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North Dakota Production Surprises
Posted: Feb 09, 2010 11:39 AM by Eric Fox
One of the canons of the peak oil crowd is that a decline in oil production from the "mature" United States is a given that no amount of exploration and development can arrest. (Learn more about peak oil, see: Peak Oil: Problems And Possibilities.)
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An examination of recent developments in North Dakota indicates that the application of new technology renders this claim suspect. Oil production in North Dakota had been declining for years, peaking in the mid 1980s at close to 150,000 barrels per day, and then beginning a 20 year decline to approximately 80,000 barrels per day by 2003.
Production Continues To Increase
Development in the Bakken formation, and also in the Sanish/Three Forks formation has arrested this decline in a big way. Oil production from North Dakota averaged 198,000 barrels per day in the first 11 months of 2009, and exited November 2009 at 245,000 barrels per day.
The extraordinary thing was that the rig count in North Dakota actually fell from an average of 73 in January 2009 to 35 by May 2009, and yet production continued to climb. There are now 90 rigs operating in the state and that figure should move higher in 2010. (Learn more in Peak Oil: What To Do When The Wells Run Dry.)
So how much can North Dakota produce? The North Dakota Mineral Resources Department released an estimate of 300,000 to 400,000 barrels per day by 2011, and then for oil production to plateau at that level for 15 years. This may understate the possible oil production considering that many exploration and production companies are planning an expansion of development in the Bakken in 2010 and beyond.
Drilling Players
EOG Resources (NYSE:EOG) is planning to drill 120 wells in 2010 alone on its acreage in the Bakken Lite and Bakken Core areas. The company will drill 40 wells in the core area where initial production on wells range from 770 to 1,150 barrels per day. In the Lite area, EOG Resources plans 80 wells, and expects initial production rates to be from 470 to 850 barrels per day.
Continental Resources (NYSE:CLR) is also rapidly developing its Bakken acreage. The company was operating seven rigs at the end of 2009 in the Bakken and plans 15 by the middle of 2010.
Brigham Exploration (NYSE:BEXP) completed the State 36-1 #1H in late January 2010, and the well produced 3,807 barrels oil equivalent (BOE) per day from the Bakken formation.
Development in the Bakken may be accelerated even more once the purchase of XTO Energy (NYSE:XTO) by Exxon Mobil (NYSE:XOM) closes. XTO Energy had 450,000 net acres under lease in the Bakken, and prior to the merger was planning on increasing its rig count from three to six in 2010. Exxon Mobil can certainly afford more than six rigs here.
The Bottom Line
While it is true that oil is more difficult to extract from unconventional plays than natural gas, clearly the industry has figured out how to do it in the Bakken, and this technology can be applied to other areas of the U.S. that were once written off as mature.
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By Eric Fox
Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at his blog - Stock Market Prognosticator.
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