As oil and gas exploration and production returns in force to the Bakken Formation in North Dakota, we talk to the oil and gas industry pioneer, petroleum geologist Michael Lewis, who helped develop the original Bakken Unconventional Play during the 1990’s. We wanted to know why he once turned his attention to oil and gas fracking projects in Eastern Europe and why he’s now bringing his E&P business back to the USA.
Michael Lewis has a good eye for opportunities.
As a young geology and computer science graduate working on well sites in central Texas, Michael saw an opportunity and soon went into business for himself — starting his own company, Discovery GeoServices Corporation.
Michael’s firm quickly grew from providing well-site geology and operation services for other companies to working in direct partnerships with investors. Leading up to the oil business crash of 1986, Discovery GeoServices was operating about 500 wells across Texas and Oklahoma.
In the post-crash retrenchment, Michael switched strategies by putting his computer science skills to work: he pursued the development of exploration software tools for the oil and gas industry, partnering with Dwight’s Energydata (ultimately purchased by IHS Energy) and Conoco.
But, by the early 90s, Michael was once again drawn to the exploration and production (E&P) side of the business. He had a feeling that he could make his mark in the Williston Basin, the vast geological region that straddles the northeastern part of Montana, western sections of North Dakota, as well as the southern portions of the Canadian provinces of Saskatchewan and Manitoba.
Michael explains that “when 3-D seismic became the rage in the early ’90s, I developed a strategy intended to find numerous Red River fields in the Williston Basin with a company called Lyco Energy. But those fields turned out to be very elusive and much less numerous than hoped.”
Michael wasn’t about to give up on exploring the Williston Basin, however.
The Vision for the Developing the Original Bakken Play
A fellow geologist working in the Williston Basin, Dick Findley, suggested that exploring the Bakken Formation for oil might be a good bet, and pointed to a roughly 200,000-acre area in eastern Montana that he called “Sleeping, Giant.”
“It appeared that the Bakken Formation was highly prospective on the basis of the performance of a couple of vertical wells, in which it appeared to be completely oil saturated and over-pressured,” Michael recalls. “So, we leased about 100,000 acres and began working on ways to make that work.”
Nonetheless, success still eluded them.
Conventional drilling, e.g. using vertical wells that go straight down to a hydrocarbon deposit, failed to produce commercial amounts of oil in that fairly low oil-price environment.
“After trying to produce the Bakken in a handful of vertical wells, it became obvious to us that we needed to try a fairly new technology for the area, involving horizontal drilling. This would connect the borehole with a much greater section of the oil-rich Bakken reservoir rock.”
Conventional vertical boreholes would have minimal contact with the oil reserves while drilling horizontally along the “bedding planes” of the deposit would maximize the direct contact with the oil reserve rock.
Horizontal drilling technology solved only one piece of the puzzle — there was another, more difficult challenge to be overcome.
That’s because the Bakken oil field is a classic case of “tight oil,” e.g. oil that is in tight oil formations that don’t release their oil easily, typically due to low porosity (e.g. lack of microscopic voids in the rock structure), which results in low permeability (a measure of the ability of fluids to pass through it).
Michael recalls their first horizontal test in the Bakken: “this rock had very low permeability…meaning that it would be very difficult to get the oil to move through the rock into the borehole for extraction. So, we decided to utilize fracture stimulation (now referred to as ‘fracking’)… which involves the injection of sand-laden water into the reservoir rock to create and then sustain an interconnected fracture network.”
“However, we could find no other wells at that time in which both fracking and horizontal drilling were used together.” They needed a technical partner who could help design such a frac. “So, we worked with Halliburton to figure out the design.”
“Halliburton got so enamored (with our project) that they funded the first 12 wells. From the first well, we continued to learn but knew right away that we had a huge success on our hands. The area we developed became known as the Elm Coulee Field in Montana, which has now produced over 200 Million BO (barrels of oil).”
Glossary of Oil and Gas Exploration and Production Terms
Schlumberger maintains a well-known online Oilfield Glossary. We’re not trying to duplicate that useful resource, but here a few terms that might be helpful to know:
● 3D Seismic Data:
Series of data points collected from a truck-based vibrator, dynamite shot, or air gun, that is used by geologists to understand subsurface formations.
Exploration and production companies.
Hydraulic fracturing, an oil well completion technique whereby fluids are injected into the producing formation in the well to help release hydrocarbons. (Also see our special report on Fracking technology.)
An accumulation of oil or gas hydrocarbons in a geological area or formation.
● Unconventional Drilling:
New, untraditional methods to extract oil or gas hydrocarbons. Example: Horizontal drilling followed by fracking.
Early Success in the Bakken Play Leads to Long-term Financial Rewards
Success in the Elm Coulee Field was just the start for oil production in the Bakken Field.
Michael points out that “from there, the play has expanded east into North Dakota; it’s grown to become one of the top 3-ranked fields in the US (along with the Eagle Ford in South Texas and the “Wolf-berry” Trend field of the Permian Basin in West Texas).
It’s quite a legacy, one that’s helped the US achieve energy independence. Michael reminds us that these fields are now “producing about 1.4 Million BOPD (barrels of oil per day), which is about 1/8th of all US oil production.”
When oil prices were well north of $100 a barrel back in 2014, the Bakken oil fields were famous for worker shortages and lack of reasonably priced accommodations. We wanted to hear Michael’s take on those boom years.
“In short, it was crazy,” Michael recalls. “Real estate was through the roof, and normal services in the towns were overrun and under-manned…the best jobs were in the oilfield, so there was nobody to serve in restaurants and for the regular industry in these areas. But this part of the world has a robust and highly work-oriented society. So, folks just buckled in and worked harder. Since hotels were hard to come by, I didn’t get up there very much at that time…I was working in Europe.”
Unconventional Oil Sources Have Changed the Equation for Investing in Oil Exploration
Michael believes that the Bakken has helped stabilize the energy markets in the US. “The Bakken is a huge play in which the risks are consistently low, and the economic returns are consistently modest. Therefore, it allows companies to drill many wells, with confidence that they have relatively reliable economic forecasts.”
Unconventional techniques, such as horizontal drilling and fracking, have, in Michael’s view, helped “transform the industry by providing the financial markets with much more consistent well-to-well results. This has dramatically reduced the risk of total loss of investment but has also significantly limited the up-side…which works for risk-averse investors (which is most of them these days). “
In Michael’s view, the public needs to take a less sensationalist view of fracking technology and take the time to understand it. “The reservoir (target) dictates what type of approach is taken to drilling and completion technologies. If the reservoir has good porosity and permeability, then it can probably be exploited in a conventional way. If it’s a low porosity and/or permeability condition, then unconventional techniques may be fruitful. Even in the US, a fanatical and unfounded fear of fracture stimulations has stymied some of the better projects. It is a lack of understanding about what fracking actually is that causes the fanatical public response.”
The bottom line is that “the oil and gas industry, like almost all industries, is driven by risk/reward. There are areas in many unconventional plays, and some entire unconventional plays, that are uneconomic because the risks (both financial and technical) do not justify the rewards. But for those that are commercial, it has made a huge impact on our national economy and self-reliance.”
At this point in our conversation with Michael Lewis, we wanted to get his input on some of our Formaspace applications. For example, one of the big trends in laboratory design during 2018 is the increase in demand for mobile lab solutions, which range from custom mobile maintenance and repair stations to mobile healthcare clinic and testing labs, to mobile disaster recovery & response units. We’ve also recently built custom furniture solutions for oil services companies, such as Schlumberger and National Oilwell Varco.
Directional Drilling Equipment Repair Station: A custom-made durable workstation for oil drilling equipment rehabilitation built by Formaspace for Schlumberger.
Given Michael’s extensive hands-on experience in working and managing well-site operations, we asked him to give us his top three tips for designing an efficient laboratory for use at the well site.
Michael Lewis’ Tips for Success When Managing Oil and Gas Production Sites
Tip 1: Quick Access is Key
Chairs equipped with caster rollers help busy oilfield lab workers move back and forth between the report writing station, the microscope station (to analyze core samples), and the computer monitoring station. Wheels are important, but it’s also important to be able to move quickly up and down to access equipment. Layouts need to be organized and efficient, especially when things need to be done quickly.
Formaspace responds: We also offer workstations with heavy-duty casters that give you the flexibility to reorganize your workspace on the fly.
Tip 2: Comfort is Key
Long hours are the byword in oilfield operations. Chairs need to be comfortable to accommodate long hours and very tired occupants.
Formaspace responds: For added comfort, consider height-adjustable worksurfaces, which allow you to work either at a sitting or standing position.
Tip 3: Specify Chemical and Moisture Resistant Surfaces
The oil well site environment is full of grit and grime — and moisture — due to wet core samples and inclement weather, so choose materials that are durable and resistant to damage from scratches and liquids. Also, many of the core sample tests use chemicals, such as low strength HCl (acid) or an extraction agent like lighter fluid, so choose durable, chemical-resistant countertops.
Formaspace responds: We have a complete line of material options for our heavy-duty laboratory furniture. Here is a useful chart showing different characteristics of our chemical resistant materials. For example, stainless steel furniture with phenolic resin tops would be a good combination for a mobile laboratory at an oil well site.
Your Formaspace Design Consultant can help you select the right materials to create an efficient, long-lasting lab environment.
Formaspace can help you build a custom workstation for all your laboratory needs.
The Difficulty of Pursuing Unconventional Shale Gas Plays in Eastern Europe
After his successes in the Bakken Formation, what was next for Michael Lewis?
“After several years of expanding the Bakken Play, I focused on Europe. There, I was responsible for the first shale gas wells in Europe, with four wells in Poland.”
We wanted to know, is “shale gas” the same as “natural gas”?
Michael answers yes, it’s the same. “The gas from these wells is methane, just like natural gas here. It is called ‘shale gas’ because it comes out of a very low permeability, clay-rich reservoir rock that is classified broadly as ‘shale’.”
How did these overseas oil and gas projects compare to those in the US? We wanted to know.
“Poland and Slovakia offer tremendous oil and gas potential. Not like that of the Middle East, Asia, or Russia, but is very similar to parts of North America. And managing projects outside of the US is getting much easier thanks to Facetime-type technologies, Dropbox, GoToMeeting, etc. … which give me the ability to be virtually present almost anywhere.”
But Michael goes on to explain the downsides of working in Eastern Europe.
“Eastern Europe suffers from terrible power struggles. Everything is political. So, despite the tangible benefits that we were brought directly to the people (in the form of oil and gas production, jobs, economic investment, etc.), the loud and threatening minority interests prevented our ability to function. The politicians and police are afraid to act for fear of losing their jobs and/or harm to their families.”
“As a result, after 10 years working primarily in Europe (and missing most of the boom here in the US because of that), I’m almost completely out of Europe now. I’m now working on some projects in Texas that further push the technical envelope.”
Michael Lewis’ Oil and Gas Predictions for 2019 and Beyond
1. What role do you predict that renewable energy sources will play in the energy market?
“Everyone knows that new, renewable energy sources could be better than oil and gas. But, for now, at least, oil and gas are needed to maintain our standard of living. If folks would put their fanaticism to use toward improving the efficiency of the oil and gas we have, and making renewable energy sources more efficient and cost-effective, it would be a win-win for all.”
2. Qatar has elected to quit its membership in OPEC. What effect might this have on the market?
“The Middle East is in turmoil, and oil is their biggest source of revenues. So, it seems logical that Qatar would want to be in charge of its own destiny in that market…instead of being subject to the whims of Saudi Arabia, Iraq, Iran, and the UAE. While OPEC is losing its chokehold, Russia is far more a concern. They have been very aggressive (in their attempts) to control Europe…and where have we seen that before? Several European countries are now looking to the OPEC group to replace Russian oil and gas.”
3. Oil prices were high enough over the summer of 2018 to support record domestic production, but with oil prices going down at the moment, is domestic production at risk?
“No. As with most every business, domestic production is driven by profits. With the fast pace of technological improvements, getting wells drilled, completed and producing is getting more and more efficient. There is a lot of confusion in the marketplace about this. Remember that the expensive part of a well’s life is at its “birth,” when it is drilled and equipped and put into production. Once a well is in production, the economics of keeping it producing are much more favorable (e.g. much lower cost). And, with all the capital cost of drilling, equipping, and putting into production already invested, it is incumbent on most companies to keep a well producing even with lower prices for crude oil. So, if prices drop, the pace of drilling new wells will temporarily diminish, but production will usually continue (unless the price drops super low…like $20/Barrel). Now, if the price stays low for more than about 2 years, production will start to fall off considerably, as well productivity declines normally with time…if that decline is not offset with new wells.”
4. The US exporting oil is a recent development. What do you think about this?
“I don’t see the export of oil as being in the national interest. But, it does boost the domestic oil price. With prices dropping a bit to $50, I think you’ll see drilling taper off a modest amount short term. So, 18 months out, for the reasons given above, I think we may see our exports pretty much slow to a stop.”
Formaspace would like to thank Michael Lewis for providing us with his useful insight into the oil and gas market.
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