The Bakken Shale – a vast formation underlying parts of North Dakota, Montana, and South Dakota – has taken the U.S. by storm. Counties in North Dakota that were previously as quiet as a graveyard are now brimming with activity.
Due to the tremendous demand for labor, the working population in the 12-county Bakken region – which encompasses nine counties in North Dakota and three in Montana – has ballooned to more than 85,000, up from 50,000 just three years earlier, as oil workers have displaced natives.
Meanwhile, home prices have soared nearly 30% over just the past year, with some rental properties having gone up even more. In Williston, N.D., the heart of the Bakken boom, some one-bedroom apartments now go for $2,000 a month – more than twice what they went for prior to the boom.
That's got many people wondering: will activity in the Bakken fizzle out or will it keep going for years, even decades, to come? A recently updated assessment by the U.S. Geological Survey (USGS) may offer some clues.
USGS raises Bakken oil and gas estimates
According to the agency's assessment, published last month, the Bakken could contain twice as much crude oil, and thrice as much natural gas and natural gas liquids, than previously believed.
USGS estimates that at least 7 billion barrels of oil and 6.4 trillion cubic feet of natural gas could ultimately be recovered from the Bakken and Three Forks formations, with at least a 50% probability. That's up from an estimated 3.6 billion barrels and 1.7 billion cubic feet as of the agency's previous assessment published in 2008.
New estimates include Three Forks
What was unique about the USGS' latest assessment was its inclusion of the Three Forks formation – a thick, expansive formation that lies directly below the Bakken and extends further out from North Dakota and into parts of Montana and South Dakota.
According to the USGS, Three Forks is estimated to contain between 1.6 billion and 6.8 billion undiscovered ultimately recoverable barrels of oil, as compared to between 2.8 billion and 4.6 billion barrels for the Bakken. In its previous assessment, the agency determined that Three Forks was out of reach given existing drilling technology.
Bakken operators continue to impress
The dramatic increase in recoverable oil resource estimates for the Bakken and Three Forks plays illustrates how advances in drilling technologies, such as hydraulic fracturing and horizontal drilling, have rejuvenated U.S. oil and gas production by allowing energy companies to tap shale formations previously thought inaccessible.
And through continuous efficiency gains, numerous Bakken operators have reported staggering increases in both production and reserves. For instance, Continental Resources, the play's leading producer, boosted its production and reserves last year by 58% and 54%, respectively, while Kodiak Oil & Gas (NYSE: KOG), another major Bakken driller, reported nearly a tripling of its production from 2011 to 2012 and a 138% increase in proved reserves.
That kind of growth is truly impressive, especially considering the trend of stagnant or declining production among the large integrated oil companies. Beleaguered British oil major BP (BP 1.01%), for instance, reported a 5% year-over-year drop in total oil and gas production in the first quarter, while ExxonMobil saw a similar 3.5% year-over-year dip in its first-quarter production.
2 stocks to play the Bakken boom
With the USGS having revised its estimates sharply upward and with oil prices unlikely to collapse, Bakken activity should remain strong for the foreseeable future. That should mean more business for Halliburton (HAL -0.92%), a global leader in the oil-field services space, and water treatment company Heckmann (NESC), both of which boast strong presences in the Bakken.
Through its acquisition of Power Fuels last year, Heckmann gained a crucial foothold in the Bakken. Power Fuels was the leading environmental services company in the region and by acquiring it, Heckmann not only gained the company's extensive asset base, but also key customers including Statoil, Whiting Petroleum (WLL), and Hess Corporation. Indeed, better than expected performance from the Power Fuels business helped Heckmann top analysts' earnings estimates in the fourth quarter.
Similarly, Halliburton, the leading services provider in the Bakken, should continue to see strong demand for its services, having already helped some Bakken operators reduce their well costs last year by as much as $400,000 per well through the use of recycled water. By the end of next year, the Houston-based company's goal is to help the entire oil and gas industry use 25% less fresh water in their fracking operations.
