Tuesday, June 19, 2012

The North Dakota Miracle: Fracking in the Bakken


The recent boom of the Bakken oil fields—made possible by a perfect storm of sensible state regulations, the fracking process, and the fact that most drilling is taking place on private lands—has produced a whirlwind of economic growth in a formerly sleepy corner of northwest North Dakota. Recently, a team from The Heritage Foundation and the Institute for Energy Research (IER) traveled out West to see it for ourselves, watch their video above.

8 Comments:

At 6/19/2012 7:34 AM, Blogger VangelV said...

Note what is missing in the story? While it concentrates on the boom in employment and asset price increases there is no mention of the fact that the shale gas producers are close to bankruptcy. Did you also see the rock samples shown and notice the error? Fracking only removes a fraction of the gas and oil because most of it will remain trapped because of lousy permeability and porosity characteristics of the formation. Drilling wells in tight formations is not new and in the end the economic calculations remain the same. Will the higher output due to horizontal drilling and fracking justify the extra cost of that horizontal drilling and fracking? If it does there will be a profit and positive cash flows. If not there will be losses and negative cash flows that create funding gaps.

It is as simple as that so let us ignore the hype and stick to the actual facts.

 
At 6/19/2012 8:29 AM, Blogger Breaker Morant said...

Vange>>>there is no mention of the fact that the shale gas producers are close to bankruptcy.<<<

And why would a story on the Bakken mention anything about shale gas producers? For the umpteenth time and I will speak very slowly this time-the Bakken is oil-not gas.

 
At 6/19/2012 8:37 AM, Blogger VangelV said...

And why would a story on the Bakken mention anything about shale gas producers? For the umpteenth time and I will speak very slowly this time-the Bakken is oil-not gas.

The same comment holds. The average producer in the Bakken can't make a profit. And the average well is down under 90 bpd of production. That is very expensive for $7-$10 million worth of drilling. (Keep in mind that some of the cited production in a few of the sources that have been provided comes from converting gas to BOE using the energy ratio of 6:1, not the market price ratio.

It is only the players that limit their operations to the core areas in the middle formation that can make money but not much of it for very long. That makes the Bakken a temporary 'solution' and hardly the profitable game changer than Mark and the promoters are claiming it to be.

It is funny how soon people forget. It was not that long ago that many were talking up ethanol, hydrogen, wind, solar, etc., as real world solutions that were OPEC killers. All those failed to be economic and the only thing that has been done is to ensure that the marginal coal producing mines close forever even though they could have given us cheap energy for a while longer.

 
At 6/19/2012 9:19 AM, Blogger Borg Wizard said...

not true vange. Oxy maybe b/c of their poor acreage position but other operators work.

 
At 6/19/2012 9:20 AM, Blogger Borg Wizard said...

not true vange. Oxy maybe b/c of their poor acreage position but other operators work.

 
At 6/19/2012 11:10 AM, Blogger Breaker Morant said...

Vange-I agree with you on coal. However, I believe that the Obama Admin was going to go after coal regardless of what happened in the nat gas arena. I believe that essentially-nat gas(by filling the void) bailed the country out of higher electricity prices at least for now

 
At 6/19/2012 12:47 PM, Blogger VangelV said...

not true vange. Oxy maybe b/c of their poor acreage position but other operators work.

You may be right but I see no evidence of it. I have been looking at 10-Ks and listening in on conference calls and have yet to find companies that I would trust in the sector. Most have too many leases and too many lousy drill targets. The advantage that I see comes from uneconomic gas holdings by companies that generate most of their revenue from conventional sources. Thanks to the SEC rules these companies can hide their depletion problem and keep their share prices higher. This allows them to use their overvalued paper to acquire undervalued conventional reserves. That does not help the overall supply picture very much and leads to a level of complacency that I believe is dangerous.

If I were to guess we will need about 30 years or so to transition to a new source of energy. The false promise of tight oil and gas from shale is doing a great deal of harm that we could do without.

 
At 6/19/2012 12:50 PM, Blogger VangelV said...

Vange-I agree with you on coal. However, I believe that the Obama Admin was going to go after coal regardless of what happened in the nat gas arena. I believe that essentially-nat gas(by filling the void) bailed the country out of higher electricity prices at least for now

Mark had a posting on which he had residential prices fall to between $12 and $14 per Mcf. Given the Henry Hub price of under $3 I do not believe that there was much in the way of savings in natural gas that was unrelated to the warm winter that we just had. I believe that the futures market is suggesting an explosion of electricity prices in the next three years due to future closures of coal facilities.

 

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