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Page added on November 21, 2012

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Bakken revolution is only half-complete


Crude production from the Bakken and Three Forks formations could rise by another 50-100 percent in the next three years, and not start to decline until 2020 or even 2025, according to official projections from the North Dakota Oil and Gas Division.

Output from the Bakken, Three Forks and Sanish formations hit a new record of 662,000 barrels per day in September. But production could reach 900,000 or even 1.2 million barrels per day by 2015, according to the Oil and Gas Division, based on estimates of probable (>50 percent) or possible (>10 percent) reserves of 10 or 15 billion barrels respectively.

Output could be sustained at this level until 2020 or even 2025, before starting to taper gently. By 2050, the state could still be producing as much as 650-950,000 barrels of oil per day.

These illustrative production profiles were contained in a presentation to the United Tribes Tribal Leaders Summit in September by Lynn Helms, director of the North Dakota Oil and Gas Division (

Much of the Bakken play is on land that is part of the Fort Berthold Reservation administered by or on behalf of the Three Affiliated Tribes (Mandan, Hidatsa and Arikara or Sahnish), which is why Helms was speaking at the annual tribal conference in Bismark, North Dakota.

Helms’ optimistic projections for further growth are a direct challenge to some of the more pessimistic predictions published by some leading oil analysts about the state’s future oil output.


Much of the scepticism about the sustainability of North Dakota’s oil boom stems from concerns about the rapid output declines observed from fracked oil wells after the first six or 12 months. As the play matures, sceptics believe ever more rigs will be needed to drill ever more holes just to replace declining output from the existing wells.

Following a careful analysis of decline rates at hundreds of Bakken wells, Rune Likvern described it as the “Red Queen” problem. In Lewis Carroll’s book “Through the Looking-Glass”, the Red Queen warns Alice: “It takes all the running you can do just to keep in the same place.”

In a similar way, Likvern concluded the exponential growth in oil output since 2007 had only been possible by starting up an accelerating number of new wells.

But the strategy is reaching its natural limit as the best parts of the play have already been developed and new wells are yielding less than their predecessors. Diminishing returns has started to plague the play with a vengeance, according to Likvern.

“It is challenging to find support for the idea that total production of shale oil from the Bakken formation will move much above the present levels of 0.6-0.7 million barrels per day on an annual basis,” Likvern wrote in a much-cited report posted on “The Oil Drum” and other websites (

He also cast doubt on the economics of the Bakken. The breakeven price for an average new well is as high as $80-90 per barrel, he wrote. At current prices “the commercial profitability for new wells is barely positive.”


Likvern’s decline rates are confirmed by state officials. The typical Bakken well produces 904 barrels per day in the first year, falling to 427 barrels per day in the second, 149 in the third and just 82 by the fifth, according to Helms.

But the state expects the industry to continue drilling 2,000 wells per year for the next 16 years to develop the play. Assuming each rig drills eight wells per year, it would need 225 rigs to meet the drilling target. There are currently 180 operating in the state, down from just over 200 earlier in the year, so the drilling target implies only a very modest increase over time.

Under the state plan, the total number of Bakken wells will rise from around 4,000 at present to between 40,000 and 45,000 by the time Bakken is fully developed, based on spacing of eight wells per 1,280-acre spacing unit. It envisages plenty of new wells will be drilled over the next few years to infill the existing areas, helping offset declines from older ones.

Bakken wells are far from as marginal according to the state. Bakken wells are expensive to drill and complete, at around $9 million each. But the average Bakken well drilled in 2012 will produce roughly 615,000 barrels of oil over 45 years, Helms explained to the tribal leaders.

In its lifetime, an average well will pay $4 million in taxes to the government and $7.3 million in royalties to mineral owners, as well as operating expenses of $2.3 million and wages and salaries of $2 million. But after all those deductions, and the high upfront drilling cost, the average Bakken well will still generate net profits of about $20 million, Helms said.

Bentek, the energy consultants owned by Platts, also found Bakken wells were highly profitable. Bakken wells have some of the highest internal rates of return for any shale play in the country, notwithstanding high drilling costs, the firm explained in a recent study for the North Dakota Pipeline Authority.


Even allowing for the massive decline rate after the first 12 months, North Dakota officials still believe daily production could rise by another 200-500,000 barrels within the next three years to reach 900,000 or even 1.2 million barrels per day and sustain that level for 5-10 years before starting to decline gradually.

Only time will resolve the dispute over peak production. But state officials have repeatedly proved more accurate than outsiders in forecasting production and the need to build out related infrastructure such as rail and pipelines, so it would be unwise to dismiss their views as overly optimistic.

If they are right, the Bakken play is far from mature. Unless crude oil prices fall much lower than they have been in 2011 and 2012, Bakken will continue transforming the supply outlook in the United States and globally for at least the next couple of years, meeting a significant proportion of global demand growth.


7 Comments on "Bakken revolution is only half-complete"

  1. Welch on Wed, 21st Nov 2012 10:49 pm 

    Who cares if we fry the planet…we’re makin’ money!

  2. DC on Thu, 22nd Nov 2012 1:51 am 


    Are they kidding us?? Best for who?

  3. Arthur on Thu, 22nd Nov 2012 9:35 am 

    Welch, or buying time to postpone collapse and take at least some minimal measures to keep something left of our civilization. Unless of course you want to become an ‘Indian’ tomorrow. It surprises me that the people from North-Dakota do not add to the myth that the US soon will be an oil-exporting country but that they admit that the boom will merely last 5-10 years.

  4. SOS on Thu, 22nd Nov 2012 10:57 pm 

    Two things, the Red Queen is disputed by exponentially rising production. Secondly, production costs are high because of costly government regulations. It should be clearly understood the federal government isusing all of its power to raise production costs and hold down market value on this game changing oil reserve.

    The problems of the political policy of shortage, otherwise known as peak oil, is the fact we have ample reserves. The situation in the middle east has finally gotten so untenable we are going to develop our own resources with or without the aid of the federal government.

  5. BillT on Fri, 23rd Nov 2012 1:21 am 

    BS SOS! The Red Queen is running at top speed and is about to get tripped up by a collapsing economy and world financial system. The joke is on all you investors that plan to get rich by destroying the ecology of whole states like the coal companies have done to West Virginia. Well, don’t be surprised if the courts stop it before it get to that point. Or the economy or both.

  6. Mikey on Fri, 23rd Nov 2012 1:04 pm 

    As an operator I assure you that regulatory compliance adds very little to the cost of an unconventional shale well. That will change of course with the anti-oil Obama campaign in coming years.

    The shale oil and gas industry keeps feeding us this garbage like we are hungry chicks in a nest. We have drilled maybe 7000 shale wells in the past 6-8 years, at stagggering costs, water use, steel and other resource use, land use and we have 900,000 BOPD of additional production to show for it. The industry cannot put more rigs to work, we are maxed out with resources and infrastucture and will be lucky to keep up with decline rates. The idea that shale oil will grow to 2-3 million barrels per day is ludicrous and a blatant lie to the America people. Because of these lies when we are not conserving energy and using our remaining oil resources at too fast a rate. When peak production rates start going down they will go down fast and the world will not be prepared.

  7. bakkendispatch on Fri, 30th Nov 2012 11:39 pm 

    Well said, Mikey. Lots of propaganda being thrown around these days about domestic energy production.

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