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Bakken Trend update - 25 times more oil

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rossi   Monday, 04/14/08 12:24:06 AM
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Bakken Trend update - 25 times more oil than previous estimate
By Tim Wood
11 Apr 2008 at 12:28 PM

It's official, the Bakken Formation has a lot more oil than was previously thought. It's only a tenth of the original estimates, but remember that the overall estimates of 200 billion barrels did not refer to recoverable oil, only the total estimated extent.

For background on the Bakken, see our report from earlier this week.

The USGS says there is "3.0 to 4.3 billion barrels of undiscovered, technically recoverable oil." The 1995 estimate pegged the reserve at 151 million barrels of oil. The original estimate faced imminent embarrassment given that the The Elm Coulee field in Montana has produced around 65 million barrels since its discovery in 2000. It is estimated that Elm Coulee will eventually produce 270 million barrels before it is exhausted.

The USGS says the increased estimate is justified by "new geologic models... advances in drilling and production technologies, and recent oil discoveries.

Is 4 billion barrels of oil a big deal? Absolutely. Consider that:

It increases US crude oil reserves by 19%, or an additional 2.4 years of annual domestic production.
The Bakken Formation estimate is larger than all other current USGS oil assessments of the lower 48 states and is the largest "continuous" oil accumulation ever assessed by the USGS.
It represents a potential profit of $260 billion assuming production costs of $40/bbl and an oil price of $105.
It does not account for what lies on the Canadian side of the border.

Investors must now acclimatise themselves to a new lexicon of names that companies will use to pump up their stock prices - the five Five continuous assessment units (AU) now associated with this news: the Elm Coulee-Billings Nose AU, the Central Basin-Poplar Dome AU, the Nesson-Little Knife Structural AU, the Eastern Expulsion Threshold AU, and the Northwest Expulsion Threshold AU.

And the evidence is in that investors are going big. Saskatchewan is doing a roaring trade in land sales related to the Bakken formation and the Shaunavon oil patch. The best land prices are being fetched on Bakken plays just north of the US border, near the towns of Stoughton and Lampman in Saskatchewan.

You can bet that prices will continue to increase when the next land auction takes place this coming June. And with Montana land owners in Richland County and Fallon County minting a fortune in recent years, you can also bet that rural North Dakota is not going to suffer a real estate crisis for some time. Last year North Dakota saw a 52% increase in the number of wells drilled.

The Great Falls Tribune does a nice job of distilling some of the geology and production basics:

"About two-thirds of the Bakken Formation's acreage is in western North Dakota, where the oil is trapped in a thin layer of porous dolomite rock wedged between two layers of hard shale nearly two miles beneath the surface. The dolomite ranges between 8 and 14 feet thick throughout most of northeastern Montana. Oil companies drill down to this thin layer, then drill horizontal legs several thousand feet long to recover oil from the porous rock. They also use pressurized fluid and sand to break pores in the rock and hold them open while the oil is recovered."

It is estimated that the cost per well is $5 million, which translates into a production cost of up to $50/bbl. Not exactly cheap and it raises the risks for late investors. However, what a bonus for the oil services industry.

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