Extending the Bakken's Shelf Life
North Dakota Oil Production
Seven years ago, there were only a handful of companies searching for, drilling for, and producing oil...
Today there are over a hundred of them milling about, and each one is looking for black gold.
Lately we've heard rumblings about the longevity of North Dakota's good fortune. Some of the more pessimistic analysts think the boom will dry up within a decade, while others give it a little longer. Some have even suggested there's still over a century worth of production to be seen in the Flickertail State.
Our job is to sort out the real story, and as you can probably guess, the Bakken boom's shelf life lies somewhere in the middle...
So, what's in the stars for the Bakken boom?
Is the Bakken Doomed?
On a long enough time line, the survival rate of any given oil field diminishes until it finally reaches zero.
It's an inevitability that comes with all non-renewable sources of energy.
Every oil field has this circle of life in common... from permits, surveys, and exploration wells, all the way to production and enhanced recovery efforts.
At some point, the same will happen in North Dakota.
We are all aware that North Dakota's success hinges on the Bakken. Within five years, oil production from this single formation became vital to the state's future (click chart below to enlarge). The number of producing wells just in the Bakken region grew 1,015% in half a decade.
But for how long can we expect to see this kind of growth continue?
The Bakken Shelf Life
How long the Bakken boom will last depends on various factors, including the amount of oil contained within the rock as well as how much of that oil companies will be successful in pumping out of the ground.
As for the original amount of oil in place, estimates can vary depending on which report you happen to be reading...
They range from as low as 100 billion barrels to more than 900 billion barrels.
Where are these estimates coming from?
In 1999, a geochemist by the name of Leigh Price reported the Bakken held up to 550 billion barrels of crude.
Meanwhile, Continental Resources suggested there were as many as 577 billion barrels in the Bakken just three years ago. And just two months ago, Continental upped its estimate to over 900 billion barrels of total oil-in-place. (The increase came after they were successfully able to tap into the Three Forks zone.)
Granted, it's impossible to extract every last drop of the resource, and most would agree the recovery rate is around 3%... which means the low-ball estimate of 100 billion barrels of oil would give us three billion barrels of recoverable oil — which happens to be in line with the USGS's 2008 assessment of the Bakken Formation.
However, this will all change by the end of 2013. That's when the USGS releases their reassessment of the formation.
Their last assessment was completed during the very early stages of the Bakken boom, and since then, companies have become much more efficient at drilling the play.
Using Continental's optimistic figure, we're staring at approximately 27 billion barrels of recoverable oil — only slightly higher than Harold Hamm's projections of 24 billion barrels of oil.
Let's look at these projections another way: If North Dakota is pumping out roughly 750,000 barrels per day, that figures to roughly 274 million barrels every year. At that pace, the state will blow through the USGS's three-billion-barrel estimate in about 11 years.
Using Continental's new estimate, it'll take us 98 years to produce every last drop of that 27 billion barrels of oil, and that's assuming production stays flat from here on out — which we can pretty much say with certainty will not happen.
Even if production ramps up to 1.5 million barrels per day, Hamm's oil boom will still have legs fifty years down the road.
Believe me, there's still a ton of growth left ahead for the Bakken — and especially for the companies with rigs digging deep into North Dakota's soil...
As I said earlier, there are well over a hundred companies for us to sort through, all with varying degrees of experience in the play.
Until next time,
A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.