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A Closer Look at Bakken and U.S. Oil Production

(Note: Commentaries do not necessarily represent the position of ASPO-USA.)

Recent US news reports have highlighted the fact that US oil production has been rising and is now higher than it has been in years. Reports that highlight the recent US oil production increase don't mention that oil production outside of Texas and North Dakota has actually declined in the last few years.

Occasionally the media highlight the production increases that have occurred in the Bakken Shale region of North Dakota without going into any detail so it's worthwhile to take a closer look at the Bakken region to see what's happening.

Figure 1 is a map showing the location and extent of the Bakken Shale formation.

Bakken extends over a large area of North Dakota, Montana and Saskatchewan so one might think that if oil production is rising rapidly in North Dakota, it must also be rising rapidly in Montana and Saskatchewan.

Figure 2 is a graph of Montana's oil production rate in recent years. Production reached a high of ~100,000 b/d in 2006 and has since declined to ~65,000 b/d.

Figure 2 Montana Oil production

I read occasional articles in the Bakken Weekly suggesting that there is considerable oil activity on the Montana side of the border in the Bakken region. That activity has not translated into increasing oil production in recent years.

In the case of Saskatchewan, oil production did increase 2.2% in 2011 but that occurred after essentially flat production from 2000 to 2010 so there has not been an oil production surge in Saskatchewan like there has been in North Dakota.

Oil production in the North Dakota sector of the Bakken formation has increased rapidly, illustrated in Figure 3.

Although oil production in the Bakken region of North Dakota is growing rapidly, production is not growing uniformly throughout this region. Production is heavily concentrated in 4 counties: Williams, Mountrail, McKenzie and Dunn. Figure 4 is a map of North Dakota showing the location of the 4 counties on the western side of the state.

For the month of June 2012, the four counties had production of:

 

  1. Mountrail - 4,882,352 barrels
  2. McKenzie - 3,817,698 barrels
  3. Williams - 2,970,930 barrels
  4. Dunn - 2,734,640 barrels

Total production for the four counties was 14,405,620 barrels while total Bakken production was 17,830,456 barrels. The four counties represented 80.8% of total Bakken oil production. The four counties also produced 72.7% of total North Dakota oil production.

I have a contact in southern Billings County. According to that contact, oil companies have largely moved out of Billings County and moved north to the four counties specified above because that is where the oil is.

The Bakken Weekly has drilling permit data which shows that most new drilling permits are for the four counties as well. It's standard procedure for the oil industry to produce in the most favorable area of a region first before going to subprime areas and that's what the oil industry is doing in western North Dakota.

To achieve the rapidly increasing oil production in the region, oil companies have rapidly increased the rate of drilling, illustrated in Figure 5. The number of producing wells has now surpassed 4000 and the number of new well completions in 2012 should exceed 1000.

Even within the four counties specified above, some of the area is not exceedingly fruitful. It appears to me that in the near future, the prime producing area within the four counties is going to be saturated with oil wells considering that the fracking wells being used can extend up to approximately 2 miles. Assuming that the industry continues to add new wells rapidly, they will have to go to less fruitful areas outside of the prime producing area.

Oil wells in the Bakken region decline rapidly. From data I've seen, the average decline in the first year is ~60%. The only way to maintain or increase Bakken oil production is to rapidly increase the number of wells.

As the industry has to drill in less fruitful areas, being able to maintain production will become an increasing challenge.

In a previously published ASPO-USA commentary, I stated that I expected Bakken oil production to peak around 2014. I maintain that position with my predicted peak date being 2014 +/- 1 year.

North Dakota's oil production outside of the Bakken region is already declining, illustrated in Table I.

 

*Based upon data for the first 6 months of 2012

When oil production in the Bakken region starts declining, North Dakota's oil production will decline with a decline curve that pretty much parallels that of the Bakken region.

As I've stated above, the increase in U.S. oil production has been due to production increases in Texas and North Dakota. Table II contains U.S. oil production data excluding Texas and North Dakota.

*Based upon data for the first 6 month of 2012

In Table II, I've included data for the Gulf of Mexico (GOM) from both the U.S. DOE/EIA and the Bureau of Ocean Energy Management (BOEM). I've done that because the near-term data from the two agencies are considerably different with the U.S. DOE/EIA data being higher.

In 2011, there was a large volume difference in data from the two agencies at the end of the year for the GOM. It appears that the two agencies met and agreed upon a production rate for the GOM in 2011 with the U.S. DOE/EIA going down and the BOEM going up. That may be the case in 2012 as well.

In Table II, the higher U.S. oil production rate outside of Texas and North Dakota in 2009-2010 was due to higher production from the deepwater GOM in those years. Since then, GOM oil production has declined leading to a decline in U.S. oil production outside of Texas and North Dakota.

According to the Annual Energy Outlook 2011 from the U.S. DOE/EIA, GOM oil production is going to increase through 2013. I personally expect GOM oil production to decline through 2013 because the only significant GOM oil complex brought on-line in 2012, Caesar/Tonga, was brought on-line in March 2012. The bulk of the production increase associated with Caesar/Tonga will be in the first half of 2012.

No new significant fields beyond Caesar/Tonga are expected to be brought on-line in the GOM through 2013 while deepwater GOM fields in decline are probably declining at an average rate of 10-20%/year, based upon my experience. Maybe the U.S. DOE/EIA knows something I don't know but it won't take long to determine if that is the case.

Without going into detail concerning Texas, I expect Texas oil production to have a secondary peak around 2014 (Texas oil production actually peaked in 1972 at 3.57 mb/d while it's presently ~1.5 mb/d). If oil production in both Texas and North Dakota begins to decline around 2015, I expect U.S. oil production as a whole to begin to decline in that same time frame.

Roger Blanchard teaches chemistry at Lake Superior State University and authored the book "The Future of Global Oil Production: Facts, Figures, Trends and Projections by Region," McFarland & Company (2005). His website Energy and Climate News is at climateandenergynews.zparking.net.

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