The Bakken Oilfield: Real Oil Production Scenarios

Includes: HAL, SLB, SWSIP
by: Matt King

Many people wonder how much oil is in The Bakken and if it is a hoax. Many people write about the bright prospects, the novice geology terms, and the companies who are in it. But, many people have it wrong. In this article, I would like to focus on the facts, the oil production potential of the Bakken and what it means for the future of oil production.

The Bakken is not 200,000 square miles as some would have you believe. It is closer to 20,000 square miles. The Three Forks formation, which is similar to the bakken and produces oil, underlies the entire bakken area and then some. Currently, wells are drilled on 640 to 1280 acre spacing units. That translates to 1 spacing unit 1 square mile to 2 square miles long. Initially, to protect the lease on that unit, an oil company will need to hold that spacing unit by a producing well.

Each well that is drilled is thought to have approximately 500,000 barrels of recoverable oil with an initial production somewhere close to 1000 barrels per day. After only a few years, this production quickly tapers off to under 200 barrels per day and eventually to zero after about 25 years.

Development of The Bakken/Three Forks will eventually encompass up to eight wells drilled per 1280 acre spacing unit. That equates to 8 wells per 2 square miles, or the potential for 80,000 well sites if both the three forks and bakken are present over the entire 20,000 square miles. Harold Hamm of Continental Resources predicts somewhere around 50,000 wells will be drilled over the next two decades, and this is how: with 1280 acre spacing units utilizing mutli pad drilling.

Each oil rig in the Bakken drills approximately one well per month. The rig count is at 204 which equates to 204 new wells being drilled per month or roughly just over 2200 wells per year. Granted these wells come on strong, let's only assume each well adds 100 bbl/day incremental production. In that respect, ND should be able to increase its output, albeit increasing at a declining rate, by about 200,000 bbl/day per year. ND currently produces around 450,000 bbl/day and will soon overtake California as the number three oil producing State. Of course, weather, input shortages, regulated hydraulic fracturing, and crude takeaway options can impact that number significantly. If current assumptions hold true, the drilling will last up to 30 years in the Bakken and Three Forks. That being said, investments in related Bakken companies will continue to be strong unless the EPA halts fracturing or the price of oil falls below $55 per barrel.

The companies best suited to gain from this, long-term, are service companies, in my opinion. The leading service companies in the Bakken are Halliburton (NYSE:HAL), Schlumberger (NYSE:SLB), and Superior Well Services (PINK:SWSIP).

The peak of ND Bakken oil production is difficult to predict but some estimate it will be in the 2016-2017 range when the production out of this field is at its peak. However, more layers are being explored and this really could be just the beginning. The Tyler Formation, and The Alberta Bakken, which are in close proximity to The Bakken are picking up steam.

It will be interesting to see what production and rig count looks like in 2015.... because production estimates will always coincide with rig count.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.