Saturday, September 17, 2011

North Dakota Celebrates 60 Years of Oil; Future Looks Bright - ND Could Surpass CA and Alaska Soon

BISMARCK, N.D. (AP) - "North Dakota's booming oil patch is likely to slow just a bit this weekend as the state marks 60 years of production at a festival in Williston. Kevin Paschke, executive director of the Williston Chamber of Commerce, said the Williston Basin Energy Festival is a time for fun and relaxation but also a tribute to "risk-takers who had the vision and believed oil was beneath us.'' 

Paschke said workers from more than 200 companies and thousands of people from communities throughout the oil patch are expected to attend the festival, which will feature fireworks, beauty pageants and food, including barbecued alligator. A sort of roughneck Olympics also is slated, where oil workers will compete in tug-of-wars, arm wrestling, truck pulls and a drill-bit toss. Gov. Jack Dalrymple is slated to serve as the grand marshal for the festival's parade this morning. 

Amerada Corp.'s well struck oil on Clarence Iverson's wheat farm near Tioga in the northwest part of the state in 1951. The following year, the company hosted a party and provided 3,000 pounds of prime beef to feed a crowd of more than 10,000. Similar events have been held in 1961, 1981 and 2001.

More than 1.85 billion barrels have been produced in North Dakota over the past 60 years, state records show. Officials estimate that at least twice that amount remains untapped in the Bakken shale and the Three Forks formation below it. North Dakota is the nation's No.4 oil producer, on pace to surpass California and Alaska, where production has been declining.

North Dakota's oil patch is pumping about 100,000 more barrels of crude daily than a year ago at this time and about double the production in 2008. State and industry officials estimate the state could hit 700,000 barrels daily by 2015."

9 Comments:

At 9/17/2011 1:08 PM, Blogger Benjamin said...

North Dakota has oil, and $6k net in federal lard per resident. Does it get any better than this? Well, okay, during winter maybe....

 
At 9/17/2011 9:28 PM, Blogger VangelV said...

North Dakota's oil patch is pumping about 100,000 more barrels of crude daily than a year ago at this time and about double the production in 2008. State and industry officials estimate the state could hit 700,000 barrels daily by 2015.

Here we go again. You drill more than a thousand wells at $5 million a pop and get excited when production goes up by 100K barrels per day? If you want to see what is going on look at the industry cash flow filings in the 10-K statements. At the current low price most wells cannot return a real profit because the depletion curves are too steep.

And the only reason why ND will surpass Alaska and California is because those states cannot offset their depletion by new drilling. If the US wants oil at a profit a better place to do business would be in California, Alaska, Florida, etc. But that won't happen.

 
At 9/18/2011 3:09 AM, Blogger juandos said...

"And the only reason why ND will surpass Alaska and California is because those states cannot offset their depletion by new drilling"...

Hmmm vangeIV, doesn't California governments tend to restrict where drilling can be done more so than say N. Dakota?

S.F. Springs Considers New Zoning Ordinance to Restrict Oil Drilling

July 05, 1987

Huntington Beach Residents Win Round Against Oil-Drilling Plan

February 04, 1988

More waters off California may be off limits to oil drilling

April 9, 2008

 
At 9/18/2011 7:55 AM, Blogger VangelV said...

Hmmm vangeIV, doesn't California governments tend to restrict where drilling can be done more so than say N. Dakota?

Correct. California's government is stopping drilling in areas of known deposits. The federal government is also stopping the development of known Alaskan reserves.

The wells in Alaska and California are cheaper to drill, produce much higher amounts of oil and gas, and have much better depletion curves. Wells in ND are expensive and produce very little oil because of the high depletion rates.

The only way to report a profit for the average shale oil company is to use depletion rates and EURs that cannot be supported by the actual production data. Lucky for them, the SEC is allowing them to make questionable assumptions. What the US needs is the equivalent of Canada's National Instrument 43-101, which was instituted after the Bre-X fraud.

 
At 9/18/2011 11:37 AM, Blogger juandos said...

"What the US needs is the equivalent of Canada's National Instrument 43-101, which was instituted after the Bre-X fraud"...

You know that's not a bad idea now that you mention it...

BTW over at OilSlick.com they're all full of good news...

U.S. To Become Largest Oil Producer by 2017

Thursday, September 15, 2011

Goldman expects the U.S. to increase production to 10.9 million barrels per day thanks to the shale oil fields and a boom in the Gulf of Mexico...

Gulf of Mexico Drilling Boom

Thursday, September 15, 2011

Drilling has returned almost to normal levels in the Gulf of Mexico. There are currently 23 active rigs drilling in water over 3,000 feet deep. The BOEMRE has increased its demand for safety concerns and it has taken a while for companies to adjust to the new requirements but permits are being issued...

 
At 9/18/2011 4:22 PM, Blogger Che is dead said...

"You drill more than a thousand wells at $5 million a pop and get excited when production goes up by 100K barrels per day? ... At the current low price most wells cannot return a real profit because the depletion curves are too steep." -- Vange

Fisrt, not all of the wells drilled in the Bakken are horizontal wells. The depletion rates on horizontal wells are not as high as you suggest. The average horizontal well costs between $5-$7 million to complete and produces an average of 300-350 barrels per day. At $90 a barrel those wells would gross a little over $10 million dollars a year.

Also, advances in drilling technology have reduced the time to complete a horizontal well from approx. 65 days in 2008 to approx. 25 days now. Drilling success rates are 99% with 90% being profitable.

North Dakota has approx. 5300 producing wells, 2000 of those have been drilled in the last 3 years. That means that 2300 of those wells have been producing for more than 3 years.

 
At 9/18/2011 6:23 PM, Blogger Ron H. said...

juandos

"Hmmm vangeIV, doesn't California governments tend to restrict where drilling can be done more so than say N. Dakota?"

You are correct. The links you provided are 3 examples of the most common reasons for limiting drilling.

The first is an interesting story of unabashed greed, with no pretense of being anything else. That amount of candor, at least, is refreshing.

Santa Fe Springs, CA is part of the greater Los Angeles area, and is completely surrounded by fully developed cities. There is no more room for expansion or further development except for 1000 acres of oil company property. The city government looks at this undeveloped property with dollar signs in it's eyes, picturing huge shopping malls and commercial business parks. They have no particular interest in the oil business, but as industrial property, the tax base is limited.

Here's the crux of the article you linked:

"More Sales Tax Sought:

Weaver says the city is not trying to shut down the oil business. But Santa Fe Springs, 85% of which is zoned for industrial use, is in need of commercial developments to boost its sales tax base. The city expects to derive about $150,000 in revenue from oil operations, as opposed to an expected $12.2 million from sales and use tax revenue."

Your second link is pure NIMBY. don't wreck my view.

The third link is greenies saying "Don't drill *anywhere*, you might annoy the fishies."

 
At 9/19/2011 10:46 AM, Blogger Che is dead said...

Natural Gas Prices Could Pop 71%

"The Bloomberg report indicates that North American exports could see significant growth by 2016 to feed the Asian demand."

Shhhh, don't tell Vange.

 
At 9/19/2011 12:40 PM, Blogger VangelV said...

Fisrt, not all of the wells drilled in the Bakken are horizontal wells. The depletion rates on horizontal wells are not as high as you suggest. The average horizontal well costs between $5-$7 million to complete and produces an average of 300-350 barrels per day. At $90 a barrel those wells would gross a little over $10 million dollars a year.

This is not what the data suggests. First, most wells are horizontal. Second, the depletion rate is extremely high. While you may start off with two thousand barrels per day at the beginning you are down to a two hundred or so in the first year. By year three you are down to under 100 bpd and you never make the money that you expected.

Yes, there are a few profitable companies in the best producing areas. But as a whole, shale areas are a net loser. If we get a recession and prices fall most of the small shale players and the drillers will go bankrupt because there is no way to produce, transport, and refine the oil profitably when it takes as much energy to produce the petroleum products as is contained by those products.

Also, advances in drilling technology have reduced the time to complete a horizontal well from approx. 65 days in 2008 to approx. 25 days now. Drilling success rates are 99% with 90% being profitable.

Yes, advances have helped. But the economics are still negative because of the energy density of the shale and the energy that has to be invested in production. Given the depletion curves there is no way for most shale areas to produce profitably.

North Dakota has approx. 5300 producing wells, 2000 of those have been drilled in the last 3 years. That means that 2300 of those wells have been producing for more than 3 years.

The average well is producing less than 100 bpd. That is a poor result given the huge investment and the relatively young age of the wells. This is why most of the companies have huge cash flow issues and are going to have a hard time staying in the production business.

 

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