This morning, this fact was reiterated for me. I had gotten into a disagreement with a friend of mine. She was born and raised in Alaska.

It was a simple conversation. . . but what started out as us catching up with one another quickly escalated.

Our conversation turned to the topic of Hurricane Ida. I remarked that it felt very late in the hurricane season. The Atlantic hurricane season officially ends with the month of November. The last I had heard, Ida was moving into the Gulf of Mexico and companies are beginning to evacuate their workers.

That makes perfect sense, right? The obvious result would be for output in the Gulf of Mexico to be disrupted.

The topic soon changed to U.S. oil production in general.

Unfortunately, my friend falls into the category of those who "overlook bad news" — especially when it comes to her home state's problem with oil production. I'm still amazed to find people that have no idea about peak oil.

She didn't realize was how bad things have gotten for some places. . .

The Backside of Peak Oil

It's no secret that production in the United States has been tumbling down the backside of peak oil for the last three decades.

I haven't met anyone that believes U.S. production will ever return to its 1970 production level.
Believe me, peak oil in the U.S. isn't a myth. It's about as real as it gets.

In fact, it gets downright ugly when you look at our top oil producers.

Let's take a closer look. . .

Roughly half of U.S. oil production comes from just three states: Texas, Alaska, and California. When I said earlier that most people overlook bad news, I meant it.

In the last 29 years, Texas has managed to increase year-over-year oil production twice. Since 1981, production has fallen by 57%. As you can see from the EIA's data, record oil prices just weren't enough to save production.

My friend's home state isn't faring much better. Alaska's North Slope oil production — which makes up 98% of the state's production — peaked in 1988. Care to know how far Alaska is down from the peak? The state's crude production has plummeted 66% since the peak.

Coincidentally, Alaska's year-over-year production declined 14% in 2006, the same year that Texas squeaked out a 2.4% increase. (For now, let's just set the ANWR debate aside. We'll save that mess for another day.)

It's the same story for California, our third-largest oil producing state. The Golden State's crude production has declined 47% since peaking in 1985. You probably remember the Kern County Oil Flop from last August.

Doesn't paint a pretty picture, does it?

Fortunately, not all of U.S. future production is doom and gloom. . .

The Bright Spot in U.S. Production

Unlike Texas, Alaska, and California, our fourth-largest oil producer has a much brighter outlook.

After five straight years of production growth, North Dakota has officially claimed fourth place. As you know, we can attribute this state's success to developing the Bakken formation. Last year, production jumped nearly 40%.

That shouldn't come as a shock to my readers. They've known about the Bakken formation for years. And with the latest news about the new Three Forks-Sanish formation, can we really expect anything else?

In fact, it's downright profitable.

However, be sure to put things into perspective when comparing these states. Even though North Dakota's oil industry is booming, the state is only pumping approximately 215,000 barrels per day. That's compared to the one million barrels flowing daily from Texan wells. California was producing approximately 572,000 barrels of oil per day back in June.

Granted, North Dakota still has quite a ways to go before overtaking the third spot for U.S. oil production. . . but that gap will be narrowed considerably over the next decade. It's inevitable — especially when taking their declining production into account.

So how can we be sure that things are still heating up for North Dakota's oil industry?

It's simple.

Just take a look at the latest auction of drilling rights. It brought in a record amount of money. Companies were shelling out an average of $1,214 per acre. A total of $71.6 million was raised.

Here's how it works: The winning bids have the right to drill for oil on the leases for five years. If they don't develop the land within the five years, the land can be leased again. In other words, these companies aren't looking to sit on that land.

Many of you know exactly what kinds of gains that can be made. Members of the $20 Trillion Report have been riding this oil boom for years and have had tremendous success trading the hottest Bakken players. I'll let you check it out for yourself.

There's no need to worry if you missed out on the first run. In fact, things are just getting started. Looking ahead, there's one thing that's missing from the entire picture and within the next two years, it's going to become blatantly obvious to everyone.

Without it, production from the Bakken will fade. . . and next week, I'm going to tell you exactly what it is they're missing.

Until next time,

Keith Kohl

Energy and Capital