Saturday, October 01, 2011

How N. Dakota Became Saudi Arabia: Interview with Harold Hamm, Discoverer of Bakken Oil

In today's WSJ, Steve Moore interviews Harold Hamm, the Oklahoma-based founder and CEO of Continental Resources (America's 14th-largest oil company), and the original discoverer of the gigantic Bakken oil fields of Montana and North Dakota.  There are lots of gems from Mr. Hamm, here are a few:

1. Hamm came to Washington to spread a needed message of economic optimism: With the right set of national energy policies, the United States could be "completely energy independent by the end of the decade. We can be the Saudi Arabia of oil and natural gas in the 21st century."

2. "President Obama is riding the wrong horse on energy." We can't come anywhere near the scale of energy production to achieve energy independence by pouring tax dollars into "green energy" sources like wind and solar. It has to come from oil and gas. 

3. Since 2005 America truly has been in the midst of a revolution in oil and natural gas, which is the nation's fastest-growing manufacturing sector (see chart above showing oil production in North Dakota increasing more than four-fold since 2005).

4. How much oil does Bakken have? The official estimate of the U.S. Geological Survey a few years ago was between four and five billion barrels. Mr. Hamm disagrees: "No way. We estimate that the entire field, fully developed, in Bakken is 24 billion barrels."

5. Mr. Hamm believes that if Mr. Obama truly wants more job creation, he should study North Dakota, the state with the lowest unemployment rate in the nation at 3.5%. He swears that number is overstated: "We can't find any unemployed people up there. The state has 18,000 unfilled jobs. And these are jobs that pay $60,000 to $80,000 a year." The economy is expanding so fast that North Dakota has a housing shortage. Thanks to the oil boom—Continental pays more than $50 million in state taxes a year—the state has a budget surplus and is considering ending income and property taxes.

6. Mr. Hamm calculates that if Washington would allow more drilling permits for oil and natural gas on federal lands and federal waters, "I truly believe the federal government could over time raise $18 trillion in royalties." That's more than the U.S. national debt, I say. He smiles.


At 10/01/2011 11:48 AM, Blogger Rufus II said...


Saudi Arabia peaked at a little over 10 Million Barrels/Day.

The Bakken is doing about 450 thousand barrels/day.

We use about 14 Million Barrels/Day, plus nat gas liquids, plus refinery gain (mostly on imported oil,) plus Biofuels (close to a Million bbl/day.)

The average Bakken well produces about 80 bbl/day, and the production is so sparse, and scattered geologically, that a lot of the Nat Gas is just "Flared Off" (samey, same Nigeria, and various other 3rd world operations.)

Again, the Bakken is a "good thing," but Saudi Arabia? Come on.

At 10/01/2011 11:50 AM, Blogger Rufus II said...

Two Platforms in the Gulf - Thunderhorse, and Mars/Ursula - probably produce as much oil as the Bakken.

At 10/01/2011 2:30 PM, Blogger Buddy R Pacifico said...

Mr. Hamm's company, Continentel Resources, is the largest holder of gas/oil rights in the Bakken at 910,000 acres.

As an innovator, Contintentel Resources has a drilling platform from which four wells can be drilled from. The ECO-Pad saves the company about 10% in drilling costs and lessens the environmentel impact.

At 10/01/2011 3:25 PM, Blogger Che is dead said...

But what do the reasonable, rational folks on the other side of the fossil fuel argument have to say? Let's here them out..

And now you know what drives otherwise law abiding parents to "steal" an education for their kids.

At 10/01/2011 7:10 PM, Blogger juandos said...

"But what do the reasonable, rational folks on the other side of the fossil fuel argument have to say?"...

Yeah che you found a real nugget there...

I sure do want to see that high powered 'sand box' in action...:-)

At 10/02/2011 8:02 AM, Blogger VangelV said...

Mr. Hamm's company, Continentel Resources, is the largest holder of gas/oil rights in the Bakken at 910,000 acres.

I think that he is talking his book. But I do not believe that he emphasized the very significant but very predictable downgrade of reserves by the USGS. At the the P90 level resources of usable Marcellus gas now stand at a mere 43 tcf, significantly lower than the previous estimate of 262 tcf and the industry speculation of 500 tcf.

Expect that as the 10-K reports keep showing capital destruction and a great deal of red ink the USGS will be forced to step in and reduce estimates further for all shale gas and liquids areas. This transparent scam has been very easy to spot for all those people who relied on actual data rather than hype. The only time the shale industry was able to make a profit is when it took advantage of a huge surplus of drill services, the ability to hedge high gas prices, and limited drilling of the best and most productive formations. The only way to see that again is to have another collapse that cause an oil services depression in which restructuring allows creditors to be nearly wiped out. That would allow drilling prices to fall to such low levels that well costs can decline enough to create a decent profit in a high-gas-cost/low-gas-supply environment. Even if we see that the current investors in shale would get wiped out.

At 10/02/2011 8:14 AM, Blogger PeakTrader said...

Oil prices will likely rise, since we reached Peak Oil over five years ago, because more costly oil is replacing cheap oil, which is being depleted quickly.

At 10/02/2011 8:23 AM, Blogger PeakTrader said...

Shale oil will not replace cheap oil fast enough, at least over the next decade.

Hess chief says U.S. oil shale output to surge
Sep 27, 2011

Hess is the largest gas producer and the third-largest oil producer in North Dakota, with over 40,000 barrels of oil equivalent per day.

Companies that waged big bets on the U.S. shale oil bonanza will see output double in the coming few years, but the costs to tap the fields are rising, Hess Corp Chief Executive John Hess said on Tuesday.

Oil output from shale prospects in unconventional sources from North Dakota to Texas could reach 1.5 million to 2 million barrels-per-day (bpd) in the coming five to seven years, twice as much as the 700,000 bpd currently produced in these places.

Harsh winter weather and record spring flooding have forced the company to spend $7 to $10 million on each well in the region, the CEO added.

Industry experts had previously pegged Bakken well costs at $6 million per well.

At 10/02/2011 9:42 AM, Blogger John said...

North Dakota gets about $2 from the federal government for every dollar they send to Washington, largely due to agricultural subsidies.

Given its energy wealth, isn't it time to end North Dakota's tax subsidized status?

At 10/02/2011 10:20 AM, Blogger PeakTrader said...

John, I'd like to know when D.C. residents will become rich enough.

"In FY 2005, the District of Columbia received $5.55 for every $1 in federal taxes. And of course the District has a population not far off from North Dakota’s."

"In FY 2005, North Dakota received $1.68 for every dollar they paid in federal taxes."

At 10/02/2011 12:23 PM, Blogger Rufus II said...

You have TWO Bomber Wings at Minot AF Base

plus you have a non-disclosed, but large, number of Minuteman Silos out there. I imagine that would account for most of the Government expenditures in a state of 600,000 souls.

At 10/02/2011 5:27 PM, Blogger PeakTrader said...

Oil ETF - USL (currently a little over $35 a share).

USL - the United States 12 Month Oil ETF - tracks the changes in the price of light, sweet crude oil.

The actual changes in price are measured by changes in the average price of twelve oil futures contracts traded on the New York Mercantile Exchange.

At 10/02/2011 5:50 PM, Blogger westexas said...

In the WSJ, the Mr. Hamm said that with the "right policies," we could be energy independent by the end of this decade, so basically within 10 years. Of course, it's a good bet that 10 years hence (and probably a lot sooner than that), in excess of 90% of the Bakken wells now producing will be down to stripper well status, 10 BOPD or less.

Some general comments follow, based on what I posted on the WSJ website, in regard to the most recent Cornucopian fantasy in the WSJ.

In the US, there are some good stories about rising Mid-continent production, and US crude oil production (Crude + Condensate, or C+C) production has rebounded from the hurricane related decline that started in 2005, but 2010 production was only very slightly above the pre-hurricane level that we saw in 2004, and monthly US production has been between 5.4 and 5.6 mbpd (million barrels per day) since the fourth quarter of 2009, versus the 1970 peak of 9.6 mbpd.

Incidentally, US net oil imports of crude oil plus products have fallen since 2005, primarily as a result of a large reduction in demand, because of rising oil prices, but EIA data show that the US is still reliant on crude oil imports for two out of every three barrels of oil that we process in US refineries.

Regarding natural gas, the US consumed 9% more natural gas in than we produced in 2009 and we consumed 12% more than we produced in 2010, resulting in a year over year increase in US net natural gas imports, and the US remains one of the world's largest net natural gas importers (EIA).

The EIA shows that global annual C+C has been between 73 and 74 mbpd since 2005, except for 2009, and BP shows that global annual total petroleum liquids production has been between 81 and 82 mbpd since 2005, except for 2009. In both cases, this was in marked contrast to the rapid increase in production that we saw from 2002 to 2005. Some people might call this "Peak Oil,” and we appear to have hit the plateau in 2005, not some time around mid-century.

Only if we include biofuels have seen a material increase in global total liquids production.

However, the real story is Global Net Oil Exports (GNE), which have shown a measurable multimillion barrel per day decline since 2005, and which are measured in terms of total petroleum liquids, with 21 of the top 33 net oil exporters showing lower net oil exports in 2010, versus 2005.

An additional metric is Available Net Exports (ANE), which we define as GNE less Chindia's combined net oil imports. ANE have fallen at an average volumetric rate of about one mbpd per year from 2005 to 2010, from about 40 mbpd in 2005 to about 35 mbpd in 2010 (BP + Minor EIA data, total petroleum liquids).

At the current rate of increase in the ratio of Chindia's net imports to GNE, Chindia would consume 100% of GNE in about 20 years.

The data show that developed countries like the US are being forced to take a declining share of a falling volume of GNE. In fact, our work suggests that the US is well on its way to “freedom” from its reliance on foreign sources of oil, just not in the way that most people hoped, as we are outbid by developing countries for access to declining net oil exports.

At 10/02/2011 5:52 PM, Blogger westexas said...

For some specific case histories and more explanations of net export declines, you will find one of our articles if you do a Google Search for: Peak Oil Versus Peak Exports.

In our "Peak Oil Versus Peak Exports" article, we show the 1972 Texas production peak lined up with the 1999 North Sea peak. These two regions, which accounted for about 9% of total global cumulative crude oil production through 2005, were developed by private companies, using the best available technology, with virtually no restrictions on drilling, and both regions have shown clearly defined peaks, with production declines that corresponded to rapid increase in oil prices. In other words, Peaks Happen, and global crude oil production consists of the sum of discrete regions like Texas and the North Sea.

Incidentally, just like the overall US, Texas has shown an increase in production, but Texas Railroad Commission data show that 2010 production is still below one mbpd, versus a 1972 peak of about 3.5 mbpd (for some reason, the EIA shows 2010 production to be higher than what the RRC shows).

Slowly rising global unconventional production will help, but Canada for example has increased their net oil exports by only 0.25 mbpd over the last five years. Over the same five year period, net oil exports from Saudi Arabia fell by 1.9 mbpd. In other words, we would have needed about eight Canadas just to offset the five year decline in net oil exports from Saudi Arabia. And if we sum the net exports from six non-US producing countries in the Americas--Canada, Mexico, Venezuela, Brazil, Argentina and Colombia--they have collectively seen more than a one-fifth decline in combined net oil exports in five years, from 5.1 mbpd in 2005 to 4.0 mbpd in 2010 (BP).

Regarding Saudi Arabia, our work suggests that Saudi Arabia, in 2005, may have been at the same stage of depletion at which the prior swing producer, Texas peaked in 1972. In any case, Saudi annual crude oil production has been below their 2005 annual rate for five years, with four of the past five years showing year over year increases in oil prices. This was in marked contrast to the rapid increase in production that they demonstrated from 2002 to 2005. Our modeling work suggest that Saudi Arabia will probably be approaching zero net oil exports some time around 2030 to 2035, in 20 to 25 years.

However, the BP data base shows a 20% decline in annual Saudi net oil exports from 2005 to 2010, and if we extrapolate the Saudi's 2005 to 2010 rate of increase in their ratio of consumption to production, they would approach 100%, and thus zero net oil exports, in only 14 years.

At 10/02/2011 6:12 PM, Blogger westexas said...

Incidentally, there has been oil production from the Bakken for decades.

At 10/06/2011 1:05 AM, Blogger Ron H. said...

juandos: "I sure do want to see that high powered 'sand box' in action...:-)"

Well, I'll let you know when mine is fully operational. I've got a small one in my laundry room, but it has never worked right because it keeps filling up with cat shit.

At 10/06/2011 1:06 AM, Blogger Ron H. said...

Che: "And now you know what drives otherwise law abiding parents to "steal" an education for their kids."

...or to drink.

Thanks for the laugh.


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