The Bakken Shale Hits a Billion. How Much More Is Left in the Tank?

The Bakken Shale recently produced its billionth barrel of oil. Is the boom just getting started, or is it about to dry up?

May 5, 2014 at 2:00PM

Sunset Oil Well

How soon will the sun set on the Bakken Shale boom? Photo credit: Flickr/katscool.

Continental Resources (NYSE:CLR) recently noted that the Bakken Shale underneath North Dakota and Montana recently produced its billionth barrel of oil. The company, which has been a leader in developing the field, thinks we've only just begun to recover the oil trapped within these rocks. For a really interesting animation that shows how production in the field has exploded over the last few years, click on the following image and watch the animation at the U.S. Energy Information Agency's website.


Source: Energy Information Agency.

The question investors want to know now that the Bakken has hit a billion barrels of cumulative oil production is: How much oil might be left in the tank?

Estimates vary
No one knows exactly how much oil is soaking the rocks underneath North Dakota and Montana. Estimates range from 150 billion barrels of oil to as much as 900 billion barrels of oil, according to Continental Resources. Given current technology, the industry won't recover more than a low-single-digit percentage of that oil. Continental Resources estimates that current technology will allow the industry to recover about 3.5% of its oil estimate, or about 32 billion barrels of oil. For perspective, that's almost as much oil as America's total proven oil reserves, meaning the Bakken could represent double the amount of oil we thought we had.

However, new technology could push the ultimate recovery of oil higher. In fact, an improvement in the recovery factor to 5% means the industry could eventually extract as many as 45 billion barrels of oil. Still, that recovery factor is well below the average of conventional oil reservoirs, which typically give up about 10% of the original oil in place through the primary recovery method, which is typically adding a pump to pull oil out of the reservoir. After that, a secondary recovery method of injecting water or gas can result in the recovery of 20% to 40% of the original oil in place. Finally, a third method, enhanced oil recovery, can ultimately push out 30% to 60% of the oil once trapped below the ground There's thus tremendous future potential for the Bakken. 

Still trying to figure this out
That said, Bakken Shale producers such as Continental Resources and Kodiak Oil & Gas (NYSE:KOG) are still in the early stages of primary drilling. The companies are still trying to figure out optimal well placement, proper proppant volumes, and the best completion techniques. These companies aren't even thinking about secondary or tertiary recovery methods just yet.

Right now, the biggest focus is on downspacing of wells. Kodiak Oil & Gas, for example, recently reported that it's still working on optimal well spacing. The company is running three pilot programs, with the tightest spacing consisting of wells drilled 600 to 650 feet apart within each of the reservoirs it's targeting. The following slide shows that as Kodiak Oil & Gas drills its wells closer together, it's increasing the estimated ultimate recovery per drilling unit.

Kodiak Oil Gas Spacing

Source: Kodiak Oil & Gas investor presentation. (Link opens a PDF.) 

As that slide notes, wells have moved from being spaced 1,000 feet apart to 600 feet apart. As that has occurred, the estimated ultimate recovery of oil and gas has increased from 5.5 million to 6.5 million barrels of oil equivalent per drilling unit to 9.0 million to 10.5 million barrels.

Downspacing alone has the potential to add a significant number of future drilling sites, while also increasing the amount of oil ultimately recovered in the basin. For example, Canada's Enerplus (NYSE:EFR) sees downspacing potentially doubling its future drilling inventory. The company currently plans to drill 145 future wells on its acreage, but downspacing wells could add another 150 future drilling locations. Just as with what Kodiak Oil & Gas is finding, this has the potential to also nearly double Enerplus' ultimate recovery of oil from its acreage in the Bakken Shale.

What this means for investors
The U.S. Geological Survey currently estimates that up to 7.4 billion barrels of oil will ultimately be recovered in the Bakken Shale. That number is looking to be incredibly low ,as Continental Resources sees at least 32 billion barrels of oil ultimately being recovered. Advances in technology, including developing secondary and tertiary recovery methods, could push oil recoveries even higher in the future. There appears to be a whole lot of oil left in the Bakken's fuel tank, meaning investors still have plenty of time to profit from its recovery.

OPEC is absolutely terrified of this game-changer
Even with this outlook, the Bakken doesn't worry OPEC one bit. There is, however, one thing that has it terrified: a company developing a game-changing technology. In an exclusive, brand-new Motley Fool report we reveal the company we're calling OPEC's Worst Nightmare. Just click here to uncover the name of this industry-leading stock, and join Warren Buffett in his quest for a veritable landslide of profits!

Matt DiLallo and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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