History Tells Proration Would Cause Chaos In The Texas Oil Patch

[wrs + 893]

On 4/16/2020 at 4:04 PM, nsdp said:

As some one old enough to have worked summer jobs in oil production for three summers after high school graduation and my first two years in college, my first comment is that the author has a political axe to grind.   He has  never worked a day in his life in a Texas Oil field during proration.   So he doesn't have the ghost of an idea of how it worked.  I worked for Texaco in field offices between semesters at Rice in 1967, 1968 and 1969. Big part of my job was filling out the monthly production reports and doing the data entry on Texaco's production record system.   Most difficult part was making sure that we stayed within the allowables for each at the end of the month for each well.  Brine coprocdution was the biggest problem in lease accounting.   Texaco's reports 50 years ago went into the RRC on computer!  With the internet every producer does it that way now.  With TACC there in Austin,  monthly proration would be about 15 minutes of computer time for those of us who remember how.

Tom you need to do a better job of filtering out BULLSHIT like this story before they get posted.   The issue is whose ox gets gored  economically.  There are no technical issues  that some of us old timers can't deal with  in a couple of weeks.

One other thing, you recover more oil and less brine with proration.   Proration slows salt water intrusion into the well bore.

I think you are speaking about the reporting.  I believe the real problem would be establishing allowables.  How much does each well drain, how much is in the field, what is the total production allowable for the field and how is it distributed per well?  I had gotten interested in proration because I was wondering if any of my wells would be limited by the allowable for the field.  I looked at what had been set for the field my first well was in and it was clear the allowables had been set so high that my well wouldn't reach that. 

The allowable was set based on the acreage in the unit.  However, the operator got the well classified as a gas well and so the allowable on oil wasn't an issue. That's one way around allowables on oil in a shale environment.  The second well was in a different field and it was classified as an oil well but in that field the allowable for the unit would have been 9,000 barrels per day.  With 12 producing wells now in that lease and in the same unit, they still only produce 3000 to 4000 barrels per day.

So I am wondering what exactly would proration do other than providing more accounting overhead?  How would it be implemented in an objective way that applied to all wells in a field?  How would each field be treated as part of the overall state production?  I am just curious if some of the people that are in favor of proration have these answers?  I am all ears because I am a mineral owner and am concerned about wasting oil and also giving it away at ridiculously low prices because of over-production and lack of infrastructure.

 

Edited April 17, 2020 by wrs

[ceo_energemsier + 1,818]

Oklahoma judge to recommend regulators rule oil production 'economic waste'

 

(Reuters) - An Oklahoma Judge will recommend the state's oil and gas regulator approve an emergency order declaring oil production in the state could constitute economic waste, a spokesman for the state's Corporation Commission (OCC) said on Friday.

The administrative law judge intends to write the recommendation in response to an application submitted by producer LPD Energy Company, the OCC said. If approved by regulators, the motion could allow companies to shut-in wells without losing leases that sometimes require drilling.

Oil prices have plunged some 60% since the start of the year and on Friday were trading under $19 a barrel - far below most companies' cost of production. Oil producers in Texas and Oklahoma have urged state regulators to use their authority to help stabilize prices through production limits and other measures.

Oklahoma regulators could issue a ruling on LPD's application as soon as next week, the OCC said.

Trade group Oklahoma Energy Producers Alliance also filed a separate application that asked regulators to set limits on oil production. The OCC will hear arguments on that application on May 11.

Texas regulators earlier this week held a 10-hour hearing with dozens of producers, pipeline operators and environmentalists on proposed production limits. Shale producers Pioneer Natural Resources and Parsley Energy have led the call for cuts, while other major firms, such as Exxon Mobil and Occidental Corp, opposed the plan.

[Radha + 262]

I have been proposing for a long time to stop buying oil from the Middle East. We need to get the military out of there as well for the most part and only use it for strategic short term missions when a real national security occurs. None of these WMD lies anymore.

[wrs + 893]

1 hour ago, Radha said:

I have been proposing for a long time to stop buying oil from the Middle East. We need to get the military out of there as well for the most part and only use it for strategic short term missions when a real national security occurs. None of these WMD lies anymore.

I agree but the buyers of the oil have no national interest, that is the problem with globalization.  Of course the CV is showing us the hidden weakness in globalization which is probably the silver lining of it.

11 hours ago, ceo_energemsier said:

Oklahoma judge to recommend regulators rule oil production 'economic waste'

 

(Reuters) - An Oklahoma Judge will recommend the state's oil and gas regulator approve an emergency order declaring oil production in the state could constitute economic waste, a spokesman for the state's Corporation Commission (OCC) said on Friday.

The administrative law judge intends to write the recommendation in response to an application submitted by producer LPD Energy Company, the OCC said. If approved by regulators, the motion could allow companies to shut-in wells without losing leases that sometimes require drilling.

Oil prices have plunged some 60% since the start of the year and on Friday were trading under $19 a barrel - far below most companies' cost of production. Oil producers in Texas and Oklahoma have urged state regulators to use their authority to help stabilize prices through production limits and other measures.

Oklahoma regulators could issue a ruling on LPD's application as soon as next week, the OCC said.

Trade group Oklahoma Energy Producers Alliance also filed a separate application that asked regulators to set limits on oil production. The OCC will hear arguments on that application on May 11.

Texas regulators earlier this week held a 10-hour hearing with dozens of producers, pipeline operators and environmentalists on proposed production limits. Shale producers Pioneer Natural Resources and Parsley Energy have led the call for cuts, while other major firms, such as Exxon Mobil and Occidental Corp, opposed the plan.

This is essentially what we have agreed to with one of our producers, he will be shutting our 5 wells in until oil is over $35.  He also has to work that agreement out for the rest of his production with all his other lessors though so the emergency order would make it easier to do across the board.

Edited April 18, 2020 by wrs

[nsdp + 449]

23 hours ago, wrs said:

I think you are speaking about the reporting.  I believe the real problem would be establishing allowables.  How much does each well drain, how much is in the field, what is the total production allowable for the field and how is it distributed per well?  I had gotten interested in proration because I was wondering if any of my wells would be limited by the allowable for the field.  I looked at what had been set for the field my first well was in and it was clear the allowables had been set so high that my well wouldn't reach that. 

The allowable was set based on the acreage in the unit.  However, the operator got the well classified as a gas well and so the allowable on oil wasn't an issue. That's one way around allowables on oil in a shale environment.  The second well was in a different field and it was classified as an oil well but in that field the allowable for the unit would have been 9,000 barrels per day.  With 12 producing wells now in that lease and in the same unit, they still only produce 3000 to 4000 barrels per day.

So I am wondering what exactly would proration do other than providing more accounting overhead?  How would it be implemented in an objective way that applied to all wells in a field?  How would each field be treated as part of the overall state production?  I am just curious if some of the people that are in favor of proration have these answers?  I am all ears because I am a mineral owner and am concerned about wasting oil and also giving it away at ridiculously low prices because of over-production and lack of infrastructure.

 

You are confusing gas well allowables used allocate gas production in the 1980's and oil well allowables used in the 1950's and 60's.  Methodology of proration was completely different; your method would result in a 0 allowable for a typical oil well. Gas wells were tested using an open choke venting to atmosphere to determine production potential. Then the machinations you describe were applied, Those allowables were used to set take or pay volumes for producer  gas sales contracts and limit gas well production, prevent drainage, and insure ratable takes  in shoulder months when natural gas demand dropped.   Oil wells, by contrast were usually in secondary recovery mode (sometimes tertiary mode using water flood or CO2) which means the open choke method recovery is 0.  There is NO FLOW to the surface without use of a nodding donkey (pump jack) and sucker rods bringing  the oil to surface(CO2 or water injection if tertiary mode used) since reservoir pressure  was too low to overcome several thousand vertical feet of head pressure.  Pump jacks with thousands of feet of sucker rod were used to lift the oil to the surface.

 

If we used your method as you misunderstand it we would have a total disaster and destroy the reservoirs.  Gas reservoir dynamics do not resemble oil reservoir dynamics with the exception of retrograde condensate reservoirs.  The old oil methods were based on actual monthly production based on the 5 highest days of oil production. Low Reservoir Pressures meant you could not pump continuously 24 hours  day every day. You had to stop and let oil drain from the surrounding rock into the well bore to prevent well damage.   So you normally would have a 24 hour maximum production period spaced every two or three days all month long to establish your allowable.  That is why you had pumpers on duty 24 hours a day to be sure things that went wrong were corrected promptly.

Edited April 18, 2020 by nsdp
add back portion of line deleted by web site.

[wrs + 893]

16 hours ago, nsdp said:

You are confusing gas well allowables used allocate gas production in the 1980's and oil well allowables used in the 1950's and 60's.  Methodology of proration was completely different; your method would result in a 0 allowable for a typical oil well. Gas wells were tested using an open choke venting to atmosphere to determine production potential. Then the machinations you describe were applied, Those allowables were used to set take or pay volumes for producer  gas sales contracts and limit gas well production, prevent drainage, and insure ratable takes  in shoulder months when natural gas demand dropped.   Oil wells, by contrast were usually in secondary recovery mode (sometimes tertiary mode using water flood or CO2) which means the open choke method recovery is 0.  There is NO FLOW to the surface without use of a nodding donkey (pump jack) and sucker rods bringing  the oil to surface(CO2 or water injection if tertiary mode used) since reservoir pressure  was too low to overcome several thousand vertical feet of head pressure.  Pump jacks with thousands of feet of sucker rod were used to lift the oil to the surface.

 

If we used your method as you misunderstand it we would have a total disaster and destroy the reservoirs.  Gas reservoir dynamics do not resemble oil reservoir dynamics with the exception of retrograde condensate reservoirs.  The old oil methods were based on actual monthly production based on the 5 highest days of oil production. Low Reservoir Pressures meant you could not pump continuously 24 hours  day every day. You had to stop and let oil drain from the surrounding rock into the well bore to prevent well damage.   So you normally would have a 24 hour maximum production period spaced every two or three days all month long to establish your allowable.  That is why you had pumpers on duty 24 hours a day to be sure things that went wrong were corrected promptly.

That's really interesting.  I wasn't proposing any method though, just trying to discern by inference what the parameters were.  I tried to find an explanation of how they arrived at the allowables and I could never find it.  Thanks for the better explanation but how would that work for shale?  Because the reservoir geology is so different and it's not pumped to the surface, it's much more like a gas well in that regard I suppose.

Edited April 19, 2020 by wrs