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Bakken Oil Hype

June 25, 2010

Frequent Internet users are getting emails about the Bakken Formation in North Dakota and Montana, supposedly a great oil bonanza just waiting to be tapped if only nasty enviros would let it happen. The emails and websites say that Bakken would solve all our petroleum “needs.” (What, me worry about  global warming?)

Don’t believe it. There’s some oil to be gotten out of Bakken, and it’s going to be exploited. But the “bonanza” is nothing but hype.

U.S. Geological Survey (USGS) estimates of technically recoverable undiscovered oil reserves have gotten a lot of people stirred up about Bakken. In the industry, such USGS estimates are widely discredited as overly optimistic, however, and this is borne out by the current record of production from Bakken. In addition, the terms in which USGS presents their estimates are misleading. First, some numbers to bear in mind:

Current US oil production is about 1.9 billion barrels/year (5.3 million barrels/day)

Current US oil consumption is about 7.1 billion barrels/year (19.5 million barrels/day)

Not unreasonably, USGS estimates of undiscovered and technically recoverable oil are posed rather like gambling odds. At Bakken, USGS estimates:

5% chance of finding a total of 4.3 billion barrels,

95% chance of finding a total of 3.1 billion barrels, and

50% chance of finding a total of 3.6 billion barrels (the famous USGS “mean” estimate).

In its Fact Sheet 2008-3021, USGS upped its estimate of undiscovered oil in the Bakken by a factor of 25, compared to its 1995 figures. Many petroleum experts are quite willing to agree with USGS’s admission of significant uncertainty in these estimates.

…. BUT let’s take the numbers at face value. Together with consumption figures, they imply that:

•  USGS thinks there may be a very low (5%) chance of finding (not of producing!!) what amounts to slightly more than 7 months of current US oil consumption (that’s the best possible, assuming no growth in oil consumption!).

Unscrupulous sellers of interests/stock in the Bakken mention only this 5% figure, or even the field’s total possible oil endowment.

•  The more realistic low figure represents a very high (95%) chance of finding a tad over 5 months of our current consumption.

•  The media typically report USGS’s mean estimates as though they’re real, but the mean is just an average of the other two. In this case, the mean amounts to an even chance of finding about 6 months of current US oil consumption. But this mean really should be thought of as meaningless, for when the 5% and 95% figures are averaged (5% chance + 95% chance, divided by 2), the number assigned to the very unrealistic 5% chance is the tail that wags an over- optimistic chimera-dog.

Fact: average oil field production worldwide amounts to only about 25% of the total oil in a field. Current industry expectations for total oil recovery in an intensely drilled portion of the Bakken Formation are a little over half the USGS 95% chance estimate for that area. So forget the mean and 5% chances of discovery.

Last word: It takes a long time and thousands of expensive (~$4-8 million each) wells to fully develop a field the size of the Bakken, which  means that the Bakken can have only a barely discernible impact on daily US oil supply throughout the life of the field.

For a fuller discussion of these issues, see Appendix 9 (U.S. and Them: The United States and World Oil Reserves) in our book, The American West at Risk. To order the book, go to http://theamericanwestatrisk.com.

Look up the estimates and consumption figures yourself in these useful reports:

U.S. Geological Survey, Assessment of Undiscovered Oil Resources in the Devonian-Mississippian Bakken Formation, Williston Basin Province, Montana and North Dakota, 2008. USGS Fact Sheet 2008-3021: http://pubs.usgs.gov/fs/2008/3021/

The Oil Drum, The Bakken Formation: How Much Will It Help? 26 April 2008: http://www.theoildrum.com/node/3868#more

Tyler Hamilton, Bakken No Energy Panacea, Toronto Star, 14 April 2008:  http://www.thestar.com/business/article/414164

David Cohen, An Unconventional Play In The Bakken, The Energy Bulletin, 16 April 2008: http://www.energybulletin.net/node/42850

The Oil Drum, The Bakken Shale – Has It Moved The Needle? 2 November 2009: http://www.theoildrum.com/node/5928#more

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16 Comments leave one →
  1. Kyle Ledbetter permalink
    July 22, 2010 6:19 pm

    Actually, wells are currently running around $6 million to drill and complete.

    You can call it hype if you want, but their are currently 138 rigs operating in North Dakota, with most of these drilling Bakken and/or TFS wells. Dry holes are non-existent. The major risk is a significantly lower crude price.

    Debating the actual size of the resource base seems unnecessary to me at this point.

    • July 24, 2010 11:20 pm

      The actual size of the resource is of major importance for development of a field. Preliminary estimates are not taken all that seriously until drilling proves it out, so the fact that currently producing areas are not meeting pre-production expectations is an important consideration for investors and oil consumers. The characteristics that you cite are common during the early stages of an oil play. Lots of wells get drilled for proving the resource and producing the oil. The absence of dry holes at this stage is what drillers hope for, and shows that the current wells are within the known boundaries of the oil-producing formation. 138 rigs is not a huge number, given the geographic extent of the formation. The critical question is whether this one source can provide the US all the oil it’ll ever need — that’s the hype going around on the internet. Based on how much oil we now use, and how much we depend on growth in energy consumption, the answer has to be “no.” And that’s worth talking about.

      • John B permalink
        August 1, 2010 1:58 am

        While your point is well taken that the Bakken/ Three Forks drilling is not a solution to the energy needs of the US, please don’t misunderstand the significance of the field or what is being done there. you said “138 rigs is not a huge number” and if it were a stagnant number, then you would be correct in implying that it is pretty insignificant. However, the fact is that since last November (2010), the number of drilling rigs has risen from about 78 to its present count of 143 (today’s count). Each one of these rigs will drill a well, then move on to another site and drill another well. This is repeated many times throughout the year with each rig (literally thousands of wells drilled each year). The significance is merely this: The number of wells going in is increasing, and the rate they are going in is also increasing. Will this drilling solve all our energy needs? No, but each little bit does make a difference. The technology used now is actually quite new to the drilling industry, and that’s the neat part of this, because what you see being done in North Dakota may have the potential of being duplicated throughout much of the west and south where older plays have dried up and stopped producing. If this demonstration in North Dakota can be reproduced in other formations throughout the country, then it WILL have an impact on our import needs, and “that’s worth talking about”!

  2. John B permalink
    August 1, 2010 2:02 am

    oops…meant to say November 2009……

  3. Ufogeorge permalink
    January 30, 2011 12:42 pm

    Free energy devices not patentable plus you would be killed if you brought one to fruition. What happened to Henderschott device. The OCTOPUS wants NO competition.

  4. bill bergseid permalink
    February 19, 2011 5:48 pm

    You obviously have done some research in this area–but you are not yet well educated. Since you published this, technology for horizontal drilling and fraccing has improved even more dramatically. As a result, there are 20% more drilling rigs operating in ND and companies such as Continental Resources are drilling even more. Contrary to your assumptions, Continental is sure enough of the outcome that it is willing to spend about $1 billion just this year developing this resource. As stated by Continental’s CEO, what was “technologically recoverable” when the USGS released its paper is considerably different than what is recoverable today. The static view of those of you in the media is what resulted in predictions 30 years ago that the US/World would run out of oil by 2010. That static view fails to account for technological improvements and changes in price. There are reserves worth developing when oil is at $90/BBL that were not economic at $30/BBL, even after adjusting for inflation.

    See http://www.bloomberg.com/news/2011-01-20/oilman-bakken-holds-20-billion-barrels-of-oil.html

    Although I would never want to be an shareholder or owner of a company run by people with your outlook, I hope you can someday try your hand at an enterprise that produces something people are willing to pay for.

    • February 20, 2011 8:45 pm

      The hype that I aimed my comments at are not based on economic arguments. I am contesting the contention, being spread via internet, that Bakken (or any known domestic source of petroleum) can provide enough fossil fuels to meet much of US demand. I have a chart to show that it doesn’t amount to much — look for it on my next blog.

      I’ve not said that Bakken cannot or should not be produced, or that various techniques cannot winkle a little more out of the formation than USGS has predicted. But will those techniques produce more usable fuel? There’s no doubt that a great deal of petroleum will come out of Bakken, but the US uses a truly IMMENSE amount of petroleum. If not the highest, we are one of the world’s highest per-capita petroleum consumers. Our energy demand and consumption dwarfs new US discoveries — particularly in terms of the energy required to produce additional fossil fuels.

      Bakken oil is “non-conventional” because the petroleum is in small dispersed “pools,” and much of what’s there requires “fracking,” with the injection of corrosive chemicals, to be coaxed out the ground. Since I’ve mentioned fracking, I’ll just add that this and other “new” techniques that Bill B refers to date back to the 1940s. This means that the techniques of horizontal drilling and fracking at Bakken were known by USGS when estimating the amount of likely recoverable oil resource.

      High tech approaches generally require high energy use. The dispersed pools and need for injecting fluids, taken together, mean that the Bakken developers will drill many, many holes and use a lot of energy to get the petroleum out and process it for use as fuel.

      My main point is that the amount of NET ENERGY produced will be much less from Bakken than from those “conventional” sources that movies have made us think is how oil is extracted. It’s correct that in early days oil gushed out of holes drilled into very large pools under high pressure. Many fewer holes were needed to extract most of the recoverable oil from those pools than are required to produce Bakken’s resource. Producing lower and lower levels of net energy using higher and higher levels of energy to produce it is a losing game, both in terms of resources and economics.

  5. February 27, 2011 4:21 am

    Meanwhile, individual investors in the Bakken are doing very, very well. 172 active rigs in the Bakken, another record, and “no” dry holes in the Bakken.

  6. meritman permalink
    April 4, 2011 12:21 am

    All I have to say is: You must be one of those “NASTY ENVIROS”. You must not care that gas will soon be @$5.00 a gallon. If we just announced that we were going to explore and exploit this oil field that the world market per barrel would drop 20-25%

    • April 4, 2011 5:55 pm

      Meritman’s comment is quite incorrect.
      As I’ve said now many times –see earlier comments and replies — I’m not against Bakken being exploited. IT IS being exploited, and will continue to be exploited. The issue is the form of oil in Bakken, which is unlike fields discovered early in U.S. petroleum producing history, and therefore how much net energy Bakken can ever provide to compensate for those older U.S. oil fields that are going out of production.
      Gas prices are going up for a number of reasons, including political ones (especially Middle East unrest). Prices are set by the international petroleum market, so some of the price rises are due to speculation. Both these factors affect us because Americans use SO MUCH gasoline per capita — much more than any other petroleum-consuming country in the world — and over 60 percent of the petroleum we use is imported from politically unstable areas.
      Reality check: is gas terribly expensive in America? Not compared to Europe, where motorists have been paying far more per gallon for decades. Robert Rapier, chief technology officer of Mercia International, recently commented in the Washington Post that Europeans use only half the gas per capita of Americans, due to high gas taxes. The taxes go into trams and train systems for commuting and for convenient shopping. Trains are much more conserving of energy per capita than cars. Unfortunately, the price Americans pay at the pump goes entirely to the oil industry, and because we import SO MUCH, more than half goes to the oil industry of foreign nations, some of which are controlled by the governments.
      America used to be a “can-do” nation. Seems to me that Americans could figure out ways to use less gas as well as any Europe, instead of whining and falling for industry hype about such limited resources as Bakken.

  7. May 13, 2011 11:57 am

    North Dakota setting new records. Call it what you want.

    100 rigs last year; now 178 rigs.

    Estimated reserves:
    USGS: 4 billion bbls
    Whiting estimate: 12 billion bbls
    Continental Resources estimate: 24 billion bbls

    North Dakota #4 among states in oil production. Will probably overtake Alaskan in oil production.

    Producing 6% of US domestic oil.

    Still remains the largest oil reservoir ever found in lower 48.

    milliondollarway.blogspot.com
    bakkenoil.wordpress.com

    For early investors, it’s been a great ride. I would be very, very cautious in throwing new money into Bakken investments; the easy money has been made.

    • May 13, 2011 7:08 pm

      From the US Energy Information Agency (http://www.eia.doe.gov/steo/#US_Crude_Oil_And_Liquid_Fuels): “Total U.S. consumption of liquid fuels increased by 380,000 bbl/d (2.0 percent) to 19.1 million bbl/d in 2010.” That daily figure works out to 6.9 billion barrels per year. So the largest resource quoted for Bakken in the above represents a bit more than 3 years of total US consumption.
      Energy economists on such sites as The Oil Drum have noted that the price of petroleum will have to go up a lot more before a pipeline for Bakken oil can be built. Right now the product is being trucked out, lowering the net energy produced. I join with boksol in congratulating the early investors — enjoy the ride while it lasts.

  8. July 29, 2012 7:16 am

    The rig count is now up to 210 active rigs.

    A Bentek Energy study released this past week suggests the Bakken could produce 2.0 million bopd in 2025, not trivial.

    Interestingly enough, it turns out that the Bakken is also high in liquid natural gas (not the “cheap” dry natural gas that no one wants) and Bentek Energy forecasts a liquid natural gas boom for North Dakota.

    The importance of the Bakken is not the amount of oil it will provide, but the fact that it is a laboratory for the industry in targeting unconventional shale oil worldwide. Industry folks now call this “Bakken drilling” or “Bakken-like” drilling.

    If the Bakken does produce 2.0 million bopd in 2025, that will exceed the amount of oil the US imports from all of OPEC currently. The Bakken in North Dakota represents but four counties for the most part (17 producing counties, but four counties account for the bulk of production.

    • Jane permalink*
      July 30, 2012 12:12 am

      Point 1: The rig count is now up to 210 active rigs.

      Response: Benetek Energy is a company with vested interests.

      Point 2: A Bentek Energy study released this past week suggests the Bakken could produce 2.0 million bopd in 2025, not trivial.

      Response: This is not consistent with the Energy Information Agency’s estimate of a peak production of 1.0 million bopd in 2020.

      Point 3: Interestingly enough, it turns out that the Bakken is also high in liquid natural gas (not the “cheap” dry natural gas that no one wants) and Bentek Energy forecasts a liquid natural gas boom for North Dakota.

      Response: The natural gas liquids produced along with the oil are a small fraction of the oil produced. All of this may very well be a “boom” for North Dakota, but is certainly not for the U.S. Dry gas is not wanted just now because the price is below production costs. In fact, a third of the dry gas component produced with oil from the Bakken is flared as though it is truly worthless. It it were really worthless, why is so much money being invested in other dry shale gas deposits?

      Point 4: The importance of the Bakken is not the amount of oil it will provide, but the fact that it is a laboratory for the industry in targeting unconventional shale oil worldwide. Industry folks now call this “Bakken drilling” or “Bakken-like” drilling.

      Response: So why do they continue to drill holes for Bakken oil? It took more than 6,500 wells to produce a quarter of what Benetek predicts, and according to the North Dakota Dept. of Mineral Resources, they will drill another 33,000 wells to produce the formation out. At $8.5 million per well that comes to a lot of money for a demonstration. In addition, maintaining production over the 30 years promised by Bakken operators will require more than 200,000 new wells, because the productivity of the wells drilled, even in the “sweet spots,” decline at such a rapid rate.

      Point 5: If the Bakken does produce 2.0 million bopd in 2025, that will exceed the amount of oil the US imports from all of OPEC currently. The Bakken in North Dakota represents but four counties for the most part (17 producing counties), but four counties account for the bulk of production.

      Response: You had better think twice about the fact that current Bakken production comes from only four counties—the reason is there isn’t much oil in the Bakken outside of these “sweet spots”.

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