The Coming Bust of the Great Bakken Oil Field

There has been a lot of Fanfare on the huge increase of oil production coming from the Bakken Field located in North Dakota.  There are many stories of people moving to the state to take advantage of the new OIL BOOM.  It seems like everyone is going there to start a new life and make it rich in one of the coldest areas in the United States.

However, with all BOOMS, comes the inevitable BUST.  This was true shown by the famous example of the 1800’s California gold rush:

california_gold_production

According to the article, “The Bakken Boom: The Modern Day Gold Rush”:

Despite the low productivity of the labor-intensive process of gold panning, annual production grew from just over 1,400 ounces in 1848 to more than 3.9 million ounces by 1852. To put this into perspective, prior to 1848, cumulative U.S. gold production amounted to just over 1 million ounces.

Of course nuggets are easier to find than flakes, and the great majority were discovered in the first few years. By 1852, only four years after gold was first discovered, California gold production began a rapid descent. Production declined 50% by 1862 and 80% by 1872.

The decline was only barely checked by the adoption of ‘hydraulic mining’ – a process by which massive amounts of water under intense pressure is used to disintegrate entire hillsides. At the North Bloomfield mine, for example, 60 million gallons of water per day eroded more than 41 million cubic yards of debris between 1866 and 1884. (http://www.sierranevadavirtualmuseum.com/docs/galleries/history/mining/hydraulic.htm)

Typical of all BOOMS, production increases exponentially, peaks and then declines in the same fashion.  However, Even with high-tech hydraulic water mining techniques, the industry could never produce more gold than it did in 1852 when it reached nearly 4 million ounces.

BAD NEWS FOR THE BAKKEN:  Decline Rate of 63,000 Barrels A Day

The EIA – U.S. Energy Information Agency is now putting out data on the individual shale oil and gas plays in the country.  While the American public and world have been made aware of the huge increase in oil production coming from the Bakken, few are privy to the dark side of the equation. The Bakken’s daily decline rate from their existing oil wells has reached a staggering 63,000 barrels a day.

bakken-63000-oil-decline-chart-1

This means, that every day the Bakken pumps oil, its existing wells are now declining 63,000 (bd) barrels a day.   As you can see from the chart above, the rate really started to decline in a big way after 2011 when the average daily decline was only 20,000 bd.  In less than 3 years, this rate has increased more than 3 times (63,000 bd).

This next chart gives us the total as well as net oil production increases month over month:

bakken-legacy-decline

The EIA is showing what is indicated to take place in December over November.  If we look at the actual data that comes out of the North Dakota Department of Mineral Resources, Bakken oil field production in September hit 867,123 bd.  The difference to reach that 1 million barrels a day is coming from the Montana portion of the Bakken.

Here is an actual screenshot of the ND DMR’s monthly report released November 5th:

ND Directors Cut

Moreover, if we look at total production, again using the North Dakota DMR’s data, their total oil production data for the state in September was 931,940 bd.  This includes oil production outside the Bakken and Three Forks (data for Bakken in the EIA charts includes Three Forks).

Astonishingly, 93% of North Dakota’s oil production comes from the Bakken region alone.

The Bakken Drilling Frenzy Gives The Illusion of Sustainable Growth

The typical American believes the United States has all this hidden oil and gas resources that we can easily tap into.  I just had a conversation with a neighbor yesterday who told me that he couldn’t understand why we weren’t “ENERGY INDEPENDENT.”  Gosh, if I had a dollar for every time someone said that…

Again, the public is only told about all the huge increases in production, but for some strange reason, MSM tends to omit the negative side.  The only way oil production is increasing in the Bakken is due to the massive amount of new wells that have been added.  The chart below reveals the illusion of this sustainable growth:

bakken-production-producing-wells

First, the figures in white represent North Dakota’s total wells producing for their production of the Bakken.  Even though the graph includes Montana’s production, it still gives us a good idea of the huge increase in oil wells it takes to grow production.

Second, in 2008, the Bakken in North Dakota only had 479 producing wells, however at last count in September when then Bakken was producing 867,123 barrels of oil a day, it took 6,447 wells to do so.  Thus, the energy companies drilling and producing oil in the Bakken have to keep increasing wells each month (and year) to offset the huge 63,000 bd decline.

For example, there were an additional 135 new wells (ND) producing in Sept. over Aug. which added 20,589 bd of production.  If there were only say 100-105 new wells added that month, production would have remained flat or possibly declined for Sept.

Lastly, the best and most productive wells are exploited first leaving the dead-beats for last.  This will make things even more fun as the peak and subsequent bust finally arrives.

The Coming Bust of The Great Bakken Field

As with all oil fields, there are only so many sweet spots and areas to drill.  The 63,000 bd decline rate at the Bakken only has one way to go — and that’s higher. If the present trend continues (highly likely) then we are going to see a daily decline rate of 75-85,000 barrels a day by the end of 2014.

Thus, the shale oil players are going to have to make those drilling hamsters work even harder as they will need to increase more wells each month just to grow production.  At some point in time (sooner rather than later), the daily decline rate will reach a figure that these companies will be unable to offset.

There are only so many drilling locations available and once they run out, the Great Bakken Field will become a BUST as the high decline rates will push overall oil production down the very same way it came up.

Those who moved to the frigid state of North Dakota with Dollar signs in their eyes and images of sugar-plums dancing in their heads will realize firsthand the negative ramifications of all BOOM & BUST cycles.  At this time, the word “Cold” will have more than one meaning.

Once the Bakken and Eagle Ford oil fields peak and decline, the United States has no other “ENERGY RABBIT” in its hat. This is precisely why investors need to understand energy and why its important to own physical assets such as gold and silver.

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Rodster
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Rodster

Is it true or just FUD that fracking ruins the environment by polluting underground water and has been known to cause underground tremors? My other concern is the enormous amounts of water needed for this process which we badly need going forward.

Smorg
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Smorg

Hi Rodster — Look up “Gasland Debunked” on YouTube. Rgds

Abigail
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Abigail

Oh sure, let’s direct someone to look at something produced by a wing-nut who also still thinks Climate Change isn’t real in order to make them believe something that truly is destroying the planet is “safer than you thought”.

It’s scary real Rodster.

delacroix
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delacroix

they’ll tap the permian basin with more vigor next, and to hell with the water supply.

GermanReader
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GermanReader

Yesterday I listen KWN Markets & Metals Wrap, Bill Haynes talked about the bakken oil field, He said this thing is real. I was very surprised that I hear something like that on KWN.
I could not imagine that he by into it and it made me a little confused. Sometimes it very difficult to fight the propaganda everywhere around you. Thank you Steve for this information.
I have a final question to anybody here what is your guess when and at what production level the bakken field will peek.

GermanReader

Markus
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Markus

So in 2008, it took ~500 wells to produce ~175000 barrels of oil per day. That’s 350 barrels per day per well.

In 2013, it takes ~6500 wells to produce ~850000 barrels a day. That’s ~130 barrels per day per well.

Paints a pretty picture.

Fred
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Fred

As was the case with the gold rush, in the long run the majority of people who came out the best were the entrepreneurs who supplied goods and services to the miners. Last year I was planning a trip across the mid-west and a convenient stop-over location happened to be around Midland, TX. I normally stay at La Quinta Inn’s and was floored to find the rates in that whole area to be through the roof. To show the still existing example; the most expensive La Quinta I can find for next Tues/Wed in downtown NYC is the La Quinta… Read more »

webbster
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webbster

Thanks for this research. I had read some time ago that water consumption was astronomical with the drilling in ND but recent rhetoric in MSM and some alternative news suggests that new methods have dramatically decreased water consumption and environmental problems. Do you have a feel for if this is bullshit? Secondly, poor EROI means that they’re using lots of diesel fuel to drill. Of the diesel that is used to run all those trucks and equipment, how much of it comes from conventional oil? I know this is probably hard to calculate, however I’m wondering WHEN we get to… Read more »

John
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John

Is there any possibility that the latest fracking tech can produce longer lasting wells. Per that bastion of truthiness, THE USA TODAY The boom will continue for decades, says William Fleckenstein, a petroleum engineering professor at the Colorado School of Mines, which receives funding from the fossil fuel industry. He says major shale regions are performing better than expected. Though well productivity falls quickly after the first year or two, he says the initial gush gives investors a quick payback. “The technology is going to improve,” he says, adding that forecasts based on shale wells drilled even a few years… Read more »

JamesD
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JamesD

Shale oil is a strange animal, but the massive decline rate is a “good” thing, let me explain. When you drill a well, you get up to 3000 bpd. The well pays for itself in a few months. 6 months later the production is cut in half. After 1 year you are probably around 500 bpd. By the way, these wells have a lot of associated gas with them, which also adds to the profit. After that, you get a more typical decline curve. For the near future, expect production to increase and costs per well to decline. This is… Read more »

Jay T.
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Jay T.

A few production numbers from 5 wells. Oct 2012 43,226 bbl. Jan 2013 34,223 bbl. Sept 2013 21,781 bbl. These wells are in Dunn County , ND. Yes our checks are getting smaller and crude is around $72 /bbl now.

Jay T.
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Jay T.

Another concern is that we just had a very large oil spill from a Tesoro pipeline and it was 11 days until the press and public was informed of it.

Polar
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Polar

Let me get this straight. In 2011 there were 2116 wells declining at 20,000 bpd. Now there are 6447 well declining at 63,000. So each well is declining at about 10 bpd (!!!!) and has been at a steady rate of decline for the last 2 years

Jason
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Jason

Hi Steve

I would be interested to hear your thoughts on Bitcoin (and how it will affect gold/silver moving forward)?

Is Bitcoin the new precious metal?

Bitcoins are absolutely soaring in value and gold/silver keep going down…just saying (and looking to understand why gold/silver keep going down but Bitcoin keeps skyrocketing).

Thanks.

Frank C
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Frank C

Also, one thing I found interesting is how a company like Kodiak is using ceramics instead of fracking sand. They spend more up front but the results are far better in the return and duration of a well.

Robert G
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Robert G

I think SRSrocco is on track with this post. As he points out with the California Gold rush American history is littered with Booms and Busts. However within the so called boom years of the California gold rush, there were many, what I would call town/local area busts. Some town would be booming, then the gold slows down, people hear about some other location(s) and people packed up and left for the next boom town that was producing the huge gold. That usually took towns that had in the range of 3 -15,000 people down to 200-500. So yes the… Read more »

Robert G
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Robert G

Several other economic things happen during the periods of ramp up, plateau, and drop off. 1) Homes that would be $50,000 to $120,000 in a normal, non boom city are suddenly “worth” $250,000 to $450,000 so that is what they sell at. People were buying them at that price with the thought they would be living there 20 – 30 years based upon assurances that the boom was going to last 30 years. The other reason that people do that is when at least one member of the family is making $100,000.00 plus per year, and perhaps the other spouse… Read more »