In 1999, just months before his death, a respected geochemist named Leigh Price was working on a research paper that would soon send shockwaves through the energy sector.
Dr. Price had spent much of his career with the US Geological Society (USGS) assessing the hydrocarbon potential in an area known as the Bakken Shale, a geologic sweet spot straddling parts of North Dakota, Montana and southern Canada. The culmination of his work was a manuscript suggesting that the area held more oil than anyone ever dreamed.
Around 413 billion barrels.[ad#Google Adsense]The report generated some controversy. After all, the entire country of Saudi Arabia only has 250 billion barrels of crude reserves. Could it be possible that North Dakota could dethrone the king of OPEC?
The answer to that question is the subject of endless debate among geologists. A master’s thesis done by a University of North Dakota grad student back in 1974 pegged the resource potential at 92 billion barrels. Work done a few years ago using extensive sampling data and powerful computer modeling put the total at 300 billion barrels.
For its part, the USGS has calculated that 3.65 billion barrels of oil are recoverable. But most think that’s a lowball figure. North Dakota’s director of mineral resources says 11 billion. And the top executive of a leading oil producer believes the area could ultimately yield 24 billion barrels. North Dakota is now pressuring the US Dept. of Interior and the USGS for another review.
New technology unlocks the Bakken
The productivity of oil reservoir rock is determined largely by two factors: porosity and permeability. The more porous the rock, the more empty space available to store oil and gas. And the more permeable, the easier fluid can flow through and be captured.
Some prolific oil fields have porosities of 30% and permeability measures of 1,000 millidarcies or more. By contrast, the Bakken is a tight shale formation with low porosity of 5% and permeability of 0.04 millidarcies. So while there is plenty of oil, bringing it to the surface is a challenge.
Many oil companies have come and gone in the Bakken Shale since production first began in 1951 — and a lot of dry holes to show for their efforts. Of course, it’s easy to have hit-and-miss results when you’re drilling two miles down into a thin layer of 5 to 100 feet. And even if that bulls-eye was hit, producers still had to hope for natural cracks and fissures in the rock to release trapped oil.
But the past few years have brought two game-changing technological advancements. The first was horizontal drilling, in which a company drills down 10,000 feet or so to reach the most productive level, at which point it makes a 90-degree turn and creates a horizontal leg.
$100 oil has profits gushing
Thanks to the developments mentioned above, oil companies in the region took out 113 million barrels just last year. And with oil at current prices, increasing the productivity of the Bakken is more compelling than ever.
Action to Take –> With production rates widely expected to double to 700,000 barrels per day over the next couple of years, the Bakken will be swimming in cash. A lot of companies should profit from this trend — from drillers like Precision Drilling (NYSE: PDS) to midstream players like Enbridge (NYSE: ENB).
— Nathan Slaughter[ad#jack p.s.]