North Dakota's Bakken Shale is believed to hold hundreds of billions of barrels of oil. The only problem is oil producers like Continental Resources (NYSE:CLR) can recover only a small fraction of that amount. In fact, according to the U.S. Geological Survey, America's oil companies will recover only about 7.4 billion barrels. While that's more than double its previous estimate, it's well short of what's actually down there.
Continental Resources is much more optimistic. The company estimates producers will be able to recover about 20 billion barrels of oil using current technology. But CEO Harold Hamm has said that with improved technology, producers could eventually pull more than 45 billion barrels of oil out of the play. That's a remarkable number considering current estimates of proved U.S. oil reserves are just 29 billion barrels.
One of the keys to unlocking more oil could be using gas to enhance its recovery. Both carbon dioxide and natural gas are being considered for the chore. Only time will tell if either holds the key to unlocking more oil from the Bakken and other tight shale resource plays.
The case for carbon dioxide
American oil producers have been using carbon dioxide to enhance the recovery of conventional oil wells since the 1970s. Today, companies like Denbury Resources (NYSE:DNR) see the greenhouse gas as the key to unlocking more than 10 billion barrels of oil in the Rockies and Gulf Coast alone. While most of the carbon dioxide Denbury uses is from natural sources, the company is starting to use carbon dioxide that has been captured from industrial sources. Through enhanced oil recovery it can then sequester it underground. If carbon is the key to unlocking oil that's hidden in shale plays, that process could play a vital role in reducing the nation's carbon emissions.
Currently Marathon Oil (NYSE:MRO) is working with the U.S. Department of Energy and the North Dakota Industrial Commission on a carbon-based enhanced-oil-recovery-research program. Because recovery factors in the Bakken are currently just 3%-10% of the original oil in place, small improvements could yield billions of barrels and vastly improve the play's already strong economics. For example, if carbon dioxide could improve recoveries by just 1.1% it would yield an additional 1.87 billion barrels of oil, which is more than $175 billion worth.
Carbon dioxide isn't the only gas that producers are testing. Canada's Lightstream Resources has been testing the injection of natural gas to increase its recoveries in the Bakken. The company has conducted laboratory analysis, computer simulations, and early field experiments that suggest natural gas is the key to unlocking more oil out of the Bakken. In fact, the company sees its recovery factor improving from 15% to 25% by using natural gas as a flooding agent.
If natural gas does prove to be the key, it could be a real coup for the industry. Currently, 29% of natural gas produced in the Bakken is flared away because the industry lacks the pipelines and associated infrastructure to market the gas. It's pretty shocking to see so much gas being flared off. Kodiak Oil & Gas (NYSE:KOG), for example, flared half of its natural-gas production in the Bakken last year. So, if the industry does find that gas is the key to unlocking more oil, it would stop flaring in a hurry as producers would reinject the gas in order to produce more oil.
Right now there is no real hurry to perfect enhanced-oil-recovery techniques in the Bakken. The play is still early in its development and producers are already figuring out ways to extract more oil from it. But its potential is still limited by our current extraction technology, and a new boom awaits if either of these gasses prove to be the key to unlocking more oil from the Bakken and other tight shale resources.
How to profit from America's energy boom
Matt DiLallo has the following options: short January 2014 $18 puts on Denbury Resources. The Motley Fool owns shares of Denbury Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.