the importance & sensitivity of electricity costs in …...2016/12/03 · the importance &...

E N H A N C E D O I L R E C O V E R Y I N S T I T U T E

The Importance & Sensitivity of

Electricity Costs in LOE

B E N J A M I N R . C O O K , P H DE N H A N C E D O I L R E C O V E R Y I N S T I T U T E

E N E R G Y M B A P R O G R A MU N I V E R S I T Y O F W Y O M I N G


Dynamic Energy Environment

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Connection to the Oil Patch

Major Component of Lifting Costs


Rates, Regulation & Defection

Rates Increase

Low Cost Alternatives

(DER, CHP)

Grid Defection

Lower Grid Demand & Sales


“Perfect Storm”

“Basin Electric will increase its rates by around 12.3 percent in August…due to declining sales and higher costs across the nine states it services.

‘Basin Electric has essentially encountered the perfect storm’…low commodity prices across energy and agriculture; diminished member sales and low market prices stemming from an unusually mild winter and increased production capacity from wind generators; capital expenditures to support regional growth; and compliance with environmental regulations for more emission controls.”

Source: Sundance Times, July 22, 2016http://sundancetimes.com/economic-troubles-lead-to-rate-increase-for-precorp/

http://sundancetimes.com/economic-troubles-lead-to-rate-increase-for-precorp/


EIA Industrial Rates by State

2¢

3¢

4¢

5¢

6¢

7¢

8¢

9¢

10¢

11¢

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

AVG. INDUSTRIAL PRICE OF ELECTRICITY(2001 to Mid-2016)

Colorado New Mexico Oklahoma Texas Wyoming North Dakota Linear (Wyoming)

WY Rates CAGR of 6.8% since 2008

WY No Longer the “Low Cost” State Compared to

Energy Peers

3 Cents to 7 Cents133% Increase in Power Cost as Oil Cut is Falling


$7.73

$11.32

$5.87

$3.34

$6.63

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

94.0%

95.0%

96.0%

97.0%

98.0%

99.0%

100.0%

1 2 3 4 5

Electric C

ost ($

/bb

l)W

ate

r C

ut

Regional Operator Portfolio

Regional WY Cross-Section Electric Costs per BBLObservations in 2011 & 2012

Prodn WtdAvg Water Cut Prodn WtdAvg Electric Cost per Barrel


Electricity Cost Impact on Oil


WY Electric Utilities98.2% of WY oil production is served by 5 electric utilities: Rocky Mountain Power, Power River Electric, High Plains Power, High West Energy, and Niobrara Electric.

Electric Provider ~ WY Oil Prodn 2015 ~Share of 2015 Production

Beartooth Electric 47,722 0.11%

Big Horn REC 276,292 0.63%

Bridger Value Electric 243,192 0.56%

Cheyenne LFP 53,471 0.12%

Carbon Power 117,638 0.27%

High Plains Power 3,959,762 9.07%

High West Energy 1,596,480 3.66%

Niobrara Electric 1,308,649 3.00%

Power River Electric 15,008,741 34.36%

Rocky Mountain Power 21,028,022 48.15%

Yampa Value EA 35,654 0.08%


Attempt to Estimate $/bbl-oil

Estimates for Lifting Horsepower

Three different approaches calculated for over 600 Wyoming oil fields.

The two closest horsepower estimates were averaged to arrive at a single

point estimate for lift and injection horsepower.

Electricity Usage

We assume that pumping/injecting HP was 97% of field electric use.

Annual kWhs = HP x 0.746 (kW/HP) x 8760 (hours/year)/ 0.97

Peak Demand and Tariffs

We assumed Peak KW was 15% higher than the estimated KW load.

Each field was matched with the appropriate Utility and Tariff schedule

based on location and power rating.


Oregon Basin Example 179 Injectors, 250 ESP Wells, 60 Rod Wells

Average Depth = 3,723 feet

Average 744,804 BPD Fluid Production, 655,158 BPD Injection

HP Estimates

Bob’s Method = 29,309 HP

Regress Method = 51,437 HP

Check Method = 48,428 HP

Point Estimate = 49,933 HP Annual kWhs = 336,399,632

Rocky Mountain Power Tariff

Est. Monthly Bill = $1,451,405

Est. Cents/kWh = 5.18

$/bbl-oil = $7.98

$/boe = $0.96


WY Map $/boe

Bonanza Field~$20.26/boe


Utility Summary

Utility 2015 Oil $/bbl-oil $/boe cents/kWh

Beartooth Electric 47,722 $15.58 $0.25 11.60

Big Horn REC 276,292 $8.85 $5.66 8.00

Bridger Value Electric 243,192 $6.63 $0.08 6.00

Cheyenne LFP 53,471 $3.31 $1.74 10.50

Carbon Power 117,638 $9.07 $7.02 10.90

High Plains Power 3,959,762 $6.73 $4.45 5.70

High West 1,596,480 $1.43 $0.40 9.10

Niobrara EA 1,308,649 $4.50 $1.21 12.20

Power River Electric 15,008,741 $1.89 $1.25 7.80

Rocky Mountain Power 21,028,022 $3.81 $1.13 7.60

Yampa Value EA 35,654 $3.22 $0.21 9.80


Life of a WY Well


What if Utility Dropped the Rate?

• Assume that the oil operator was somehow able to negotiate for a lower electric rate on this well rather than shut-in?

‒ “Ceteris Paribus” -> flat oil prices & $18 electric cost shut down.

Rate

Schedule

Additional

Prod. Months

Additional Oil

Produced

(bbls)

Additional Energy

Used (MWhs)

Additional Electric

Payments

EIA Rates… - 0 0 0

then 6 cents 10 5,765 1,639 $98,000

then 5 cents 28 14,788 4,589 $229,000

then 4 cents 51 24,179 8,360 $334,000

then 3 cents 79 33,037 12,950 $388,000


What about NG Generators?

• Comparative Economics of Grid vs NG Generators

‒ “Is grid-based line power still the lowest cost source of electricity for new oil developments in light of decreased leasing rates for natural gas reciprocating generators?”

• Especially for Greenfields….Right-of-Ways, Distribution Lines, Maintenance, Transmission Upgrades

• http://bit.ly/genvgrid

http://bit.ly/genvgrid


Six States

• Assembled data on 93 counties

‒ Production Type Curves

‒ Tariffs for 40 Different Utilities

‒ Terrain and Labor Cost Characterization for Line Power Construction Costs


Load Scenarios


Normalized Grid


Line Construction & Tariffs


Genset Costs


Example Output

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

$0.40

$0.45

$0.50

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Line o

r Gen

set Co

sts ($)En

ergy

Co

st (

$/kW

h)

Project Year

Utility Grid Distribution vs NG GensetsDistribution O&M+ROW ($/year) Distribution CAPEX ($/year)Grid Utility Distribution ($/kWh) NG Genset Cost ($/kWh)Avg Grid Power Cost ($/kWh) Avg NG Generator Cost ($/kWh)Series8 Genset Costs ($/year)

• Colorado DJ/Niobrara

‒ 5-Mile Distribution Trunk

‒ 25 Pads w/2 Wells Each

‒ ½ Mile Spacing

‒ Pad Starts Every 4 Months


Example Output


ScenariosAssumption Scenarios

Average Well pad Spacing (feet) 1320’, 2640’, 5280’, 7920’

Grid Trunk Line Length (miles) 0, 5, 10, 15, 20

Well Pads and Total Wells

5 pads (1 well each), 5 total



20 pads (2 wells each), 40 total



Genset Pricing (schedules) Low, Average, High, Peak

Opportunity Cost of Fuel ($/Mcf) $0.00, $1.00

Decline Curves Area Basin Average Only

Field Expansion Case No Trunk & No Main Feeder Line

Infill Drilling/Existing LinesNo Trunk, No Main Feeder,

No Extension Lines Required.


Results• ~170,000 unique scenarios outcomes

across counties and associated utilities

• NG Gensets have a cost advantage in 66% of cases.

• If you exclude the Infill Drilling cases gensets are favored in 80% or more of cases considered.

• Closer spacing, more wells, and higher production type curves shift advantage to the grid.

• Greenfields, trunk distance, larger spacing, fewer wells, and lower production type curves favor gensets.

0

50

100

150

200

250

300

350

400

-25.

0

-23.

0

-21.

0

-19.

0

-17.

0

-15.

0

-13.

0

-11.

0

-9.0

-7.0

-5.0

-3.0

-1.0 1.0

3.0

5.0

7.0

9.0

11.0

13.0

15.0

17.0

19.0

21.0

23.0

25.0

27.0

29.0

Freq

uenc

y

Generator Cost Advantage (cents/kWh)

Field Expansion Genset Advantage Frequency

Grid Advantage (21%) NG Genset Advantage (79%)

0

50

100

150

200

250

300

350

400

450

500

-25.

0

-23.

0

-21.

0

-19.

0

-17.

0

-15.

0

-13.

0

-11.

0

-9.0

-7.0

-5.0

-3.0

-1.0 1.0

3.0

5.0

7.0

9.0

11.0

13.0

15.0

17.0

19.0

21.0

23.0

25.0

27.0

29.0

Freq

uen

cy

Generator Cost Advantage (cents/kWh)

Infill Drilling Genset Advantage Frequency

Grid Advantage (45%) NG Genset Advantage (55%)


Questions?

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Results


Consider a Pretty WY Oil Well

• A production weighted average WY oil well in July 2016 would be one producing 114 bpd of 35 deg. API oil and 604 bpd of water at a depth of 7,966’

– Would require 39,000 – 54,000 kWhs per month

– 468,000 – 648,000 kWhs per year

– Average U.S. home in 2014 using 10,932 kWhs per year.

– This well uses the equivalent power of 43 – 59 homes

– 9,950 wells ~= New Hampshire


…and the Cost $/bbl

• According to EIA.gov the average industrial rate in WY for July 2016 was around 7 cents per kilowatt-hour.

– Well electricity of $2,700 - $3,780 per month

– Average of $39,060 per year

– WY average worker pay in 2014 was $46,500

– At 16% oil, 84% water the electricity only comes out to about $1/bbl-oil

– 25% of WY oil fields, including 12 of the top 30 are 95% water-cut or more

– In these cases, the electric costs may be $2.70 - $14.60 or more per bbl

the importance & sensitivity of electricity costs in …...2016/12/03 · the importance &...

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