Fracking Model, Part 2

Part
01
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Part
01

Drilling Process Details

Details about each of the drilling fracking stages identified in the previous request have been entered in rows 27 – 30 of this attached spreadsheet. Below is a summary of the findings.

Overview



Part
02
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Part
02

Drilling Process Execution Time

It takes approximately 28 days to complete the drilling process. A complete breakdown of the time required to complete each stage has been provided in the attached spreadsheet. Additionally, a summary of the findings has been provided below.

Surface Hole Drilling

  • Surface hole drilling is expected to end after seven days since the time the drilling began.
  • 168 hours are required to complete this stage.

Surface Casing and Cementing

  • Surface casing and cementing of the initial hole is expected to end after nine days since drilling began.
  • 48 hours are required to complete this stage.

Vertical and Horizontal Drilling

  • Vertical and horizontal drilling is expected to end after 16 days since the drilling began.
  • 168 hours are required to complete this stage.

Production Casing

  • Production casing is expected to end after 28 days since surface hole drilling began.
  • 288 days is the approximated time for the drilling process.

Research Strategy

To provide the approximated number of hours needed to complete each stage of the drilling process, the research team used a drilling animation video produced by Chesapeake Energy. The animation video had time stamps for when each stage was completed. The time was given in days in the video and therefore had to be converted to hours. Furthermore, the time stamps were for when each stage was completed. The team, therefore, had to subtract the end time for one stage from the end time of the next stage to get the actual approximated time for each stage. It is, however, prudent to note that during the drilling process, the rig is in constant operation for the whole 24 hours in a day.

Triangulation

Surface Case Drilling
  • Hours required to complete stage = 7 days * 24 hours =168 hours
Surface Casing and Cementing
  • Days required to complete stage = 9 days — 7 days = 2 days
  • Hours required to complete stage = 2 days * 24 hours = 48 hours
Vertical and Horizontal Drilling
  • Days required to complete stage = 16 days — 9 days = 7 days
  • Hours required to complete stage = 7 days * 24 hours = 168 hours
Production Casing
  • Days required to complete stage = 28 days — 16 days = 12 days
  • Hours required to complete stage = 12 days * 24 hours = 288 hours



Part
03
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Part
03

Drilling Process Cost Range

Drilling comprises 15% of the total fracking well costs while casing and cementing comprise 11%. It is estimated that the cost of the surface hole drilling is around $0.6 million. The cost of surface casing and cementing can range from $0.6 million to $1.2 million. Vertical drilling costs $0.7 million on average while horizontal drilling is more expensive, at $1,2 million. All our findings have been entered in the attached spreadsheet.

Average Cost Breakdown

  • According to a study released by the University of Pittsburgh, a single well has direct costs of more than $7.6 million. In addition, based on a survey of operators, total cost per well ranges from $5.5 million to $9.5 million.
  • Based on a US Energy Information Administration (EIA) report, drilling comprises 15% of the total fracking well costs, which means that it ranges between $0.8 and $1.4 million (15% x $5.5 million or $9.5 million).
  • In addition, according to a trade press source, rig related costs can range from $0.9 million to $1.3 million. The final cost depends on various factors such as drilling efficiency, well depths, rig day rates, mud use, and diesel fuel rates.
  • Based on data found on trade press, in 2017 Lilis Energy had hired a contractor to drill two wells costing them a total of $2.2 million.
  • Considering that vertical drilling costs $0.7 million, we estimated that surface hole drilling should cost around $0.6 million, with horizontal drilling costing $1.2 million.
  •  According to an EIA report, well casing and cementing make up 11% of total drilling costs. In addition, based on information found on trade press, casing costs can range from $0.6 million to $1.2 million, which makes up 9 -15% of a well’s total cost.


Research Strategy

Using data that was published by the University of Pittsburghand and information from the survey that took place at the Eagle Ford Region, we were able to confirm the total cost of fracking well drilling. We were also able to estimate the cost of surface hole drilling (total drilling $1.3 million - vertical drilling $0.7 million). However, we were not able to find any information regarding the cost of production casing.


Part
04
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Part
04

After Production Process Details

Details for the after production processes can be found on the attached spreadsheet. A summary with company names is below.

Flaring / Venting

Installation of Wellheads

Use of Storage Tanks / Impoundment


Part
05
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Part
05

After Production Process Execution Time

Flaring can take up to several weeks during pre-production, depending on the conditions of the well, and continues as long as the well is active, typically 15-30 years, during production. Installation of wellheads, on the other hand, takes 24-48 hours, while the time for the development or deployment of impoundment ponds and tanks varies, based on the oil producer's needs. Details about these processes have been provided in the attached spreadsheet and below is a summary of the findings.

Flaring

  • Flaring is the controlled burning of natural gas. It's an important safety mechanism at gas processing plants. If equipment becomes over-pressured due to a buildup of natural gas, release valves automatically release excess natural gas.
  • During pre-production, flaring is used to determine the pressure, flow, and composition of the oil. This "temporary flaring" typically takes up to several weeks.
  • Wells are typically productive 15-30 years but in some cases, production can last for 50 years or longer, in the case of very large reservoirs.
  • Many oil companies are reducing flaring, and instead producing natural gas to meet the demand for natural gas in less developed countries.

Wellhead Installation

  • The main function of a wellhead is to provide pressure control of a production well. It's installed on the top of a gas well and its system is composed of valves, spools, and adapters.
  • Typically, it takes 24-48 hours to install a wellhead. This includes time for the cement to set, setting up slips and trimming casing.
  • In a cost breakdown by Netwas Group Oil, it was estimated that the cost of installing a wellhead is $26,000. In their estimation, that amount accounted for 4.2% of the total cost of a small scale well construction project.
  • Accordingly, the U.S. Energy Information Administration reported that onshore wells typically cost between $4,900,000 and $8,300,000.

Storage Tanks/Impoundment

  • Storage tanks, or surface impoundments, are used to store waste water from fracking production until treatment or disposal. In some cases, oil companies use surface storage tanks and pits to temporarily store waste water for reuse.
  • Waste water from fracking is subject to Subtitle D of the Resource Conservation and Recovery Act (RCRA). Additionally, many state governments have created specific regulations for the treatment of production wastes.
  • Oil production companies have created Surface User Agreements with individual land owners. These contracts allow an oil company to install water impoundment ponds on their property. This can allow gas companies to reduce costs because it reduces travel time to waste water treatment facilities. It can also reduce the amount of heavy machinery on the road and the associated wear and tear.
  • Some surface owners have complained that it has not been easy to find out what chemicals are being used because oil and gas companies have declined to reveal this information, citing that the chemical composition is proprietary information.
Part
06
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Part
06

After Production Process Cost Range

The cost of drilling a wellhead ranges from $6,000 to 20,000. Details regarding the cost range for each stage of the after production fracking process as outlined in the previous request has been entered in rows 34-36 of the attached spreadsheet.

KEYFINDINGS

  • Flaring can cost approximately $3000 depending on experience of a partner. They typically range from $1,000 to $5,000.
  • The cost of drilling a wellhead ranges from $6,000 ( 13 5/8" x 3M Casing Head Housing) to $20,000 (11" Master Valve 20000).



Part
07
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Part
07

Waste Disposal Process Details

The waste from the fracking process is stored and/or disposed of in pits, tanks, land application and other methods. Those methods include landfills that are offsite and other treatment and disposal facilities and recycling. Information about these findings, including some vendors, are included in this spreadsheet in Sheet 3, columns B-E, rows 40-45.

Details Of The Waste Disposal Fracking Stages

  • Pits are used to temporarily store waste or to ultimately dispose of the waste.
  • Tanks are used to both separate waste and store waste before it's ready for transport.
  • Land application means that the waste is deposited on surface soils.
  • Landfills are similar, however, they are used to dispose of waste.
  • Other treatment and disposal facilities can be used for waste that isn't permanently disposed of on land.
  • Recycling in this industry typically means the reuse of wastewater.

Part
08
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Part
08

Waste Disposal Process Execution Time

The process execution time for the various methods of fracking waste disposal are presented in sheet 3, column F, rows 40-45 of the attached spreadsheet. The various waste disposal methods are storing and/or disposal in pits, tanks, land application (i.e., land treatment or land farming), and offsite landfills. There are also other treatment and disposal methods and wastewater recycling. A brief overview of the process execution time for each method is presented below. Other data of the spreadsheet are presented in previous or subsequent research reports.

Pits

  • The United States Environmental Protection Agency has identified three broad types of pits: reserve pits, production pits, and special purpose pits.
  • The installation time of pits varies from a few weeks to a few months depending on the area of excavation of the pit. Reserve pits are temporary and store wastes generated during well installation. They last between 6 to 15 months. Production pits are permanent and store wastes generated during well production. They last for the entire life cycle of the fracking operation, i.e., between 15 to 50 years. Special purpose pits are emptied as soon as their use is finished.

Tanks

  • Steel tanks for fracking waste disposal have to be manufactured and tested as per the most stringent standards, owing to the environmental considerations for storing fracking wastes. A typical steel tank manufacturing flowchart can be accessed vide this link. Hence, the manufacturing time for tanks varies from one tank manufacturer to another.
  • Fracking waste disposal tanks may corrode and start to leak. Thus, they are replaced periodically upon maintenance. Tanks are a part of tank batteries that run for the life cycle of the well production process, i.e., 15 to 50 years.

Land Application (i.e., Land Treatment or Land Farming)

  • Land application can occur onsite, i.e., around the well, or offsite, i.e., at private land or state-permitted facilities.
  • Onsite land applications occur once and are limited to cuttings that are drilled with water-based fluids. Offsite land applications occur multiple times and deal with several types of wastes. Both land applications typically last as long as the well is in operation, i.e., between 15 to 50 years.

Landfills (Offsite)

  • The United States Environmental Protection Agency allows only non-hazardous fracking wastes to be disposed of in offsite landfills.
  • Once started, offsite landfills typically operate as long as the well is in operation, i.e., between 15 to 50 years.

Treatment and Disposal Facilities

  • Treatment facilities include wastewater treatment and crude oil reclamation. Disposal facilities include underground injection, evaporation, and percolation. These facilities may include pits and tanks.
  • Once started, these facilities typically operate as long as the well is in operation, i.e., between 15 to 50 years.

Recycling or Reuse of Wastewater

  • Wastewater recycling or reuse is a closed-loop system.
  • It takes several weeks to months to install the wastewater recycling system. Once the system is running, it operates as long as the well is in operation, i.e., between 15 to 50 years.

Research Strategy

We started our research trying to find publicly available information for the exact process execution time (in hours) for the various methods of fracking waste disposal. However, our extensive research indicated that such data is not publicly available. This is because there is no clear consensus among the different states of the United States of America regarding a common ground for fracking waste disposal, and the companies that conduct fracking operations in these states have their own standards and data, which vary from one to the other. Typically, fracking wells can operate in the range of 15 to 50 years, and since waste disposal constitutes an integral part of the fracking process as per the stringent guidelines of the United States Environmental Protection Agency, the various waste disposal methods normally last as long as the well production process is in operation. We found a few reports of the United States Environmental Protection Agency to corroborate our findings.
Part
09
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Part
09

Waste Disposal Process Cost Range

The cost range for the disposal of waste depends on what exactly is being disposed of, whether it is contaminated, solid or produced water. In the fracking process, 20-40% of the fluid used in fracking flows back as produced water. This is most commonly disposed of via trucking to offsite underground disposal wells, recycled, or stored in a pit for closed-loop reuse. All of these disposal processes have different costs, benefits and possible upfront investments that must be considered on a per-project basis for the appropriate economic fit. This information is detailed in sheet 3, rows 40-45 of the attached spreadsheet.

Construction Pits

  • The cost range for the construction of pits is based on the size of the pit and the type of pit needed: reserve pit, production pit or special purpose. A production pit is meant to store waste for the life of the well and requires specialized liners such as the geomembrane liner. The geomembrane liner carries a warranty for oil containment.
  • When constructing reserve or temporary pits, standard or oil-resistant PVC liners can be used. According to a study by the Seaman Corporation, the material and installation cost for different liners and their lifespan can vary from approximately $0.90 — $1.30 per square foot.

Tank

Land Application

  • Land application costs vary widely depending on the state and the type of contaminants. According to an Argonne National Laboratory study, the prices in New Mexico (which has the highest number of facilities) fluctuated between $10-$57.14 per cubic yard for contaminated soils, $17-$85.71 per cubic yard for oil and water-based muds and cuttings, $5.12-$18 / bbl for produced water, and $18-$85.71 per cubic yard for tank bottoms.
  • In the same study, Argonne National Laboratory outlined the cost of using landfills for water-based muds and cuttings, where the waste must be 10% or more solids. The costs are $0.50-$22.00 per barrel, $7.50-$85.70 per cubic yard, and $2.50-$900 per ton.

Water

  • Water management and conservation have become an important focus for the fracking industry with companies like Newfield spending over $40,000,000 in water management infrastructure in their Oklahoma STACK play.

Closed-Loop Systems

  • Closed-loop systems, contrary to membrane-based recycling systems which are more expensive and prohibited from scaling to high volumes, can prove to be more economical depending on the drilling program.
  • Devon created a closed-loop system in its Cana play where some of its wells have been fracked with 100% recycled water.
  • In the first nine months of its operations, 4.2 million barrels of water was recycled and the cost of purchasing freshwater was reduced.
  • In the first 3 months, it eliminated 7,400 truckloads of water disposal.
  • The company saved $1,110,000 in disposal fees (= 7,400 truckloads * 150 barrels per truck * $1.00 per barrel).
  • Devon's operations engineering manager, Jim Heinze said, "If an operator has concentrated drilling and the regulatory environment is conducive, it makes a lot of sense to put in this type of system. It is a win-win for everyone involved: regulators, farmers, ranchers and operators."
Sources
Sources

From Part 03
Quotes
  • "Based on a survey of operators in the region, drilling & completion cost per well are ranging from $5.5 to $9.5 million. The wide variation for drilling costs is dependant on such factors as the well's targeted depth, lateral lengths, number of laterals, and the number of frac stages deployed. Below we have provided a summarized estimate of both drilling and completion costs in the region."
  • "Sub-total for drilling is $2,385,000"
Quotes
  • "The company recently hired a contractor to drill two wells at a cost of $13,900 per day per rig. Two months later, CEO Avi Mirman said Lilis couldn’t contract a rig for less than $16,000 a day. And drilling a well is just half of the equation. Permian operators like Lilis must also to pay for hydraulic fracturing, or injecting water, minerals and chemicals at high pressure into wells to break up shale rock and release oil. When Lilis solicited bids to frack wells recently, quotes rolled in at about $2.2 million."
Quotes
  • "Rig related costs can range from $0.9 million to $1.3 million making up 12–19 per cent of a well’s total cost"
  • "Operators may also choose to run several casing strings to total depth or run a liner in lieu of the final casing string. Casing costs can range from $0.6 million to $1.2 million, making up 9–15 per cent of a well’s total cost."
Quotes
  • "A typical well will have conductor, surface, intermediate, production casing and tubing totaling tens of thousands of feet for a single well bore. For a horizontal well casing, pipe and tubing cost can quickly exceed $750,000."
  • "Gas wells and sometimes oil wells need to be connected to a pipeline network in order to get the product to market. For most wells, nearness to gas pipelines are one of the most important considerations. In addition to the the physical pipe and dirt work needed to construct the pipeline, the easements that must be attained from every property owner in which the line will cross are also a major expense. This process for the initial well on a drilling site can take several months to complete. These cost are directly related to the length of pipeline that is needed. In some cases pipeline connecting may only cost $75,000 but others it may exceed $1,000,000. "
Quotes
  • "The costs to drill a well break down this way: Land acquisition and leasing: $2.1 million Permitting: $10,000 Vertical drilling: $663,000 Horizontal drilling: $1.2 million Hydraulic fracturing: $2.5 million Completion: $200,000 Production to gathering: $472,000"
Quotes
  • "Rig and drilling fluids costs make up 15% of total costs, and include expenses incurred in overall drilling activity, driven by larger market conditions and the time required to drill the total well depth. Casing and cement costs total 11% of total costs, and relate to casing design required by local well conditions and the cost of materials. Frac Pumps, Equipment costs make up 24% of total costs, including the costs of equipment and horsepower required for the specific treatment. Proppant costs make up an average of 14% of total costs and include the amount and rates for the particular type of material introduced as proppant in the well. Completion fluids, flow back costs make up 12% of total costs, and include sourcing and disposal of the water and other materials used in hydraulic fracturing and other treatments that are dependent on geology and play location as well as available sources. "
From Part 06
Quotes
  • " Costs for a flare are estimated to be $3,000 based on partner experiences (which vary significantly and are often between $1,000 and $5,000). "
Quotes
  • "Operators typically include the first 30–60 days of tank usage in their capital costs. These costs can range from $0.3 million to $1.2 million making up 5–19 percent of well’s total cost. "
From Part 09