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By Keith Schaefer

One year ago, I wrote this story, asking could the Bakken ever hit 1 million barrels of oil per day (bopd) production? Well, now the Market is asking when (not if) will it hit 2 million?

A massive, 76-page report from Goldman Sachs from late September suggests 2023 (that's another ten years of growth) with the biggest growth year being next year, in 2014. In fact, they say the worst case scenario for the Bakken is now 1.3 million in 2017. One million? That was yesterday's news.

A smaller examination from Credit Suisse in early October suggests the same thing. Analysts from these investment giants went to the Bakken to find out firsthand whether this prime play has peaked. The two groups independently returned with the same answer: "no."

Two factors will continue to drive Bakken production growth for at least another decade: tighter well spacing and production from deeper zones. There's enough life in these drivers that Goldman's analysts started off their Big Report by stating they:

believe production from the Bakken horizontal oil shale play in North Dakota and Montana can continue to grow substantially.

If deeper zones and tighter well spacing were not spurring resource expansion, Bakken oil production would plateau at 1.3 million bpd in 2017. That would mean the Bakken only offered a few more years of growth, and at a much slower pace than we have seen to date.

Instead, Goldman expects the Bakken to peak at 2 million bpd and not until 2023. To get there, they figure production growth will average 130,000-210,000 bopd a year, well above the 110,000 bopd increase that we saw in the first half of this year.

(click to enlarge)

Their reasoning goes something like this:

First, the play has been de-risked and its areal extent defined. Bakken operators now know where and what the Bakken is. However, they are still figuring out how well spacing and drilling depths impact everything, like how much oil they can pull from the formation.

At first, producers drilled Bakken wells on 640-acre spacing, one per square mile. Then they moved with good success to 320-acre spacing. With shale formations, the worry is that wells drilled too close together tap into the same oil and limit each other's productivity. (The industry says that wells are communicating.) However, this year operators started to test 160-acre spacing and met with great success in some areas.

Not every part of the Bakken will be able to support 160-acre well spacing, but the analysts at Goldman figure 20% of the Bakken can handle it. They also think downspacing, as it is known, will get seriously underway in the next six months because lots of Bakken E&Ps are testing tighter spacings now.

Second, Goldman sees production rising as producers tap into deeper reserves. The Bakken is a layer cake, with five oil-bearing layers amongst nine total layers. The top two oily layers, the Middle Bakken and Three Forks 1, currently account for most of the Bakken's production.

Underneath these layers lie three more oil-bearing shale formations, known as Three Forks 2, 3, and 4. So far, wells drilled into these deeper layers have been mostly exploratory, but there have been some successes, especially from Three Forks 2. This bodes well for at least some deeper Bakken production.

On top of all that potential for production growth, the Bakken is also becoming more efficient. Better geologic understanding and more experienced drillers mean well costs and timelines are both coming down.

Slow output growth in H1 2013, but different drivers to come

Bakken production growth did slow notably in the first half of 2013. Goldman says that was due to weather issues and the timing of bringing pads online. As the Bakken matures, more operators are shifting to multi-well pads, which take longer to establish but are more efficient in the long run. This transition really hit in H1 '13, which means the slowdown in output growth was really just a delay.

As all those multi-well pads come online, all that delayed output will boost Bakken production once again, with the biggest boost coming next year, when the guys at Goldman expect Bakken oil production to climb 212,000 bpd. After that, they foresee output growth of 165,000 bpd in 2015 and 115,000 bpd on average in 2016-2018.

Efficiency, not rig count, is what matters

Production growth in the Bakken is still happening, despite fewer wells being drilled. Rig counts are used to measure how busy a play is, and a declining number added to concerns the Bakken boom was ending.

What makes rigs more efficient? Well, trained crews. Experienced operators now understand their acreages and geology better, and so can spot wells more accurately. Small technical improvements like better fluids and drilling technology mean wells get drilled more quickly and the rigs can move on to the next job sooner, reducing the needed number of drills.

Fewer rigs do not mean fewer wells. Goldman forecasts well completions will also rise even as the rig count declines, with faster drilling times. They see 20% more wells drilled in 2013-2017 compared to 2011-12, even assuming a 20% lower rig count.

And pad drilling is starting to happen in the Bakken where the industry drills 8-10 wells from one 10 acre site. This requires fewer rigs to complete the same number of wells.

Goldman sees no end to this trend. In fact, their analysts predict an average of just 150 rigs in 2014 through 2017, down from a peak of 213 in mid-2012, even as Bakken production climbs from just over 700,000 bpd today to an estimated 1.6 million bpd in 2017.

A more accurate measure isn't the number of rigs drilling, but the number of feet that get drilled. A lot of operators are now doing two mile plus laterals--longer than ever before. That reduces the rig count as well.

Credit Suisse adds that these longer laterals with more fracks spaced more tightly together are boosting recoveries, and with not much added cost. These analysts say companies in the core of the Bakken are now guessing they will recover as much as 940 million barrels of oil equivalent (mboe), compared with 650 million boe in 2012.

A smaller rig count is simply a result of a better, more efficient Bakken, not, as the Street worries, because of lack of inventory.

Digging into those deeper zones

Most horizontal drilling activity in the Bakken has focused on the Middle Bakken, a limestone, dolomite, siltstone and sandstone layer that lies about 4,500 feet below surface on the eastern edge of the basin, deepening to 11,000 feet below surface in the southwest corner of North Dakota.

The source rock for the Middle Bakken (the part of the formation that supplied the oil now in the Middle zone) are the Upper Bakken shale, a 23-foot thick layer just above the Middle Bakken, and the Lower Bakken Shale, a 50-foot thick formation just below.

The Three Forks formation is beneath all of that. This 250-foot thick section has 4 different layers, all of which also got their oil from the Lower Bakken Shale. The uppermost Three Forks layer (Three Forks 1, or TF10) has been largely derisked - in other words, it is producing.

(click to enlarge)

Three Forks 2, 3, and 4 are still largely exploratory.

Three Forks 2 (TF2) is certainly showing promise, though primarily in McKenzie County, in the core of the Bakken. Continental (NYSE:CLR), ConocoPhillips (NYSE:COP), and EOG (NYSE:EOG) have all drilled successful TF2 wells in McKenzie County.

There have also been successful TF3 wells, and while the numbers are fewer, the geographic spread is greater. Operators have reported successful TF3 wells in four different counties. The sector is still waiting for a strong TF4 well. Only two TF4 wells have been drilled to date, both by Continental, and neither well produced economically.

A key question is whether Three Forks 2, 3, and 4 can be developed independent of TF1. It is possible that wells drilled into the Middle Bakken and Three Forks 1 may have depleted the Lower Three Forks interval. In short, the data is still limited, and key questions remain unanswered. Nevertheless, Goldman assumes 25% of the Bakken will generate some productivity from Three Forks 2, 3, and 4. That can only help.

And of course, this report was written before Whiting Petroleum (NYSE:WLL) and EOG Resources showed the Market in early October that they can greatly increase the EUR of a Bakken well by using short wide fracks vs. long skinny ones. You can read my story on that HERE.

So it's possible in late 2014 I will be writing a story… the Bakken is only producing 2 million barrels a day? That's old news.

Source: Goldman Sachs Report: Is There No End To The Bakken Trend?

Additional disclosure: The Oil and Gas Investments Bulletin is a team of writers. This article was written by Keith Schaefer, Editor/Publisher. We did not receive compensation for this article, and we have no business relationship with any company whose stock is mentioned in this article. The author of this article has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.