Packers Plus, and the two compa­nies set up some trial wells.

Says Dan Themig, founding partner and Presi­dent of Packers Plus, “We had previously run a number of systems in the U.S., but it was PetroBak­ken that gave us the chance to show what we could do in tight oil when they adopted us as a trial tech­nology. PetroBakken is very willing to experiment with marginal reserves, so our companies are a great fit. They didn’t have anything on which to base the initial risk they were taking on our new technol­ogy other than their engineering group thought it looked like the right technique for the Bakken.”

Part of the issue that Packers Plus assisted PetroBakken with was the low tonnage and feed rates of the fracs delivered at strategic points along the horizontal well. According to Themig, PetroBakken “pushed us to develop the capabil­ity to place more fracs along the horizontal and further innovate along those lines”.

Long-term investment

“Two-and-a-half years ago, we had thought we solved the problem of the Bakken with drilling hori­zontal wells,” says Smith. “We were doing eight-stage fracs. Then it went to 11-stage fracs. As tech­nology advanced, we raised it to 15-stage fracs. Now, we are doing 20-stage fracs and bi-laterals, with each horizontal well in the bilateral getting an additional 15-stage fracs, for a total of 30 fracs per well (compared to eight, two years ago). We have continued to evolve with the technology.”
PetroBakken is currently drilling at a rate of 128 wells a year—having already drilled 450— and has plans to drill over 1,300 locations, each of these being a bilateral, for a total of 2,600 horizontal wells.

Putting horizontal fracing to the test

“One of the things that PetroBakken has been re­ally good at is brainstorming ways to be more ef­fective and efficient at studying and understand­ing the reservoir. They have consistently come up with innovative techniques to apply even our technology. We started off with horizontal wells doing approximately eight fracture treatments per horizontal well. We provide the ability to strategi­cally place those fracs along the well, so it has been mutually beneficial,” says Themig. Before Packers Plus technology, the Bakken produced 100 bpd, after it, 60,000.

“PetroBakken are really the ones who have pushed us to really improve our capabilities beyond where we were when we started working for them in 2006,” he continues. “PetroBakken is aggressive in implementing new technology, and for that, they are leaders. They are able to evalu­ate intuitively what might work better than what anybody else is doing, and then apply it and even work through a learning curve to make a tech­nology viable.” And once they do it they are very good at repeating applications of technology and making it better and better. Their numbers are indicative of this.

The Bakken was the best test Packers Plus could face, since people had been drilling in it for more than 40 years without making it productive in terms of commercial volumes. Other companies on the Bakken sat back and watched as PetroBakken produced exponen­tially more quantities of oil. PetroBakken was given a six-month head start, after which it is required by law that they publish and report their production data. Sure enough, six months later (to the day, no doubt), the phones at Packers Plus began to ring. And they haven’t stopped since.

“It was a very short period, therefore, before the Canadian oil industry adopted what PetroBak­ken has begun,” says Themig. “They were the originators and the innovators.” Quite quickly, the whole group of Canadian drillers in the Bak­ken had switched and adopted Packers Plus as a method to frac, in order to get the reserves.

Beyond the Bakken

Packers Plus has grown considerably since being adopted by PetroBakken. The number of employ­ees at Packers Plus in 2000 was three; in 2009, approximately 350. “The company has certainly grown since PetroBakken adopted us. The word of the success spread and now it has been easy to get other companies on board. We have now worked in 26 formations in western Canada; we have offices in 8 countries outside of North Amer­ica and 27 offices worldwide. And then we have worked in a number of countries such as Roma­nia, Russia, china, Argentina, Middle Eastern countries, Norwegian sector of the North Sea, so we are really being adopted as a viable technol­ogy in world class areas,” says Themig.

Packers Plus sees the continued numeration of fracs along the horizontal well. They currently have 84 engineering projects that are on their development list, which includes the ability to refract wells, use horizontals as producing wells and the ability to control production to shut off segments. Says Themig, “We see our role as the full life cycle of capabilities and that means inte­grating what we think the operator will need on the full life of the well.”

The Bakken is really one of the most sig­nificant oil finds that has been “rediscovered”. Canada is set to receive major benefits from the Bakken. “They are saying it is probably the second largest recoverable reserves in western Canada, and it may be the biggest oil reserves outside of heavy oil in northern Canada.

That is major for Canada, for Saskatchewan and huge for our industry, especially at a time when we have low natural gas prices to be able to drill and produce,” says Themig. “It is a jewel that has been under every body’s noses, but some­thing you couldn’t imagine getting at until the frac system was applied. It is where technology has met a need. We have nothing but praise to give to PetroBakken for trusting a little company out of Calgary. It continues to be a real pleasure working with these people.”

Team Canada

The PetroBakken team (of 225 employees) has among the highest accumulated drilling experi­ence in North America. “We have close to 500 wells drilled cumulatively as a team,” explains Smith. “We plan on selling assets that produce 9,000 barrels per day (bpd) through the end of the year and into early 2010., PetroBakken’s production is currently about 46,000 bpd which leaves us with 3,700 bpd of very focused produc­tion in quality assets ” he says, adding, “There are a lot of ordinary people doing extraordinary things at PetroBakken.”

The prevalent attitude at PetroBakken, while the company evolves and adapts, is that everyone may dare to experiment or fail, so long as there is always a lesson learned from successes and fail­ures. Their internal Research and Development is a combination of scientists and field workers, which Smith believes work cooperatively to create the impactful innovation.

The team is of utmost importance to the future success of PetroBakken. “We reward people for proactively thinking about new ways to make things work better,” says Smith. “Because we have recently gone through a merger, it has challenged us to define who we are, fundamen­tally, as a company. “We have a set of values and this is part of it, to continually reward and encour­age new ideas to achieve the best results.”

According to Smith, this merger “allowed both companies to strengthen their position in the company land positions. The land gave us both more opportunity to work the Bakken and have greater opportunity for the entire company.” In addition, the company will have significant future development opportunities in the Horn River and Montney gas resource plays in northeast British Columbia (specifically, targeting the Muskwa and Evie shale plays) that will add to the long term growth of PetroBakken.

Propelling Saskatchewan

The bloom on the rose of the Bakken can be seen beyond its own boundaries. Ed Dancsok, Associate Deputy Minister at the province of Saskatchewan’s Provincial Department of Energy and Resources (affectionately known as “Mr.Bak­ken”), sees the advancements made in the Bak­ken having widespread repercussions and influ­ence across the province. He says, “The advent of horizontal wells and the application of the staged hydraulic frac that PetroBakken has been doing through Packers Plus cracked the nut on how to get oil of the zone.”

This has a profound impact on the province because there are other zones like the Bakken in Saskatchewan (such as the Lower Shaunavon Formation of south-west Saskatchewan and the Viking Formation of west-central Saskatchewan) which can also benefit from this multi-stage frac­ing technology. “We see a great expansion of our oil industry in areas that we have previously had limited production,” says Dancsok. “The Bakken is the key which may unlock the entire province.”

Currently, Saskatchewan is the second largest producer of oil in Canada. The oilsands, of course, are producing at a rate that will likely never be sur­passed by Saskatchewan, but, in terms of conven­tional oil (anything other than the oilsands, according to Dancsok, or oil extracted with traditional tech­niques), Saskatchewan is closing the gap with Alber­ta. “As much as Alberta is producing in conventional oil, we are gaining considerable ground, and we may, just may, be surpassing that in the upcoming years. Our premier has talked about the potential for a time when Saskatchewan may be the largest producer of conventional oil in Canada,” says Dancsok.

The province is on its way. Last year, in 2008, Saskatchewan set a production record for oil with 1.61 million barrels of oil, compared to Alberta’s conventional oil production of 1.84 million bar­rels. According the Department of Energy, Al­berta’s conventional oil production has been declining slowly, whereas Saskatchewan’s has been slowing rising. Dancsok believes that these trends might soon cross.

Saskatchewan has also worked very hard to provide a competitive royalty regime for producers in the Bakken and, as such, Saskatchewan En­ergy and Resources offers drilling incentives for horizontal, exploratory or deep oil wells. Royalty rates are reduced to 2.5 per cent and tax rates are reduced to zero on eligible production vol­umes ranging from 4,000 to 16,000 cubic metres (25,170 to 100,680 barrels) from each well.

Since October 2004, land sales in the Bak­ken have generated an estimated $1 billion, roughly 80 per cent of total land sale revenue received over that time period. Saskatchewan also set a new all-time record for land sales in 2007 and shattered that record in 2008. This was driven to a significant extent by growing interest in Bakken.

The glory of the Bakken

As we have seen, the potential of the Bakken is immense. At a total of 200,000 square miles, 25 per cent of the subsurface, dish shaped basin lies in Saskatchewan, and therefore, 25 per cent of its oil does too. The states which the Bakken extends to are also investing in technol­ogy and developing the Bakken. According to the Wall Street Journal, the Bakken could end up being the largest oil accumulation in the United States, eclipsing the Prudhoe Bay oil field in Alaska (whose own production peaked at a whopping 2 million bpd).

PetroBakken has really risen to the top in terms of being very mobile in developing technol­ogy and exploiting the Bakken. Says Dancsok, “They have a very nice operation, and they are doing things right, environmentally. They are good champions of the resource and proper develop­ment and proper drilling of the wells. We are very pleased with their efforts in Saskatchewan.”

PetroBakken are exemplary stewards of the Bakken, and, in a way, have nursed it from a with­holding basin into a land, in the words of Tennyson, “prodigal in oil”.

www.petrobakken.com

By Anna Guy

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