[Ed. note: North Dakota registered $25.3 billion in taxable economic activity 2012, a 29 percent increase from 2011. The major reason for this economic boom is described below.]
Any discussion of the revolution in U.S. upstream technology and its impact on the U.S. energy balance must include the Bakken play, centered in North Dakota but also reaching into Montana and Canada. It’s no wonder. It has raised North Dakota to the number two state after Texas in U.S. crude oil production.
Now at more than 700,000 barrels per day and still growing, North Dakota’s crude oil production accounts for 11 percent of the domestic total, and is contributing to the strongest economic growth and strongest employment of any state. Here we revisit the Bakken to fill in more details for the play that serves as the forerunner and icon of the tight oil revolution.
Geology & Geography
The Williston Basin is a large sedimentary basin that straddles the U.S./Canadian border and encompasses portions of northern South Dakota, western North Dakota, eastern Montana and northward into southern Saskatchewan. Over geologic time, many sedimentary layers accumulated in the greater Williston Basin. Among these layers are the Bakken Formation and several other significant and potentially emerging productive oil zones or formations.
The recent oil drilling and completion activity has been focused primarily on the Bakken formation located throughout the majority of the Williston Basin. Geologically, the Bakken formation is a rock unit comprising three stacked layers generally described as a slightly geo-pressured, fine grain siltstone center member that is bounded between impermeable, organic rich shale layers on either side. Hydrocarbons have migrated from the upper and lower shales into the middle siltstone member.
The middle member is generally seen as the lateral target while drilling. At its deepest, the Bakken lies about two miles under the surface and can be found at lesser depths of 5,000 feet or shallower on the edges of the basin. The Bakken Formation is at most 150 feet thick and can approach only a few feet thick out on the flanks of the basin.
Two additional formations have drawn interest in the past few years for potential oil production. The Sanish formation lies under the Bakken and a prolific oil reservoir in fields such as Parshall have been targeted. The Sanish is significantly more limited in its areal extent than the Bakken and is generally less than 25 feet at its thickest. Most recently, the Three Forks formation has also been the focus of hydrocarbon development.
The Three Forks sits below the Bakken and Sanish formations’ lower boundary, and a few operators have had success in producing oil there recently. From a geologic and reservoir architecture perspective, the Three Forks formation is more complicated than the Bakken formation. Its geology is made up of alternating layers of shale and potential reservoir siltstones generally a few inches or less in thickness in the upper half of the formation. The jury has not spoken on the overall reservoir capacity and productivity of the promising Three Forks.
The conventional approach to oil exploration in any region has been to target oil trapped in more permeable layers that are often associated with a structural trap. Conventionally, oil can also be targeted in permeable reservoir rock or stratigraphy that has a barrier to hydrocarbon flow commonly referred to as a stratigraphic trap. Over geologic time, hydrocarbons can migrate to these permeable zones and become trapped until a well is drilled and the hydrocarbons can flow to the well bore and then the surface.
Where did the trapped oil come from? It is understood that the oil slowly migrated from relatively impermeable “source rocks” over millions of years. In the Bakken formation, the hydrocarbon-rich, but relatively impermeable upper and lower shales are widely believed to be the source rocks generating the oil that moved to the somewhat more permeable middle shale layer.
Techniques have existed for decades to develop this oil. Hydraulic fracturing is one such technique that engineers have continually refined since its inception in the 1940s, in order to improve the flow in less permeable formations using water and sand or other proppants. The process of fracturing the well makes it possible for oil to flow much more freely through newly-created fractures, held open by sand grains or ceramic proppants, to more permeable zones in the wellbore.
In a vertical wellbore, the thickness of a particular hydrocarbon-bearing formation that can be exposed may be relatively small, as is the case with the middle Bakken shale layer which is generally 20 to 50 feet. The ability to drill horizontally within a particular formation, rather than only crossing through it with a vertical well, has enabled wells to expose and tap into much more reservoir in a single formation.
This, combined with the ability to economically fracture the neighboring rock in “tight” formations, has made the continuous accumulations or “unconventional reservoirs” accessible in a way that has not been true before. Independent producers have been on the forefront of this revolution with the development of the Bakken, Sanish, and now the prospective Three Forks formation.
The history of drilling and production in the Bakken also shows this remarkable shift, brought about by artful combinations of exploration and production technology and evolving drilling practices. Despite earlier attempts at exploring for oil in North Dakota, which date back to the early 20th century, the first commercial oil-producing well in North Dakota was not completed until 1951.
That year also saw the first Bakken well, on Henry Bakken’s farm in the northwestern corner of the state, completed at a depth of about 11,600 feet. However, subsequent finds and production were primarily in the Madison formation at about 6,000 feet. By 1958, North Dakota had over 1,000 wells producing about 40,000 barrels per day.
Even in the 1950s, well-fracturing was taking place, in addition to taking advantage of natural fractures. The development of horizontal drilling in the Bakken did not begin until the late 1980s, with the first horizontal well drilled in the Elkhorn Ranch field in 1987. Activity picked up, with a focus on the upper Bakken shale. Yet finding the key to the Bakken remained elusive.
North Dakota production reached about 140,000 barrels per day in the mid-1980s, with nearly 3,500 producing wells, before dipping below 100,000 barrels per day in the 1990s and early 2000s. It became evident that low permeability was still a limiting factor. As a report from the North Dakota Geological Survey stated at the time,
“A large volume of oil and gas remains trapped within the upper black shale of the Bakken Formation…. [E]conomic volumes of oil or gas cannot be produced using today’s technology…. Perhaps some other new technology will be developed that will allow the hydrocarbons trapped in the shale to become mobilized and produced at economic rates.”
That decisive “new” technology turned out to be horizontal drilling combined with multi-stage hydraulic fracturing – and geologic insight. Based on the inference that the middle Bakken layer could serve as a reservoir rock for the surrounding shales, the Elm Coulee discovery in 2000 eventually demonstrated the potential of this technological innovation in the Bakken, and interest began to climb. Since then, the Elm Coulee field in Montana has already produced more than 100 million barrels and is still producing.
Interest was spurred even further with the discovery in North Dakota of the Parshall field in 2006, also in the middle layer of the Bakken, with wells often still producing 1,000 barrels per day months after they came on line. Interest has more recently extended to the underlying Three Forks formation, and exploration of its multiple benches is just beginning to unfold.
Activity and production has risen especially rapidly during the past three years. Overall, the latest data show North Dakota’s crude oil production reaching more than 700,000 barrels per day, with nearly 8,000 producing wells.
In 2012, more than 1,600 net new producing wells were added, or about 150 new wells per month. North Dakota’s oil production climbed past California’s in December 2011 to become the third producer behind Texas and Alaska. Then it surpassed Alaska in March 2012 and in October 2012, production reached around 750,000 barrels per day.
Since late 2011, North Dakota’s crude oil production has exceeded that of OPEC-member Ecuador. In September last year, North Dakota’s production surpassed that of the United Kingdom, the combined effect of rising North Dakota production and temporary shut-ins impacting the U.K.’s overall declining output.
Resource upon Resource
The rapid rise in activity spurred by this innovative technology has led to a rapid, ongoing evolution of resource estimates of the Bakken. Back in 1995, when conventional approaches were the norm, the U.S. Geological Survey (USGS) estimated an average of 151 million barrels of oil technically recoverable.
As technology changed, in 2008 the USGS revised upward its earlier estimate by a factor of more than 20 – to 3.65 billion barrels of technically recoverable oil. Even that is now regarded as low by some experts. The North Dakota Industrial Commission, for example, now estimates 6.5 billion barrels recoverable.
In an unusual move to update an estimate more quickly than usual, the USGS is working on a new assessment due to come out before the end of this year. According to USGS Energy Resources Program Coordinator Brenda Pierce:
The new scientific information presented to us from technical experts clearly warrants a new resource assessment of the Bakken. The new information is significant enough for the evaluation to begin sooner than it normally would. It is important to look at this resource and its potential contribution to the national energy portfolio.
In the Bakken and elsewhere, what this new technology means for exploration and production is a shift in the resource development paradigm. While the combination of horizontal drilling and hydraulic fracturing opens up vast, newly-accessible resources, upfront investment is more costly and decline rates per well are more rapid. This trend has reinforced the advantage of being able to drill wells more efficiently, quickly, and cost-effectively.
The increasing use of multi-well pad drilling is a case in point. Drilling multiple wells from one location has reduced the time and expense of moving the rig, allowing for consolidation of auxiliary equipment such as storage tanks and lease separators, and cutting down on the need for roads and trucks to move equipment. “Walking rigs” have enabled a rig to be moved to a new site on the lease without taking down and reassembling it.
Optimization of proppant types and more efficient water use have also been key contributors to improving the exploration and production learning curve. Better down-hole information, micro-seismic detection of fracture patterns, and operations via remote sensing and control have allowed for improved completions and more productive wells.
The rapid rise in production in the context of the Bakken’s distance from existing crude oil markets, has created an infrastructure challenge. Pipeline transportation is most often the preferred mode for crude oil, being cost effective and reducing the need for trucks, ships, and barges to transport the crude.
But the growth in production has been rapid enough that rail transportation has played a significant role in easing the bottleneck. Based on data from the North Dakota Industrial Commission, more than 400,000 barrels per day are moving out of the region by rail to mid-continent markets and beyond.
The Association of American Railroads reports that car loadings of crude oil and products in January 2013 were up 55 percent from a year earlier, following a 46 percent annual increase for 2012. It is likely that much of that increase is Bakken crude. Some Bakken crude is already heading to both East Coast and West Coast refineries by rail, and plans are underway for additional rail shipments to both coasts’ refineries, even as crude oil pipeline capacity from the Bakken region also expands.
Natural Gas Too
The Bakken is primarily a crude oil play, with less associated natural gas than in many other tight plays across the country. Yet, adding natural gas infrastructure quickly enough has also been a constraint in a state that historically (and still) accounts for less than one percent of total U.S. natural gas production.
This includes a need for facilities to process natural gas to stringent pipeline specifications and extract natural gas liquids from the stream. In 2011 the state added more than 2,300 miles of new pipeline of which more than 2,000 was gathering (majority for natural gas). Even with a more-than-tripling of gas processing facilities in the past five years (six new or expanded natural gas plants coming online over the next 2-3 years), pipeline and gas processing capacity has strained to keep pace.
As a result, the associated natural gas, under regulation and permitting from the state, frequently ends up being flared at a loss to producers. It’s no surprise that, according to the state governor’s office, “Between 2011 and 2013, more than $3 billion will be invested in new or expanded natural gas processing and transportation systems in North Dakota.”
Jobs, Jobs, Jobs
Economic well-being in the region has benefited from the rapid rise in activity in the Bakken. According to Commerce Department data, between 2008 and 2011, North Dakota GDP rose 19.7 percent, contrasting with the U.S. average of just 0.7 percent.
North Dakota’s growth far surpassed even the number two growth state over the period, Louisiana, which saw its GDP rise 11.9 percent. The state government expects upstream jobs to rise from about 40,000 currently to more than 60,000 jobs by 2020. That does not include jobs created in related industries or to provide consumer goods and services for the rising number of workers.
A recent IHS study on unconventional oil and gas state contributions noted that “economic activity associated with unconventional drilling directly and indirectly supported over 71,800 jobs in the state in 2012 and would increase to over 114,000 jobs by 2020, equating to 5.8% average annual growth (compared to 2.1% for manufacturing and 1.6% overall state job growth for the period).”
Overall, December’s unemployment rate in North Dakota was the smallest of any state at 3.2 percent, well below the national average of 7.8 percent. State government revenues have also risen dramatically, with oil development and gross production tax revenues for 2011 reaching $1.3 billion. This is in addition to higher revenues from income and sales taxes because of the strength of economic activity brought about by the activities of independent producers. Local effects have been even stronger. Since 2009, counties in the Bakken region have seen a 60 percent rise in employment and a 40 percent increase in weekly wages.
The lessons of the Bakken will continue to be applied elsewhere in other plays around the country. One of these crucial lessons that companies are still learning is how to help the local communities deal with the growing pains of development.
There are many local and state issues from road traffic to housing issues that arise out of the rapid development and influx of people into the region. The industry has stepped up and has helped maintain roads, build hospitals, and sponsor community projects. Working with state and local officials to deal with the stresses that accompany the momentous economic growth is part of being a worthy corporate citizen.
On the geologic front, the Bakken has a unique, mainly crude-oil focus. The Eagle Ford and Permian plays in Texas, Marcellus and Utica in the Northeast, have other considerations and complications with their richer content of natural gas liquids and/or focus on natural gas.
The understanding of these tight oil and natural gas plays is still unfolding, and the technology and working methods to most effectively address these issues continue to be refined. Much remains to be learned of their true potential. Nevertheless, the Bakken play clearly illustrates the strength, depth, and heft of the tight oil revolution, and showcases the unparalleled leadership of independents in opening up these frontiers.
Fred Lawrence is Vice President of Economics & International Affairs at the Independent Petroleum Association of America. He wishes to thank Kent Beers, Al Nicol, Peter Hill, Thomas Nusz, Frank Lodzinski, Jim Catlin and David Charles in the preparation of this article, which was originally published on February 27, 2013, at the Resources website of the IPAA.
Part I of this “Resourceship in Action” is “The Imperishable Permian Basin: Growing at 90.”