Rune Likvern has a very long look at shale oil production statistics for the Bakken in North Dakota at The Oil Drum - Will the Bakken “Red Queen” Have to Run Faster?.

This post is an update and continued expansion to my previous posts about tight/shale oil in Bakken/Three Forks in North Dakota (ND):

* Is Shale Oil Production from Bakken Headed for a Run with “The Red Queen”? * Is the Typical NDIC Bakken Tight Oil Well a Sales Pitch?

This post documents:

* At present oil prices Bakken tight oil has the overall prospects of being profitable. * Between 70-75% of the studied wells (well cost @9Million and oil price @$90/bbl) were found to have a prognosis for being at or above breakeven (being profitable). * If (or rather when) average well productivity declines further, this will add a new meaning to the term tight oil. * Developments in average well productivity.

Energy Policy Forum has an interesting article by Deborah Lawrence Rogers about the financials of the companies frantically scraping the bottom of the barrel in the Bakken - HUGE CAPEX = FREE CASH FLOW? NOT IN SHALES.

Taking a universe of 5 shale companies, some primarily with shale gas assets and others with shale oil, it is of note that there has been a significant deterioration of free cash flow since 2010. But what is even more interesting is that some of these companies are reporting that net income has been growing though free cash is falling.

Not wishing to bore everyone with an esoteric discussion of financial statements, it is of note that when a company shows a growth in net income with a concomitant deterioration of free cash flow, it may be an indicator that management is taking aggressive steps to boost earnings artificially. Not always. But possibly.

So how much deterioration has there been in free cash flow? It is impressive.

When you adjust the figures to include capital expenditure (and dividends where appropriate), their free cash available is negative. Significantly negative.

This is highly problematic because if a company cannot generate cash from operations then it has to go outside and get the monies through borrowings or equity offerings. In other words, debt or dilution for investors.

Free cash flow of Continental Resources, a big player in the Bakken, has dropped from ($430M) to ($2.4B) since 2010, all of it negative. And Continental is not the only one. Devon Energy’s free cash flow has dropped from ($1.2B) to a significant ($3.5B) over the same time frame. Range Resources, who are drilling primarily in the Marcellus, booked a negative free cash flow of ($556M) in 2010 and this has deteriorated to ($1.0B). Kodiak Oil and Gas, another Bakken player, had negative free cash flow in 2010 of ($170M). It has now deteriorated to ($1.0B). Chesapeake is interesting because its free cash flow for 2012 ($3.3B) is now roughly equivalent to its level in 2010, ($3.4B). But over the last two years Chesapeake has liquidated approximately $13 billion in assets with no commensurate gain to free cash flow. Management still needs to move outside the company to generate cash to continue operations. And yet, shareholders have had their underlying assets disappear to the tune of $13B to pay down debt.

Clearly there is a pattern here of severe deterioration. But that is not all. CAPEX has exploded during this time which means that companies have spent enormous sums of money drilling wells that are not providing enough cash to continue drilling operations on their own. Not even close. For instance, Continental’s CAPEX grew from $1.0B to $4.1B. Devon’s CAPEX grew from $6.4B to $8.2B. In total, these 5 companies spent approximately $56B in capital expenditure since 2010 while the free cash generated from this $56B spending spree is non-existent. In fact, it is worse than non-existent because it is alarmingly negative.

This is not sustainable. It could be argued that it is not even moral. It is a failed business model of epic proportion. While companies could make the argument at one time that this was a short term downtrend, that no longer holds water because this pattern is long term.

The most troubling aspect of this is that we are fast tracking exportation of this commodity in spite of the glaring financial anomalies. It is extraordinary that some members of Congress proclaim whole heartedly for fiscal responsibility while turning a blind eye to fiscal irresponsibility among their campaign donors and promoting exportation.

Well - the USGS report is out and the estimate for recoverable oil in the Bakken is pretty modest compared to some of the massively inflated estimates floating around the lunar right media lately - 3 to 4.3 Billion Barrels of Technically Recoverable Oil. This is still a respectable number - more than 1 month of global oil consumption at the current rate (which gives you an idea of how hard it is to have a serious impact on the peak date, and how much that 220 billion barrels of "undiscovered" oil under Iraq is worth).

On a related note, Energy Bulletin has an article from Zach Dundas on the oil boom in Montana and North Dakota (MonDak) - Boomtown.

What happens when an oil field as big as any in the Middle East is discovered in the desolate border towns of Montana and North Dakota?

The story started out in a Montana newspaper, then grew into a minor legend: An unnamed rancher out in the state’s far east, a sparsely populated town along the North Dakota border, received his first royalty check for crude oil pumped out of his pastureland. Oil is the big news in this area, which the locals call MonDak; on both sides of the border, new wells can mean life-changing money for the families who own some of the toughest, driest farm and ranch land in the country.

So the story goes that the farmer opened the envelope and looked at the check, the first quarterly installment. He read the amount, read it a second time, then he sent the check back. He must have thought the damn fools had put the decimal point in the wrong place—$1.1 million, an unfathomable fortune, just couldn’t be right.

The tale circulated this fall in and around Sidney, a town of 5,000 people that anchors a huge swath of eastern Montana’s gold and slate-gray hills. Sidney is not part of the Montana where movie stars buy trophy ranches: temperatures swing from minus 40 degrees in the winter to 110 in the summer, and no one would confuse recreation with the battle to squeeze a living out of the land.

The town also happens to sit at the epicenter of the biggest inland oil discovery in the United States in 50 years. Two miles below the surface lies a stratum of oil known as the Bakken formation, holding an epic haul of crude—some surveys suggest up to 200 billion barrels, a near-Saudi-sized reserve. And since the end of 2000, when new drilling technology and rising prices combined to unleash the find, Montana and North Dakota have become the underground rock stars of American oil, among the few states recording production increases. With oil prices soaring above $100 a barrel, it’s like giant vaults of cash opened beneath the MonDak soil.

In late November, despite cutting winds and near-horizontal snow, Sidney and its hinterlands are a hive of activity. Oil-tanker trucks patrol the narrow highways and gravel farm roads day and night. The cafés, casinos, and bars are full of guys wearing coveralls emblazoned with oil-company logos, most prominently those of “Team” Halliburton and that notorious company’s rival Schlumberger, the outfit BusinessWeek calls “the stealth oil giant.” Ubiquitous “help wanted” signs testify to the most open job market anyone around here can remember—if you can work, you’re working in oil. A genuine boom is in full swing.

This has all happened relatively quietly, perhaps because MonDak is so remote. But locals will tell you that the Bakken formation has torn the area’s social fabric in a big way. Oil spawns more jobs than the thin population can fill, paying wages higher than local businesses can afford to pay their employees. Landowners collect royalties on oil pumped out of their property, rearranging the economic fundamentals of a place where, traditionally, nothing comes easy. It has also created subtle tensions between those making big oil bucks and those not profiting from the boom. ...

The Bakken oil formation seems to be the oil story of the week, with the excitement apparently generated by the USGS announcement expected on Thursday.

BusinessWeek has a report on the USGS announcement - Report on Bakken oil potential expected.

A long-awaited federal report on oil that could be recovered in parts of North Dakota, Montana and two Canadian provinces is to be released this week. The Bakken shale formation encompasses some 25,000 square miles in North Dakota, Montana, Saskatchewan and Manitoba. About two-thirds of the acreage is in western North Dakota, where the oil is trapped in a thin layer of dense rock nearly two miles beneath the surface.

Ron Ness, president of the North Dakota Petroleum Council, said the number of wells in the Bakken increased from about 300 in 2006 to 457 at the end of last year. Bismarck-based MDU Resources Group Inc. announced its first venture into the Bakken this week.

The study being released Thursday by the U.S. Geological Survey was done at the request of Sen. Byron Dorgan, D-N.D., over the past 18 months. "Technology continues to advance," Dorgan said Monday. "This is not going to be a red light or green light about oil development in the Bakken -- clearly there already is a big green light there. But I think the question is pretty clear: How much of that oil is recoverable using today's technology?"

In 1995, the Geological Survey estimated that using technology available at that time, 151 million barrels of oil could be recovered in the Bakken, said Brenda Pierce, a geologist and program coordinator for the agency's energy resources program. Pierce said she would not disclose the study's findings until Thursday. Asked whether the estimate would be an increase from the 1995 figure, she said, "There is industry in there and having success. There's your answer."

Julie LeFever, a geologist with the state Geological Survey in Grand Forks, has been studying the Bakken for more than two decades. She calls it an "unconventional resource."

The oil is trapped in microscopic pores of rock, and to capture it, most companies "fracture stimulate" horizontal wells by forcing pressurized fluid and sand to break pores in the rock and prop them open to recover oil. "It's not something you would see in most oil formations," LeFever said. With technology, she said, "the success rates are going up, but we're not all the way there yet."

She said estimates of the total amount of oil in the Bakken Formation have varied wildly over the years, from 10 billion barrels to 500 billion barrels. The higher estimate was done by Leigh Price, a USGS geologist who died in 2000 before his study was published.

RedOrbit also has a report - "Research on Bakken Formation's Oil Reserves Nearly Completed".

The U.S. Geological Survey is nearing completion of a research project that will attempt to quantify how much oil is contained in the Bakken shales formation and how much of it is recoverable. The study is expected to be completed by late April, according to Sen. Byron Dorgan, D-N.D., who, along with other state officials, pushed the federal agency to finish the research started by scientist Leigh Price.

Price estimated the Bakken formation may hold as many as 900 billion barrels of oil. But Price died in 2000 before the study could be published or peer reviewed. Other estimates of the Bakken formation's oil reserves have pegged the number at closer to 200 billion or 300 billion barrels.

Dorgan said Thursday during a stop in Grand Forks that completing the survey is important to North Dakota. The Bakken formation stretches across western and central North Dakota, eastern Montana, southern Saskatchewan and part of northwestern South Dakota. "I think it's going to show a very substantial recoverable reserve of oil," Dorgan said. "It will be important as a signal to the rest of the world what we have here."

Dorgan said the U.S. Geological Survey began work on finishing Price's work about a year and a half ago. He said he is optimistic that improvements in technology will lead to a substantial increase in how much of the oil in the formation will be able to be recovered. Dorgan said the study's findings will only increase the oil boom that the western part of the state currently is experiencing. "The oil boom is real and it's going to be real significant" Dorgan said.

Salon reports that (unsurprisngly) some demented culture warriors who view peak oil as a part of some sort of ideological battle (along with everything else) are crowing that this means the end of peak oil (which is nonsense of course - it just potentially changes the peak date and shape of the curve - much like the 220 billion extra barrels of oil under Iraq that some peak oil models ignore) - North Dakota -- the next Saudi Arabia.

The catalyst for this dismissal of peak oil anxieties? News of the imminent release of a federal report estimating the recoverable oil in the Bakken shale formation, a geological structure that spreads across North Dakota, Montana and parts of Canada.

Guesses as to the total amount of oil in the Bakken shale formation range from 10 billion barrels to an eye-opening 500 billion. Estimates of the amount of commercially feasible recoverable oil from Bakken are equally across the board, from 1 percent to 50 percent.

If 50 percent of 500 billion barrels of oil could be recovered in a reasonably short time frame, that might make a difference to the dynamics of global oil supply and demand. But such a prospect is unlikely. Shale oil is defined as sedimentary rock from which liquid hydrocarbons can be extracted. But it is not easy, and it is not cheap (and let's not even think of how environmentally catastrophic it is to pulverize mountains of rocks to get barrels of oil).

No question: Rising oil prices and technological progress will make it cost-effective to extract some of Bakken's shale oil and get it to market. But will that flow fundamentally challenge the peak oil thesis? From this corner, the hope seems like a stretch. The world is running low on cheap, easy-to-recover oil, of that there is no doubt. The possibility that the supply of expensive, hard-to-recover oil will keep pace with growing global demand appears dim.

The Salon article also points to a blog devoted to the Bakken.

Some considerably more excited commentary can be found at the Canada Free Press (accompanied with a very hefty dose of global warming skepticism) and there is a discussion at Slashdot as well.

I keep seeing references in various out of the way periodicals about the amazing oil resource contained within the Bakken formation in North Dakota and Saskatchewan, with most of them claiming it contains 10 times as much oil as current US reserves (frequently supplemented with many exclamation marks !!!!!).

Lou Grinzo has also noticed this phenomenon, and has gone to the trouble of digging up all the reference data. Its far from clear how much of this oil (which is reputably of very high quality) can be extracted and how fast it would happen if someone could make it profitable - but worth keeping an eye on nevertheless.

I keep seeing mention of this mysterious entity in the oil world, the Bakken oil field, and how it has A Lot Of Oil. What's going on here? Is this just another case of an oil field being hyped beyond all reasonable bounds, as with other finds we've heard about in recent years, or is it truly a game changer? As with many such examples, the truth is somewhere in between, and the more you look into this specific example the more the entire world's oil situation reveals its complexity.

As explained in Technology-Based Oil and Natural Gas Plays: Shale Shock! Could There Be Billions in the Bakken? (9 page, 358KB PDF), written by the US Dept. of Energy in November 2006 ...

So, where does all this leave us?

* Bakken seems to have an undeniably large amount of oil in place, approximately 400 billion barrels.

* The amount of that oil that's technically recoverable is open to wildly varying estimates, from 3% to 50%, or 12 to 200 billion barrels.

* How quickly can the oil be produced? Even assuming that the transportation issue is solved, which it surely would be with billions of barrels of oil hanging in the balance, it's not at all clear in anything I could find what kind of technical hurdles would have to be overcome to move from exploratory wells to, say, a couple of million
barrels/day.

* Similarly, it's anyone's guess how quickly that production could ramp up to whatever level is feasible.

* Bakken seems to be a near perfect example of the dual effects of rising market prices and advancing technology making a previously known (discovered in 1953, remember), but only marginally developed, oil and natural gas reserve suddenly far more attractive.

* As for what Bakken means in the context of the peak oil discussion, it is what it is, as they say on at least one reality TV show. If in the coming years it turns out not to produce much oil per day, then it will have no discernible effect on projections of when the peak arrives or how tightly the oil crunch will squeeze us. If we are indeed on path for a 2011/2012 peak, then it's very hard to imagine how Bakken could come into play in a significant way before then. A moderate amount of oil/day from Bakken will likely contribute to maintaining a production plateau for years, which is my long standing prediction of where we're headed, for exactly the economic and technical reasons mentioned above. A high level of daily production from Bakken would trigger some interesting (to put it mildly) market dynamics. We would possibly see OPEC trim their output to support a market price they like, even as Bakken ramps up and other non-OPEC producers continue to experience production declines.

* Bakken will likely become the object of seemingly infinite discussion in the coming years as cornucopians try to claim it's "proof peak oil was wrong" (and I'm curious why we haven't seen them doing this already, frankly), and the Apocalypticons dismissing it entirely (ditto).

* My recommendation for the short run: Chill out. Wait for the truth to unfold. Don't jump to conclusions. Eat your veggies, exercise, and floss your teeth.