"Peak Oil" is a concept floated around a lot by doomsayers claiming that the US energy boom is close to peaking. While they offer valid points, one being high depletion rates in shale wells, they are fundamentally wrong for several reasons.
Soooo many more wells to drill
In the Bakken there have been ~5,000 wells completed so far, but there still are 45,000 more wells to be drilled. The Bakken currently produces ~800,000 barrels per day with a very high oil content (+90%), and some see that going to 1 million bpd in just a few years.
With so many places to drill, Continental Resources (NYSE:CLR), the largest leaseholder in the Bakken with 1.2 million net acres, is guiding for a three-fold increase in production by 2017 (from 2012 levels), with most of that production coming from the Bakken.
Continental was able to pump out 88,000 boep/d in its latest quarter in the Bakken, which was ~65% of its total production. Continental's hopes lie on the Bakken, and it is a major contributor to America's oil boom. The Bakken isn't the only play America's innovation has been able to undercover, new plays are popping up all across this great land.
Hydraulic fracturing, especially with the improvements made around 2006, has enabled E&P players to open up new plays. While those who see energy production peaking point toward problems with existing plays, they completely disregard the very probable chance for energy companies to find new plays.
Noble Energy (NYSE:NBL) thinks it may have found the next great play in northeastern Nevada. So far Noble has done two 3D seismic tests on its 350,000 net acres in the area to try to get a feel for how much recoverable oil is in the area. Currently Noble is predicting between 190-1,400 million barrels of recoverable oil equivalent. Noble is going to drill two wells in the area in the second half of 2013 to see if its estimates are correct.
If those two wells prove Noble's predictions then how can you say that US oil production is peaking when we have just found a new play with over 1 billion barrels of oil? This is just one of many potential locations all around the US that could possibly have oil. Another location is deeper down on plays we already have.
Deeper, and more
Not only are oil companies looking for more places to drill, but they are trying to maximize the amount of recoverable oil per well.
EOG Resources (NYSE:EOG) is drilling deeper in the Eagle Ford to increase its initial production rate. Back in 2009 EOG only drilled down to 3,911 feet to have an average initial production rate of 483 bpd. EOG decided that it can go deeper to increase output and has been steadily drilling deeper each year.
YTD EOG is drilling laterals of 5,890 feet and has been greatly rewarded, with the average initial production rate hitting 1,226 bpd. The Eagle Ford isn't the only place EOG has been drilling deeper. In the Bakken EOG drilled 220% deeper and saw the amount of recoverable oil increase 270% to 940,000 barrels per well.
As E&P players drill deeper they can extract more oil from each well and significantly increase America's oil growth runway.
The higher the initial production rate, the more oil each well will pump out years down the road. Another way E&P companies are helping out the oil boom is through downspacing.
More locations to drill
Downspacing is where companies drill in smaller, tighter units. Instead of drilling 10 wells on 100 acres they drill on 50, for example. One company that has been able to demonstrate the potential of downspacing is Marathon Oil (NYSE:MRO).
When Marathon set its sights on the Eagle Ford it thought that it would be drilling on 80-160 acre spacing. In 2013, however, Marathon had a change of heart and decided to drill on 60-acre spacing. This enabled Marathon to increase its possible drilling locations in the area from 1,200 to 3,000. The more wells you can drill both pushes up production and can lead to higher levels of recoverable oil.
As all E&P players start utilizing more efficient drilling techniques, from downspacing to deeper laterals, the American oil boom gets stronger legs to continue its run upwards.
While this is just part of the argument to why the US oil boom has plenty of room to grow, investors can clearly see that better drilling techniques and new plays provide massive upside for both America and its E&P players. This is just part of the story, though, there are plenty of other reasons the American energy revolution has just begun!