Bakken Oil Fields: This Place Is Booming!

| February 16, 2011 | 0 Comments

There’s something big happening in North Dakota.  Business is flourishing in small towns across the Peace Garden State.  Thousands of people are descending on the northern plains and buying up supplies at a feverish pace.

Why all the commotion?

It all has to do with a geologic formation called the Bakken.  Oil companies are employing thousands of workers to bring valuable resources out of the Bakken’s tight shale formation.

There’s been a lot of talk about the Bakken in recent years… what’s the real deal?

Well, as early as the 1950s, oil producers knew about the area’s oil resources.  But it wasn’t until the 1970s that oil and geology experts agreed the Bakken held around 10 billion barrels of oil.

The problem was getting it out of the ground…

The oil was trapped within a tight shale formation.  Drilling technology at the time wasn’t capable of bringing the valuable commodity to the surface.

But as drilling technology advanced, the area’s prospects began to grow.  New drilling techniques made the once unreachable oil viable for production.

Then in 2008, the United States Geologic Survey (USGS) dropped a bombshell…

They estimated the Bakken held as much as 500 billion barrels of oil.

Oil companies (and investors) were giddy with excitement at the thought of such a huge amount of crude under US soil.  Reserves like that outpace even the biggest oil producer in the world… Saudi Arabia.

While those numbers sound like a lot, a bit of perspective is needed…

Only 4.3 billion barrels were “technically recoverable” with drilling technology available in 2008.

According to the CIA World Factbook, the US consumes over 18 million barrels of oil per day.  Which means (by 2008 estimates) there’s enough Bakken oil to supply the US for about 8 months if we could get all the Bakken oil out at once.

In other words, the Bakken’s recoverable reserves aren’t big enough to bring down world oil prices.

Now this may sound weird…

But the relatively small amount of recoverable reserves is what makes the Bakken investment opportunity so good.

Here’s why…

High oil prices are just what Bakken producers need.  As Bakken explorers perfect their shale drilling techniques, costs come down.  And as long as oil prices stay high, profit margins go up… just what investors want.

But here’s where it gets really interesting…

In recent months, many oil companies say Bakken’s recoverable oil is higher than the USGS estimated 4.3 billion barrels… a lot higher.  One oil company executive said with 2011 drilling technology, producers may be able to pull out as much as 24 billion barrels.

That’s 450% higher than the USGS estimate from just two years ago!

Clearly, Bakken producers are onto something big.  As long as oil prices stay high, many of them are going to see hefty profits in coming years.

The biggest hurdle the Bakken has right now is “take-away capacity”…

There simply aren’t enough pipelines in the area.  More pipelines are being built, but trucks and railroads are currently moving much of the Bakken oil.

However, once the infrastructure is in place, many oil companies see the Bakken producing over 1 million barrels of oil per day.  That’s pretty amazing considering the oil in the area was once thought to be unrecoverable.

Who are some of the big players in the Bakken?

Oil companies like EOG Resources (EOG), ExxonMobil (XOM), and Continental Resources (CLR) just to name a few.  Take a closer look at these companies for your own portfolio.  These large producers will no doubt benefit from the Bakken’s growing potential.

 

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Category: Commodities

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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