The last barrel

It started in 1859, with Edwin Drake in Titusville, Pa., and spread like wildfire to other parts of the U.S. An incredible entrepreneurial flame, fanned by winds from a democratic system, encouraged wildcatters to invest capital and sink wells in search of elusive hydrocarbon riches. In 1865, commercial oil production was discovered in Humboldt County, southern California, and in 1870, John D. Rockefeller formed Standard Oil of Ohio. In January 1901, Spindletop was discovered when Anthony Lucas drilled a well near Beaumont, Texas, that tapped an oil-charged formation that blew six tons of 4-in. drill pipe over the crown block, to the delight of the well’s owners (most likely).

When these risk-takers were successful, they profited from their ideas and good fortune, without excessive interference from the government or regulatory bodies. That was yesterday, and the good-old-days are gone, right? Well, despite increased regulations and pressure from enviro-groups, the industrious spirt that defined the U.S. oil industry at the turn of the century is very much alive and flourishing.

Rumpelstiltskin. The Permian basin contains billions of bbl of high-quality crude, but the surface is a barren wasteland filled with tons of worthless sand, right? Wrong! A perfect example of entrepreneurial fortitude is taking place on the windswept dunes of the West Texas plains. The money-multiplying effect of the Permian boom is fueling the emergence of mining operations that rival the original U.S. frac sand operations in northwestern Wisconsin. In the last 12-months, a multitude of mines have been built near Monahans, Texas (RR Dist. 8). The first one was constructed by Hi-Crush Partners in July 2017, and 10 more immediately followed. Another 10 are in the planning/construction stage (Bloomberg).

The location of the Hi-Crush mine (et al.) enables proppant to be trucked to the well site rather than transported by rail. This significantly reduces costs and logistical complexities for E&P and service companies. In addition to the company’s full-scale facility at Kermit, they operate transload facilities near Pecos, Odessa and Big Spring, and can service up to 95% of proppant consumption within a 75-mi radius. The Kermit facility has a capacity of 3 MMtons of sand/year. However, West Texas sand is not as well-rounded as its Wisconsin cousin, but it’s much cheaper. Shipping costs from Wisconsin come to around $90/ton. That’s triple the $25 that it costs to truck in the Texas sand.

Too much sand! With 11 mines operating and another 10 planned, the risk of overproduction is a legitimate concern. Although officials at the local mining companies are not overly alarmed, industry analysts suggest over-expansion is a major risk, even if the frac sand market remains strong. “Although things look great today, we can’t assume this is going to last,” said Joseph Triepke, an analyst at Infill Thinking. “Look at all this capacity.”

Boomtown (for now). Together, these new operations are expected to mine and ship about 22 MMtons of sand in 2018 to drillers in the Permian basin. This immense volume equals 25% of total U.S. supply. And industry experts say the figure could climb to over 50 million tons in roughly two years. At today’s price of $80/ton, these 11 mines should generate about $2 billion in 2018.

Utah oil sands. Oil seeps and surface shows have attracted wildcatters and businessmen to areas that eventually were developed into prolific oil-producing regions. This familiar scenario is unfolding in the Uinta basin, 60 mi south of Vernal, where Petroteq Energy has developed an innovative process to extract commercial quantities of crude from the area’s oil-bearing sands. Although several companies have tried to squeeze crude from Utah’s vast oil sand deposits, none have had commercial success (Bloomberg).

Petroteq’s extraction procedure was developed by Ukrainian chemist Vladimir Podlipskiy, the company’s chief technology officer. The process starts when small chunks of oil-bearing sand, mined at the surface, are fed into a vertical centrifuge loaded with a proprietary blend of solvents. As the solids fall out of the mixture, the liquid is heated and the solvents evaporate while the oil is piped out. The chemical vapor is condensed and run back through the process. According to Petroteq President Jerry Bailey, “our extraction system uses no water and recovers/recycles 99% of our proprietary solvent.” This virtually eliminates environmental concerns about water requirements and large, toxic tailing ponds that are typical of other oil sands operations. Petroteq said it’s targeting a break-even cost of $30/bbl, much lower than oil sands production in Alberta, that breaks even at around $65-$75/bbl, according to IHS Markit.

The Utah Geological Survey estimates that the state’s oil-sand deposits contain up to 13 Bbbl of oil. Petroteq CEO David Sealock said, “we have enough oil here to extract 10,000 bopd for over 25 years.” The company projects that it will produce its first 1,000 bbl in September.

Under the radar? During the 1978-1981 drilling boom, fund-companies were promoting Austin Chalk prospects in South Texas. The chalk was a promoters’ best friend. After fracing, the tight formation would surge back with high volumes of crude, but production would cease before pay-out, leaving investors with a loss (but promoters with a gain). Horizontals were attempted in Texas during the past decade, but variable production again hampered chalk development. Never fear, EOG Resources to the rescue.

EOG captured the industry’s attention when its Eagles Ranch 14H, in Avoyelles Parish, La., produced 80,000 bbl of oil in 110 days (Wood Mackenzie). “It’s the first modern completion in this portion of the Austin Chalk. Early results suggest it could be a breakthrough for Louisiana acreage.”

Are you convinced? If not, you should be. 

About the Authors

Craig Fleming

World Oil

Craig Fleming Craig.Fleming@WorldOil.com