Posted on 05/07/2014 8:04:22 AM PDT by ckilmer
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May 5, 2014 | Comments (0)
How soon will the sun set on the Bakken Shale boom? Photo credit: Flickr/katscool.
Continental Resources (NYSE: CLR ) recently noted that the Bakken Shale underneath North Dakota and Montana recently produced its billionth barrel of oil. The company, which has been a leader in developing the field, thinks we've only just begun to recover the oil trapped within these rocks. For a really interesting animation that shows how production in the field has exploded over the last few years, click on the following image and watch the animation at the U.S. Energy Information Agency's website.
Source: Energy Information Agency.
The question investors want to know now that the Bakken has hit a billion barrels of cumulative oil production is: How much oil might be left in the tank?
Estimates vary
No one knows exactly how much oil is soaking the rocks underneath North Dakota and Montana. Estimates range from 150 billion barrels of oil to as much as 900 billion barrels of oil, according to Continental Resources. Given current technology, the industry won't recover more than a low-single-digit percentage of that oil. Continental Resources estimates that current technology will allow the industry to recover about 3.5% of its oil estimate, or about 32 billion barrels of oil. For perspective, that's almost as much oil as America's total proven oil reserves, meaning the Bakken could represent double the amount of oil we thought we had.
However, new technology could push the ultimate recovery of oil higher. In fact, an improvement in the recovery factor to 5% means the industry could eventually extract as many as 45 billion barrels of oil. Still, that recovery factor is well below the average of conventional oil reservoirs, which typically give up about 10% of the original oil in place through the primary recovery method, which is typically adding a pump to pull oil out of the reservoir. After that, a secondary recovery method of injecting water or gas can result in the recovery of 20% to 40% of the original oil in place. Finally, a third method, enhanced oil recovery, can ultimately push out 30% to 60% of the oil once trapped below the ground There's thus tremendous future potential for the Bakken.
Still trying to figure this out
That said, Bakken Shale producers such as Continental Resources and Kodiak Oil & Gas (NYSE: KOG ) are still in the early stages of primary drilling. The companies are still trying to figure out optimal well placement, proper proppant volumes, and the best completion techniques. These companies aren't even thinking about secondary or tertiary recovery methods just yet.
Right now, the biggest focus is on downspacing of wells. Kodiak Oil & Gas, for example, recently reported that it's still working on optimal well spacing. The company is running three pilot programs, with the tightest spacing consisting of wells drilled 600 to 650 feet apart within each of the reservoirs it's targeting. The following slide shows that as Kodiak Oil & Gas drills its wells closer together, it's increasing the estimated ultimate recovery per drilling unit.
Source: Kodiak Oil & Gas investor presentation. (Link opens a PDF.)
As that slide notes, wells have moved from being spaced 1,000 feet apart to 600 feet apart. As that has occurred, the estimated ultimate recovery of oil and gas has increased from 5.5 million to 6.5 million barrels of oil equivalent per drilling unit to 9.0 million to 10.5 million barrels.
Downspacing alone has the potential to add a significant number of future drilling sites, while also increasing the amount of oil ultimately recovered in the basin. For example, Canada's Enerplus (NYSE: EFR ) sees downspacing potentially doubling its future drilling inventory. The company currently plans to drill 145 future wells on its acreage, but downspacing wells could add another 150 future drilling locations. Just as with what Kodiak Oil & Gas is finding, this has the potential to also nearly double Enerplus' ultimate recovery of oil from its acreage in the Bakken Shale.
What this means for investors
The U.S. Geological Survey currently estimates that up to 7.4 billion barrels of oil will ultimately be recovered in the Bakken Shale. That number is looking to be incredibly low ,as Continental Resources sees at least 32 billion barrels of oil ultimately being recovered. Advances in technology, including developing secondary and tertiary recovery methods, could push oil recoveries even higher in the future. There appears to be a whole lot of oil left in the Bakken's fuel tank, meaning investors still have plenty of time to profit from its recovery.
fyi
current technology will allow the industry to recover about 3.5% of its oil estimate, or about 32 billion barrels of oil...
an improvement in the recovery factor to 5% means the industry could eventually extract as many as 45 billion barrels of oil
BTTT
In short, OPEC will find out in the next 25 years what happens when Russia, USA and Canada become the world's biggest oil and natural gas producers. The free ride the Sunni Arabs got from all the all production in the southern Persian Gulf could soon be over.
Let them eat sand.
I’m curious. If we have pulled a billion barrels of oil out of the ground why is gasoline still running over $4 per gallon? Why haven’t we seen a drop in price consistent with the increase in supply?
For one reason, wells in tight formations like shale with 2 mile long horizontals and 2 or 3 dozen hydraulic fracturing stages are not cheap. If the price for oil was dropped significantly, this oil would stay in the ground.
There is no evidence of the Marcellus field containing any significant amounts of oil. All that has been shown is gas, and some natural gas liquids. It is not an oil bearing field.
http://pubs.usgs.gov/fs/2011/3092/pdf/fs2011-3092.pdf
Does that mean that if someone were to find a huge conventional oil find, like they just found in the gulf, that this could conceivably shut down a lot of the current shale boom?
Because oil prices are set worldwide.
Natural gas prices are set locally.
The reason for this is that you can move oil around the world pretty easily/cheaply. Not so with natural gas.
The US imports may 5 million barrels a day. higher production displaces imports. But there is so much demand for oil in other parts of the world—that the world wide price of oil does not fall.
There is another thing. The USA/Canada is one of the very few places in the world where oil production is rising significantly. (The other is Iraq.) Most of the rest of the world’s oil comes from old oil fields where its everything the producers can do just to maintain production. Many don’t. Like in Venezuela and Mexico.
USA fracking methods will eventually come to other parts of the world but that’s likely still 5 years away before volume actually comes in.
In short, OPEC will find out in the next 25 years what happens when Russia, USA and Canada become the world’s biggest oil and natural gas producers. The free ride the Sunni Arabs got from all the all production in the southern Persian Gulf could soon be over.
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My betting is that Saudi oil is the cheapest to extract. Any fall in prices will constrain production of American frackers first.
However, the government there gets most of their revenue from oil. So the saudi government would be sorely crimped by falling oil prices. Same goes for the Russians. Both would have have less money available for adventures.
Does that mean that if someone were to find a huge conventional oil find, like they just found in the gulf, that this could conceivably shut down a lot of the current shale boom?
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imho the answer is no. Its expensive to extract oil from the gulf.
You would have to first show me the field you are talking about, but i think there is no way any find could possibly impact that production.
We import 7.8 million barrels a day. A large offshore field might produce 0.1~0.2 million barrels a day.
Cost varies.
Oil Basin Breakeven Estimates as of late-2013 ($/bbl): Eagle Ford $65, Bakken Core $75, Permian $80, Niobrara $80, Bakken Fringe $85, Utica $85, Mississippian $85, Cana Woodford $90, Ardmore Woodford$95. (all unconventional) [source], plus, for all types:
bkmk
Thanks. Great graph.
You know, it seems to me that the last time I saw the numbers for Baaken, Eagle Ford, Niobrara and Permian. The production costs for them were 10 dollars a barrel higher—except for woodford which was the same..
This graph is for 2013. Maybe the earlier one I saw was for 2012.
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US oil production had been going up steadily after WWII. It stopped in 1970 and started trending down—with a brief pitch up in the 1980’s under reagan during some years when the saudis were throttling back their production.
The reason US production had been trending down since 1970 was because saudi oil production in a few short years went from 3 million barrels a day to 9 million barrels a day. They could pull oil out of the ground at that time in 1960-70’s dollars for .25-.50 a barrel and ship it anywhere in the world for 1.25@ barrel in 1970’s dollars. (I think that if you multiply that number by 3.5 or so you’ll get current dollars)
The USA could not extract oil — nor anyone else for that matter — for the same price that the saudis could. It was cheaper just to import the oil.
Now once placed in a monopoly position the saudis jacked up the price of oil and nationalized the oil companies.
Today the saudis cannot get oil from the ground nearly as inexpensively as they could 40 years ago. But I would be surprised if their costs of extraction exceeded $30 @ barrel in today’s dollars. (I don’t know if they publish their production costs.)
The costs listed on this IEA table for the middle east list $16 for middle eastern production costs but only go through 2009 —so they’re out of date. None of the number reflect fracking costs. The saudis don’t frack today but they do do enhanced recovery. I don’t know how much that ads to their tab.
http://www.eia.gov/tools/faqs/faq.cfm?id=367&t=6
For now I like this.
Given my druthers, I’d druther, high US production rate increases and high US gas prices over.
Over slightly lower gas prices and much lower US oil production rate increases.
The reason for this is that high US production rate increases are saving the US dollar and keeping the US economy afloat during the Obama business disaster years.
The every extra year of high prices allows more fracking to go on the the fracker to chisel down their costs.
In three or four years —when US production rates are 5 million barrels@ day higher and the USA is oil independent....and the frackers have got their costs30% lower ...that’s the time to lower prices.
Of course, I have no clue as to what will happen but judging by the steep incline of Chinese consumption—it looks like there will be plenty of new demand to soak up extra supply.
check out nascarnation’s graph above of rising Chinese oil demand.
Never mind India or fast rising demand from the rest of the world — that Chinese demand curve alone is almost sufficiently steep over the next five years —to soak up extra north american supply.
Now its likely that the 5-10 years from now the chinese will have figured out how to bring volume production of natural gas online. and the first inroads of natural gas trains buses trucks plus electric cars will start. But that’s all past 2020.
Meaning that there is good evidence that even without disruptions— prices will stay high for the next couple years.
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