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Fracking Financial Model

Delivered March 11th, 2020. Contributors: Vijay V., Emmanuel M., Paul B., Erica H., Clem R., Lu J. and

Part
01
of six
Part
01

Well Casing & Cementing Process Details

For each step of the "Well Casing and Cementing" operation identified in Sheet 3, Column A, Rows 4-10, of the spreadsheet, a list of key vendors has been entered in Column B, a brief step description in Column C, an operation type in Column D and a "rent vs. consume" identification in Column E. Halliburton Co. is a major vendor of all the equipment/services used in this step and claims on their website to be the only integrated provider of both cementing services and casing equipment, globally.

Set the conductor casing string

In this step, conductor casing string which is essentially a long connected section of oil pipe that provides structural support for the well, wellhead and completion equipment, is placed. Its main function is to prevent well-hole sides from caving in. This is an optional step.
  • Key vendors for this step/service include Schlumberger Ltd., Baker Hughes Co., and Halliburton Co.
  • The operation type for this stage is determined to be consumables since the primary component of this step is the consumption of conductor casing string for roughly the entire length of the well hole.
  • Accordingly, the rent vs. consume demarcation for this step is set to consume.


Set the surface casing

In this step, surface casing is placed from the surface to near the bottom of the well-hole. Surface casing comes in contact with the surface of the formations, and thus, acts as the primary protective casing.
  • Key vendors for this step/service include Schlumberger Ltd., Baker Hughes Co., and Halliburton Co.
  • The operation type for this stage is determined to be consumables since surface casing material is consumed for the entire surface of the well hole.
  • Accordingly, the rent vs. consume demarcation for this step is set to consume.


Pump the cement

In this step, cement slurry is pumped down the casing to fill the annulus, which is the space between the outside of the surface casing and the well bore.
  • Key vendors for this step/service include Schlumberger Ltd., Baker Hughes Co., and Halliburton Co.
  • The operation type for this step is determined to be consumables since cement slurry is the major material consumed here.
  • Accordingly, the rent vs. consume demarcation for this step is set to consume.

Set the intermediate casing

In this step, Intermediate casing, which is the casing string that is set after the surface casing and before the production casing to provide protection against caving of weak or abnormally pressured formations, is installed. This enables drilling fluids of different densities to be used, as necessary, for control of lower formations.
  • Key vendors for this step/service include Schlumberger Ltd., Baker Hughes Co., and Halliburton Co.
  • The operation type for this step is determined to be consumables since casing material is the major component of this step.
  • Accordingly, the rent vs. consume demarcation for this step is set to consume.

Set the production casing

In this step, Production casing, which is the casing string that is set across the reservoir interval within which the primary completion components are installed, is set.
  • Key vendors for this step/service include Schlumberger Ltd., Baker Hughes Co., and Halliburton Co.
  • The operation type for this step is determined to be consumables since casing material is the major component of this step.
  • Accordingly, the rent vs. consume demarcation for this step is set to consume.


Clean components

In this step, casing components are cleaned using mechanical, hydraulic and chemical agents.
  • Key vendors for this step/service include Schlumberger Ltd., Baker Hughes Co., Halliburton Co. and Weatherford Ltd.
  • The operation type for this step is set to "labor" since the actual cleaning operation is the key component of this step.
  • Accordingly, the rent vs. consume demarcation for this step is set to consume.

Filter completion fluids

In this step completion fluid the solid-free liquid used to "complete" an oil/gas well is filtered to between 2 and 10 microns to prevent the formation of down hole contamination.
  • Key vendors for this step/service include Schlumberger Ltd., Baker Hughes Co., Halliburton Co. and Weatherford Ltd.
  • The operation type for this step is set to "consumables" since the actual filters and associated material are the key component of this step.
  • Accordingly, the rent vs. consume demarcation for this step is set to consume.


Part
02
of six
Part
02

Well Casing & Cementing Process Execution Time

The time duration for the well casing and cementing stages have been entered into the spreadsheet in rows 4-10 of "sheet 3". Although the time ranges are given, each setting process can be allowed to set until it attains a certain compressive strength.

Duration of Time Taken to Set the Conductor Casing String

Duration of Time Taken to Set the Surface Casing


Duration of Time Taken to Pump the Cement

  • Cement slurry pumped into the well is usually allowed to set for 12 to 24 hours.
  • It can also be left to set until a compressive strength of 5000 psi is attained.

Duration of Time Taken to Set the Intermediate Casing

  • It takes a minimum of 8 hours to set the intermediate casing.
  • The casing could also be left to set until it attains a minimum compressive strength of 300 psi or 800 psi after 24 hours and 72 hours respectively.

Duration of Time Taken to Set the Production Casing


Duration of Time Taken to Filter Completion Fluids

  • The completion fluids are made to flow through the filtration material or equipment for about 24 hours.


RESEARCH STRATEGY

After an extensive search through research articles and publications on academic and research databases for the duration of time required to complete casing cleaning operations, we could not locate this piece of information. We were made to understand that the duration for cleaning operations varied based on the waste substances to be removed which could be the reason why locating the definite time estimate was difficult.

Then, we carefully looked through publications on government databases and industry standards. This provided the duration for the filtration of completion fluids. Although we weren't able to ascertain the date of these sources, we assumed that the information was quite current since the publications were from constantly updated industry and government standards. However, we were still unable to find out the duration of the time required to complete casing cleaning operations.

Finally, we looked through patents on innovations in these areas hoping to find information on the industry standards guiding the time duration. The time duration for the casing cleaning operations found through this strategy was on patents published more than 20 years ago. Due to the changes in technology over the decades, new cleaning systems have been produced that take less time to use. Therefore, we resorted to looking for casing cleaning jobs completed in the oil and gas industry hoping to find a statement on the time taken for their completion. We also looked for articles on reliable news outlets, industry and expert sites and blogs amongst others for the current time duration for the task based on improvements in technology. All these strategies proved futile probably because, the materials used in cleaning influence the time duration of the operation.

Part
03
of six
Part
03

Well Casing & Cementing Process Cost Range


The price range for well casing and the cementing process varies by job. Most estimates combine the price as is the case for casing, which combines the cost for conductor casing string, surface casing, internal casing, and production casing. All the information has been included in the attached spreadsheet.



  • Filter completion fluids and cleaning components cost approximately $300,000 to $1,200,000. These costs represent 5-19% of a well's total construction cost. Companies provide several cleaning services for fracking casing.

Research Strategy

We mainly searched through investor, construction, and environmental reports. Unfortunately, we were not able to find the cost of the individual components of the well casings, filter completion fluids, and cleaning components due to the variation of job sizes. Moreover, the majority of the costs we did find combined several categories into one. As such, we have included all the available information on cost we could find. It is also important to note that the overall cost of a new fracking rig costs more offshore than onshore.


Part
04
of six
Part
04

Completions & Hydraulic Fracturing Process Details

 Baker Hughes Co. is one of the key players in the hydraulic fracturing market, offering services in almost all the fracking stages provided in the request. Based on calculations in the perforating gun market, North America is currently one of the largest markets exploring new production of wells. Globally, the perforation gun market is expected to grow at a CAGR of 5% through 2025. All the information has been included in the attached spreadsheet.

Key Vendors

Item or Service Description

Operation Type

  • Create Perforations: Labor
  • Perforation Systems: Equipment
  • Gun Size: Equipment
  • Lowering Procedure: Labor
  • Penetration: Labor
  • Pack Gravel: Labor
  • Set up Collection Tanks: Equipment
  • High Pressure Injection: Consumables
  • Collect flow back fluid: Consumables

For cost to be considered rent or consumable, a note was added to column H for all labor operation types. Cost for this stage could be considered rent or consumable, depending on the cost of labor weighed against the cost of supplies. For Packing Gravel, the cost type was determined to be consumable based on the amount of purchased product along with the labor, although this could be changed depending on further research into the cost of the product versus the cost of the labor.

Part
05
of six
Part
05

Completions & Hydraulic Fracturing Process Execution Time

The duration of each fracking stage was virtually unavailable as the main topic of discussion are the processes with disregard to the timeline it takes to complete each stage. Except in cases where the entire duration of a complete process of a stage is specified, only then was the duration readily available. In the case of creating perforations, there was no need to make estimates. The complete findings can be found in the attached spreadsheet.

Create Perforations

  • To create perforations, some 10 x 4 to 10 x 5 holes per second can be produced. Only a few microseconds are required in the perforation process.

Perforation Systems

  • It would ordinarily take roughly a week of working round the clock to complete hydraulic fracturing operations.

Lowering Procedure

  • It takes about a week for the entire process to be carried out.

Set up Collection Tanks

  • According to the Greeley Tribune, it should take 10-14 days.

High-Pressure Injection

  • The high-pressure injection could take 3-4 days to complete.

Research Strategy

To determine the time it takes to complete each stage of the completions & hydraulic fracturing fracking process, we approached scientific reports and studies relating to oil and gas extraction industries, as well as industry reports identifying the highlighted duration. We found that this information on the duration or timeline that is required for the outlined processes were not easily available since the entire processes of the fracking stages is what was dwelt upon. This posed a challenge for us but we had to include the estimate of the entire well casting and cementing process so as not to highlight an assumption that isn't stipulated in our sources. For the lowering process, since the perforation creation process takes some seconds to achieve, we could only assume that this process shouldn't be more than a few minutes before the perforation gun is applied. This would depend on how many holes are available.

It suffices to say that most of our duration or time are estimates as there was no exact time or duration for most of the outlined processes. It should be noted that for each of the days and weeks provided in the findings, we calculated them into hours as per the request in the spreadsheet. Full information on the request can be found in the populated spreadsheet.
Part
06
of six
Part
06

Completions & Hydraulic Fracturing Process Cost Range

Cost range for each stage of the completions & hydraulic fracturing fracking process, including creating perforations, perforation systems, gun size, lowering procedure, penetration, packing gravel, setting up collection tanks, high pressure injection, and the collection of flow back fluid, have been compiled in rows 15-23 of "SHEET 3" of the attached spreadsheet. 

Completions & Hydraulic Fracturing Process Cost Range

  • Creating perforations costs between $30 and $40 per barrel. 
  • Perforation systems, on average, cost $600,000 when it comes to hydraulic fracturing.
  • Gun costs, which include the total perforating gun fracking that entails gun size, lowering procedure, and penetration, are estimated to be between $200,000 and $600,000. 
  • Pack gravel costs $25 per tonne. 
  • Collection tanks cost $10,000 for 500 barrels (this includes the last step of collecting flow back fluid as well).
  • High pressure injections cost $8 per barrel.


Sources
Sources
From Part 01
h

Casing Equipment Handbook

halliburton.com

Oilfield Service - Halliburton

halliburton.com

Casing Equipment

halliburton.com
Quotes
  • "only oilfield services provider to offer both cementing services and casing equipment globally"

Definition of Conductor Casing - IADC Lexicon

iadclexicon.org
Publication Year: 2017

What is Surface Casing? - Definition from Petropedia

petropedia.com

casing string - Schlumberger Oilfield Glossary

glossary.oilfield.slb.com

wellbore - Schlumberger Oilfield Glossary

glossary.oilfield.slb.com

intermediate casing - Schlumberger Oilfield Glossary

glossary.oilfield.slb.com

production casing - Schlumberger Oilfield Glossary

glossary.oilfield.slb.com

Casing Cleaning Tools

halliburton.com

completion fluid - Schlumberger Oilfield Glossary

glossary.oilfield.slb.com

Completion fluids filtration will clean up contamination in any size

dutchfiltration.com
Publication Year: 2020
w

Weatherford Website

weatherford.com
From Part 02

Fracking Spreadsheet

docs.google.com
Publication Year: 2020
c

317. GENERAL DRILLING RULES

cogcc.state.co.us
Quotes
  • "Cement placed behind the surface and intermediate casing shall be allowed to set a minimum of eight (8) hours, or until three hundred (300) psi calculated compressive strength is developed, whichever occurs first, prior to commencing drilling operations."
  • "Cement placed behind the production casing shall be allowed to set seventy-two (72) hours, or until eight hundred (800) psi calculated compressive strength is developed, whichever occurs first, prior to the undertaking of any completion operation. "
p

Casing and Cementing Requirements

pubsaskdev.blob.core.windows.net
Publication Year: 2018
Quotes
  • "Production casing is required to be cemented by the pump and plug method, the displacement method or any other approved method, and the cement must be set for at least 24 hours and properly tested by the pressure method before the plug is drilled out or the well perforated. "

cement - Schlumberger Oilfield Glossary

glossary.oilfield.slb.com
Publication Year: 2020
Quotes
  • "Additionally, special additives are often used to reduce the occurrence of annular gas flow. The cement slurry, commonly formed by mixing Portland cement, water and assorted dry and liquid additives, is pumped into place and allowed to solidify (typically for 12 to 24 hours) before additional drilling activity can resume. "
h

Completion Fluids

halliburton.com
From Part 03

Oil Economics - How Much Does An Oil And Gas Well Cost?

seekingalpha.com
Publication Year: 2017

Here are the five biggest costs for a frac job | Drilling & Completions | JWN Energy

jwnenergy.com
Publication Year: 2016
w

Wellbore Cleaning Services

weatherford.com
Publication Year: 2016

Specific cost breakdown onshore exploration wells - Drilling Operations

netwasgroup.us
Publication Year: 2020

Fracking

docs.google.com
From Part 04

PIOGA - Hydraulic Fracturing (Fracking) Process

pioga.org
Publication Year: 2020
Quotes
  • "A device known as a perforating gun is first lowered into the well to a designated location in the shale, and a charge is fired down the well from a wire at ground surface to perforate the steel casing, cement and the shale formation. This perforation stage creates small cracks, or fractures, in the rock."
  • "A mixture of water, sand and chemicals is then injected into the wellbore under high pressure. The sand holds open the cracks in the rock to allow the well to produce natural gas. Water and sand make up about 99.5 percent of the fluid injected into the well, and the chemicals used in the process – both small in number and dilute in concentration – can be found in many household items."
  • "Once the first producing zone of the well has been perforated and stimulated, a rubber plug is placed near it to isolate that area from the rest of the horizontal wellbore. The perforation and stimulation processes then continue multiple times along the length of the formation to make the well as productive as possible. A drill bit is lowered into the well after the process is completed to drill out the rubber plugs and allow gas to flow to the surface."
  • "At the completion of the stimulation process, approximately 20-30 percent of the water flows back up the wellbore, where it is collected and held in metal tanks, and then recycled in a subsequent well completion operation."

Perforating Gun Market | Growth, Trends, and Forecast (2020 - 2025)

mordorintelligence.com
Publication Year: 2019
Quotes
  • "The global perforating gun market is expected to grow at a CAGR of approximately 5% during the forecast period 2020-2025. Factors such as rise in oil & gas drilling activities across the globe, rising shale prospective and technological developments in perforating gun systems are expected to drive the perforating gun market in the coming years. Moreover, rising complexity of reservoir conditions, which, in turn, boost demand for perforating gun and is expected to further propel growth of the target market over the forecast period."
  • "North America is one of the largest markets for perforating gun, led by the United States mainly due to increased exploration and production activities in its tight oil and shale reserves."
  • "The perforating gun market is fragmented. Some of the key players in this market include Baker Hughes Co., Schlumberger Ltd., Weatherford International Ltd., G&H Diversified Manufacturing, LP., Dmc Global Inc., National Oilwell Varco Inc., Halliburton Company, Hunting PLC. "

Perforating

bhge.com
Quotes
  • "Perforating is more than just putting a hole into a pipe. We engineer and build perforating systems that perform at the optimal level you expect, every time. We design our gun systems based on your unique application requirements: natural completions, frac completions, or sand-control completions."
  • "We were the first company to perforate an oil well nearly 80 years ago. Our experience has proven that critical parameters of a perforating gun’s design or performance can have positive or negative effects on the perforated completion. We know the risks and how to mitigate them; we can model the best approach to completing your well—whether through wireline, slickline, coiled-tubing conveyed, or tubing-conveyed perforating (which is ideal for perforating long intervals in any environment with excellent cleanup)."

Gravel Pack - an overview | ScienceDirect Topics

sciencedirect.com
Quotes
  • "The casing gravel pack completion procedure includes drilling through the oil reservoir to design depth, running production casing to the bottom of the oil reservoir, cementing, and then perforating the oil reservoir. During perforating, a high perforation density (30–40 perforations/m) and a large perforation diameter (20–25.4 mm) are required in order to increase flow area. "

Gravel Packing - Earthworks

earthworks.org
Publication Year: 2020
Quotes
  • "Gravel packing is a sand-control method used to prevent the production of formation sand. Gravel packing is used in conjunction with hydraulic fracturing, but at much lower pressures. Formation sand is produced from the breakdown of formations where wells are located. This occurs particularly in formations made of sandstone, limestone, and other similar types of rock. The main goal of gravel packing is to stabilize the formation and maintain well productivity."
  • "During this operation, a steel screen is placed in the well – the well is then packed with gravel of a specific size to prevent the passage of formation sand. The operation requires slurry of properly sized gravel, water, and various chemicals, to be pumped between a slotted liner of the casing and the wellbore. The wire liner and gravel work together to prevent sand from entering the well stream."
  • "Gravel packing as a well stimulation technique, also known as “frac packs,” was first used in the Gulf of Mexico in the early 1980s. The process involves simultaneous fracking and the placement of a gravel pack. The fracture is created using a high-viscosity fluid, to boost production rates, and prevent formation sand from being produced, while the associated screens stop the gravel from entering the produced fluids."

Gravel Pack and Frac-Pack Sand Control Systems

superiorenergy.com
Quotes
  • "Superior offers ComPlete™ systems for a standard stack-pack, as a single-trip in multi-zone, or in ultra-deepwater completions. Our long-established field proven tools, coupled with decades of experience and expertise, provide a range of options to help you get the most out of your production."

Water Storage Tanks | Plastic Water Tanks l National Storage Tank

nationalstoragetank.com
Quotes
  • "National Storage Tank, one of the nation’s largest storage tank dealers. Nobody beats the NST warranty, manufacturing quality or professional installation ability. With extensive experience in the storage tank business, our reputation precedes us because the client ALWAYS comes first."
  • "Every storage tank project is unique and requires careful attention to the detailed requirements of the client and engineering specifications. NST is pleased to announce that because of this lengthy history of successful business operations and happy customers, NST was recently selected as the exclusive National Dealer of the popular SteelCore line of Corrugated Bolted Steel Tanks."
  • "National Storage Tank offers the largest selection of tanks in the world, thirteen styles of tanks, hundreds of variations, and all from one seasoned and experienced water storage professional team. We are here to assist you in choosing just the right tank in terms of usage, location, and budget for your project. Our consultants are knowledgeable, good listeners and excellent advisors able to recommend the proper course for you to follow for even the most difficult project."
w

Worthington Industries: Storage That's Built to Last

worthingtonindustries.com
Quotes
  • "Few companies in the world have achieved our level of tank manufacturing expertise. We processed more than 6,000,000 tons of steel in 2016. The QA/QC processes and protocols we've developed over the years, and the state-of-the-art technology which we've invested, have made us among the industry's most trusted. The means tight welds, rigorous testing (including hydro-testing) and easy battery installation every time."
  • "Operators also love Worthington Industries storage solutions because of the flexibility and wide range of options we provide. From custom interior coatings to remote monitoring options, fittings, stairways/walkways, sandblast, custom colors and more. We also offer field installation and support to ensure field storage performance."

Fracking

docs.google.com
From Part 05

Fracking

docs.google.com
Publication Year: 2020

Perforation - an overview | ScienceDirect Topics

sciencedirect.com
Publication Year: 2020
Quotes
  • "By EB perforation 10 raised to power 4 to 10 raised to power 5 holes per second can be produced which is economically acceptable. Hence, single pulses with few microseconds are needed for perforation. "

PIOGA - Hydraulic Fracturing (Fracking) Process

pioga.org
Publication Year: 2020
Quotes
  • "It typically takes about a week of round-the clock activity to complete a hydraulic fracturing operation, at which point the equipment is removed to allow the well to enter the final completion and production stage. "

Perforating

bhge.com
Publication Year: 2020

Fracking 101: Breaking down the most important part of today’s oil, gas drilling | GreeleyTribune.com

greeleytribune.com
Publication Year: 2018
Quotes
  • "Fracking takes about two to three days in what is roughly a 10- to 14-day process of drilling and completing a well"

How long does fracking take? | oilandgasinfo.ca

oilandgasinfo.ca
Publication Year: 2020
Quotes
  • "Fracking is a process where fluid is injected into a deep oil or gas bearing formation at a high pressure to create and prop open cracks in the rock to allow oil or natural gas to flow to the surface."

Fracking Explained | oilandgasinfo.ca

oilandgasinfo.ca
Publication Year: 2020
From Part 06

Fracking

docs.google.com

The Cost of Shale Oil vs. Conventional Oil

investopedia.com
Publication Year: 2019

Perforating System Reduces P&A Costs

aogr.com
Publication Year: 2020

Hydraulic Fracturing in Unconventional Reservoirs

books.google.com

Demand for Frac Sand and Concrete Drives Scarcity

investopedia.com
Publication Year: 2019

Demand for Frac Sand and Concrete Drives Scarcity

investopedia.com
Publication Year: 2019