A brief history of the Bakken

I’m going to do a post on Whiting, like I did on Apache a little while back.  But first I want to go over a brief history of the Bakken formation in North Dakota, which is one of the big three growth areas for oil production in the USA over the last several years.

It has been known since the 1970s that there was a large amount of oil in place in the Bakken formation, with estimates ranging up to 100 billion barrels of oil in place in the early 1980s, but a lack of technology and low oil prices kept production from the formation low.  Around 2000 companies began drilling the the Elm Coulee Field at the western edge of the Bakken Formation in Eastern Montana.  This field was drilled using conventional vertical wells and production from the field peaked in 2006-2007. Around the same time, EOG began drilling Horizontal wells in the Bakken in Central Montrail County, North Dakota.  Most activity in the state centered around conventional drilling of traditional stratographic traps.

In early 2006 there was significant activity in the southwest of the state in a few conventional fields called Cedar Hills, Cedar Creek, and Little Missouri.  Burlington Resources, Fidelity Exploration, and Sequal Energy were drilling in this formation.  XTO, Whiting, Continental, Denbury, Hess, EOG, and some other independents were also active, though there were few impressive wells.  Then later in 2006 EOG drilled a well in central Montrail County in the area that would become known as the Parshall Field that would soon set off the rush to the Bakken.  EOG had applied techniques similar to those already being used to extract shale gas to a tight oil formation.  This event really was historic, and may be looked back on as a major development in the history of energy.  Not only did EOG 's discovery set off the Bakken rush, it also set off a search for other vast tight oil formations that might now be accessible.

The above map, available from an EIA.gov article from 2011, shows the areas of the Bakken that had been drilled to that point.  By far the bulk of the drilling was in the original Parshall Field region, which was dominated by EOG, and the adjacent field to the west called the Sanish field, which had been leased up mainly by Whiting.  Continental Resources was most active in the Nesson Anticline region and the Dunn County region to the south.  Using a subscription based online database called “Drilling Info”  I downloaded the images in 2012 of early well results.   The image below shows only the well results from the second half of 2011.  During this period a little over 1000 wells were drilled, and when you compare to the image to the one above, you can see that the areal extent of the region where productive wells were being drilled had expanded dramatically.

 Another way to look at the history is through the drilling results by the various companies most active in the Bakken.  Below is a great chart because it really shows a variety of interesting things.  I created this chart by downloading data from Drilling Info.  First let me explain what these numbers represent.  These show the average cumulative production of the wells drilled in the period shown on the left hand column through the date of the data download in may of 2012.  So early on there were really four active companies, all of whom had largely leased their land from the landowners directly.  In the early days EOG, who had discovered the Bakken was drilling the best wells by far.  If you want to think about the economics of these wells, you take the number of barrels produced, multiply by $100/bbl, then maybe subtract 1/3 for opex, which may be a bit conservative, and then assume the well cost $10mm to drill (although some companies were averaging as low as $7).  But anyway, you can see that the average EOG well from 2006 to 2008 had paid itself off twice over in the first five years, and still probably had considerable production left (although production does decline fast).  The average Whiting well in the very early period was a money loser, but then as the Sanish Field area got going they started making good money starting in 2008, and were even drilling the leading wells for late 2009 to 2010.  Another thing to note, is that because the production tends to be very front-end loaded, often the payback period on these wells is quite short.

Lastly, here are a few charts to lend some perspective:

North Dakota production has now topped 1mm barrels of oil per day (this chart is from EIA and is awkwardly given in barrels per month).  Currently it is the second largest oil producting state behind Texas, but ahead of Alaska and California.

 This shows the drilling rig count trajectory as of 2012.  Since then it has flattened out around that peak level.