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Technology unlocks more Bakken oil

Production from the Bakken formation in the Williston Basin has been improving steadily with technological advances. This has prompted one of the major Bakken producers, Oklahoma-based Continental Resources, to increase its estimate of potentially recoverable reserves to 24 billion barrels of oil equivalent (boe).

This estimate is substantially higher than the US Geological Survey's 2008 estimate of 4.3 billion barrels of undiscovered technical recoverable oil in the formation.

Continental says the difference between the estimates is that recovery on a per-well basis has increased dramatically since June of 2007, which was the approximate cut-off for wells in the USGS analysis.

In January, the North Dakota Industrial Commission announced that recoverable reserves from the Bakken-Three Forks reservoirs could reach 11 billion barrels in North Dakota alone – five times the commission's 2008 estimate.

What is occurring is that companies have been drilling vertical wells in the Upper Bakken since the 1950s, but they are now focused on the middle dolomite between the upper and lower Bakken shale. The formation stretches from Canada through North Dakota and Montana, with the heaviest activity in North Dakota.

The companies all acknowledge a "learning curve" for the Bakken. "Science wells" are the norm, and it takes experimentation in order to get optimum recovery because rock properties vary considerably across the play, says one operator.

The Bakken is one of the most expensive formations to drill due to the multiple frac stages employed to unlock more oil. However, operators try to cut costs by reducing the time it takes to drill and complete a well.

"While debate continues about estimated ultimate recoveries per well, there's no argument about what the Bakken is producing as a region now," according to Ryder Scott Co. in its March-May Reservoir Solutions newsletter. "In 2010, North Dakota pumped 113 million bbl of oil from the wellhead, almost three times the state's total in 2006, with most coming from the Bakken."

North Dakota grows to No. 2 in US production

North Dakota has pulled in front of Alaska (onshore production) as the second largest oil-producing state on a daily basis. Texas, home of another prolific oily play, the Eagle Ford Shale, is the only state producing more, noted Global Hunter Securities analysts in a June 15 note to investors. The analysts note that under an $80-per-barrel scenario, exploration and production companies "should continue to increase the rig count."

Drilling rigs in the Williston Basin, including both Montana and North Dakota, currently stand at roughly 225 and the number is expected to grow to 230-235 by the end of the year. The 10 largest operators in the Bakken accounted for 90% of production growth in 2011. "Given the soft natural gas prices, operators are witnessing a plateau of service costs. Coupled with PAD drilling, the plateauing costs create significant economies of scale. Well costs in the Bakken have more than likely peaked for the next 12-24 months, in our view," the analysts noted.

Report: Bakken oil a threat to Canada's oil sands

The rapid growth of oil production in the Bakken may threaten the Canadian oil sands industry, according to a recent report from Wood Mackenzie. The reports says oil sands projects may be tabled, as they were in 2008-2009 during the global recession, due to high operational costs, declining oil prices, and a shortage of skilled personnel. At that time, more than $80 billion in development projects were shelved, reworked, or cancelled as oil prices fell below $40 a barrel and financing all but dried up.

However, oversupply is the greatest threat, says Wood Mac. Today, the industry predicts oil sands output could hit 3 million barrels a day by 2020, up from the current 1.6 million. Producers face stiff competition from US unconventional resource plays, with production from the North Dakota Bakken alone forecast to double to 1.2 million barrels of oil per day (bopd) in the same timeframe.

Competition will come in the form of pipeline space and storage facilities in a country known to be the largest importer of Canadian crude.

"A lack of visibility on available transportation capacity and, in turn, the prices that may ultimately be achieved could impact oil sands projects' commercial viability," said the authors of the June 4 report.

According to Wood Mackenzie, the WTI breakeven price for an average North Dakota Bakken well stands at under $60/bbl. Under a 10% discount rate and a 40% bitumen differential to WTI, the average unsanctioned stream assisted gravity drainage with little or no capital expenditures to date breaks even at the WTI price of $60/bbl, and a mining extraction project at around $80/bbl. Integrated projects with an associated upgrader break even at a WTI price over $100/bbl.

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