Don Warlick, WarlickEnergy
US energy investors have been enamored with growing crude and liquids-rich plays with increased drilling and development going forward in both the US and Canada. However, the advent of widespread use of hydraulic fracturing has resulted in great strides for oil completions in the Bakken Shale of North Dakota and Montana.
Fracking and other advanced drilling techniques have allowed E&P companies to access rich resources and result in growing production. For example more than 225,000 barrels/day was the production rate in the Bakken during 2010, increasing to a record 464,129 barrels/day in September 2011. Harold Hamm, chairman and CEO of Continental Resources predicts that the Bakken could produce a million barrels/day by 2020.
But it's important to point out what is being spent on hydraulic fracturing this year in the Bakken shale, as noted above. WarlickEnergy is forecasting that more than $7 billion will be spent during 2012 to fracture the growing number of completed Bakken wells.
This play could very well be the largest oil discovery in the US outside of Alaska, and estimates of the area's reserves are staggering. The US Geological Survey reported that the Bakken shale is home to approximately 4.3 billion barrels of oil recoverable with current technology, but estimates of total reserves range from 200 billion to 400 billion barrels. The USGS also estimates that the Bakken could hold more than 2 trillion cubic feet of natural gas.
So with the Bakken being a ramped-up opportunity, what have the top E&Ps been up to recently?
• Continental Resources holds ~ 901,000 net acres in the Bakken, more than any other E&P, and is expanding production despite tapping only about 15% of this acreage.
• Major oil producers looking to acquire smaller players. For example, Statoil paid $4.4 billion in late 2011 for Brigham Exploration and is now a growing driller in the Bakken.
Other noteworthy Bakken happenings:
• Surpluses are happening as a result of a lack of pipeline capacity to get Bakken oil to market. Some companies are delaying development in the region, but as long as oil prices remain above $60 to $70/barrel, companies will predictably continue to pursue multi-billion dollar joint ventures.
• Depending on the operating company, their individual breakeven prices for crude produced can range from $55 to $70 a barrel. The record price for North Dakota sweet crude, $136.08 per barrel, was set on July 3, 2008 but of course with the slide in crude futures (the Nymex 12-Month Strip closed at $81.51 on 26 June) it's a different story today, but projections are that crude prices could steady up for the rest of the year.
• North Dakota's oil & gas sector there has been facing a shortage of oilfield workers, but it began turning around in 2Q2012. Their mining and logging sector employed 21,000 workers in March 2012 compared to 15,500 in December 2007. Experts predict that employment number will continue to increase as the state's jobless rate hovers around an incredible 3%.
• As a result of this shortage smaller E&Ps have sometimes been forced to wait for available fracking crews to service their wells. During 2011 ~12% of all oil wells were idled intermittently in North Dakota, with a record 908 wells awaiting completion in June, 2011. Because of low gas prices, pressure pumping leaders like Halliburton, Baker Hughes and others are moving their fracturing crews from natural gas plays to oil-rich shales like the Bakken.
• In 2010, North Dakota’s effective tax rate on oil and gas was 10%, which ranked behind Wyoming (11.4%) and Montana (10.5%) but ahead of Colorado (4.4%). North Dakota's oil tax revenue totaled $1.027 billion from July 1, 2011 to March 3, 2012 and is expected to continue to increase. The state's budget is about $4.2 billion.
In summary, all this sounds familiar to seasoned veterans and investors in upstream oil & gas but the great thing about the Bakken and other oil-rich producing shales in the US and Canada is that growing domestic production can go far to reduce expensive imported oil in the years ahead. One can surmise correctly that fracturing expenditures in these headline plays will continue to remain high.
About the author
Don Warlick is president of WarlickEnergy in Houston, a Houston-based energy intelligence firm. The company publishes a series of special reports on each of the leading US unconventional shales and also provides market research services addressing North American and International oil & gas markets.