Long-Term Economic Viability of Production From Unconventional Liquids-Rich Reservoirs: The Case of Bakken Field

Abstract

Summary Long-term economic viability of unconventional reservoirs is evaluated from the profit-maximizing perspective of a producing company. The case of the liquids-rich production from the Bakken field is considered as a representative of unconventional resources. A profit-margin optimization model is constructed for a company to meet the demand it faces from a stock of conventional and unconventional resources given different sets of exogenously determined prices. The model is parameterized using the different production-decline rates of the two sources, physical and economic exhaustibility of the resources, and the ever-increasing marginal cost of adding conventional resources into the company portfolio. The optimal extraction path of oil from the conventional and unconventional reservoirs is assessed, and the long-term economic consequence of keeping the unconventional resource in the ground for different oil-price scenarios is predicted. The model reveals the appropriate composition of a portfolio of conventional and unconventional resources. In the case of a high-price scenario, the optimal efficient extraction path is the pursuit of additional conventional resources before using unconventionals to meet the demand. For the reference-price scenario, the decline of the conventional reserves should be substituted with unconventionals from the beginning. The profitability of the enhanced oil recovery (EOR) applications in unconventional reservoirs and when they should be implemented are also determined. Contrary to common expectation, it is shown that the EOR technology is more justifiable in the case of a lower price forecast.