Are They Paying $14,000/Acre For the Three Forks? -- The Bakken, North Dakota, USA

This is going to be a very long post, and it is going to jump all over the place, but if you stick with it, you might get as excited as I am at the moment (this feeling of mania will probably pass as soon as I get back on my meds). 

This morning someone plunked down $14,000/acre for oil and gas minerals in southwestern North Dakota. They don't get to $14,000 bidding against themselves. There were at least two folks interested in this play. I wonder how much the winning bidder was willing to go. But I digress.

Why would anyone pay that much for an area of the Williston Basin where the middle Bakkenn formation is thinning out?

The obvious answer is the Three Forks formation where it "pinches out" in this area, and indeed, I do believe the Three Forks is the quick answer that will satisfy most folks. There have been some great TF wells in this area, but nothing to get me overly excited in the sense that it's something new, bigger, and better. There's not much in the immediate area to help me.

But there is a string of old vertical wells, most plugged and abandoned (PNA), lying east of the acreage in question; one is water injected (WI) and the others, as expected, are on a pump (AL).

These wells are all in Bell oil field or Zenith oil field; they are all in a 4 x 1 mile rectangle, lying in four adjacent sections, immediately east of the parcels of land that went for $14,000/acre in today's state auction lease sale.

• 613, s1954, PNA,  R.E.Newton 1, Madison, dry; Heath, cumulative: 6,905
• 10286, s1983, PNA, Newton 2-31, Tyler, cumulative, 1,073
• 9849, s1982, PNA, Newton 1-31, Tyler, cumulative, 409,136
• 9706, s1982, AL, Decker 1-32, Madison, dry; Tyler, t8/82; 5/13 cum 752,044
• 9837, s1982, PNA, Stuss 1-32, Madison, dry, Tyler, cumulative, 84,526
• 9850, s1983, AL, Decker 2-32, Tyler, t3/83; 5/13 cum 460,129
• 10495, s1983, PNA, Bass Buckman State 33-13, Tyler, cumulative 265,996
• 9934, s1982, PNA, Schaff 1, Tyler, cumulative 480,539
• 10356, s1983, PNA, Bass Weiss State 33-42, Tyler, cumulative 108,553
• 10806, s1984, PNA, Privrratsky 2, Heath, cumulative 824 (not a typo)
• 9869,s1982, PNA, Privratsky 1, Heath, cumulative 613,928
• 10752, s1984, AL, Polanchek 8-34, Tyler A, t6/84; 5/13; cum 657,784
• 5442, s1974, WI, Krushensky 16-34, Tyler A, cumulative 288,699
• 10686, s1984, AL, Polanchek 2-35, Tyler A, t5/84; 5/13 cum 120,322
• 8649, s1981, AL (last produced a little, 7/10), Ann Polanchek 1-35, Madison, Dry; Tyler A, t9/81; 5/13 cum 1,162,221

Several things jump out at me:

• I should have taken Ann to the prom
• unlike the Bakken, some formations are more "hit or miss" (Heath, e.g.)
• these are all vertical wells 

Some folks say we have entered the manufacturing/mining phase of drilling out the Bakken.

That does not mean that holds true for the other formations in the Williston Basin. In fact, I think with a) the increase in the  price of oil; b) new and improved technology; and, c) the potential for multiple pay zones for a single well; the Williston basin may still hold a few more surprises.

Outside of a very small group of folks, I doubt anyone knows that there are wells like the Ann Planchek well  that have produced more than a million barrels of oil and produced for more than 25 years (it has pretty much been off-line since 2008, though it is still considered an active well, last producing oil in July, 2010).

So, would companies pay $14,000 for the Three Forks? Statoil says it paid $8,000/acre for BEXP, mostly in the middle Bakken (personal communication).

Remember the Tyler formation? For now, go to this PDF, and simply look at the map, don't read anything in the small print, just look at the map. That way you will know where the Tyler is in North Dakota. Tell me if you don't see the bull's eye. The bull's eye would be that red center (100 points) surrounded by yellow (50 points), green (20 points), and purple (10 points). The Tyler extends into Montana and South Dakota.

Folks have paid record prices of oil rights in North Dakota where there is a lot of interest in the Tyler formation. That was posted awhile back, click here and here. [The Tyler lies above the Heath.]

From what little I understand about the shale oil business, there are four things that are important to the oil man or the oil woman: a) TOC; b) thickness; c) porosity; d) trapping; and, e) maturity. Okay, five things.

I think "they" have a better word for "trapping" but I'm making this up as I go along and don't want to get off track.

• TOC: total organic content -- simply put, the higher the percentage of TOC, the more potential for oil
• Thickness: obviously the thicker the seam, the better. Hopefully I don't have to explain that.
• Porosity: this was something I didn't understand until proppants came along. Now I feel more comfortable with the theory -- the surrounding rock, dirt, whatever, has to have pores in it for the oil to leak to get to the well. Proppants keep those pores open.
• Trapping: another concept I didn't pay attention to until lately. Obviously, the oil needs to stay trapped in a confined area for the well to be productive. If oil was produced in say, the Bakken formation, but then migrated to a different formation over the millenia, the Bakken would not have as much oil as it might otherwise have.
• Maturity: the organic carbon has got to "mature" to oil (pressure, heat, and time). 

At this point, I'm sure the geologists are laughing, if they even got this far.

Now, go to this posting to understand a bit more about TOC, especially how the Bakken stacks up against, let's say, Saudi Arabia.

There is much more at that posting, but with regard to TOC:

There are five areas in the world where "world class" source rock exists:

• The Bakken
• Norwegian Sea (North) and North Sea
• Venezuela
• Saudi Arabia
• Norwegian Sea (South) and The Netherlands

For comparison, TOCs:

• Bakken: as high as 11%
• United Arab Emirates: 0.3 to 5.5%
• Saudi Arabia: 2 to 5%
• Trinidad: 2.2%
• North Sea: 5.6% 

When I first came across this information, I about fell off my chair: the Bakken has a TOC average of 11 percent, compared to Saudi with varying reports of 2 - 5 percent. Wow.

Okay, remember that link where I said to go to the map to see where the Tyler formation of interest is located in North Dakota. It's right here, again, so you don't have to go back up and look for it.


When you get there, go to the small print in the lower right-hand corner and make it big enough to read. Here are some of the data points:

• Maturity: high electrical resistivity values suggesting it's mostly oil, not water; "rocks are mature and oil saturated"
• Trapping: "abnormally high fluid pressures indicate the Tyler Formation is sealed from communication with surrounding formation and minimal migration has likely occurred for any oil generated within."
• Porosity: doesn't say (unless I missed it); but no longer matters (as much) if there is technology to override low porosity (such as, fracking); although it would be nice if the rock was highly porous

That's three of the five things that are important to oil men and women, but it gets better. I saved the best for last.

• Thickness: I don't think it's at this link but elsewhere it is stated that the Tyler formation is generally thicker than the Bakken formations and appreciably so (if I find the link, I will link it here). I know I'm right on that because I read it earlier but did not keep the link -- sorry)

And now the absolute best. Did you read the small print regarding TOC?

• TOC: the higher the TOC, the better. Saudi Arabia average 2 - 5 percent. The middle Bakken averages 11 percent. According to geologists, "a good source rock for generating oil and gas has greater than or equal to 1 one percent weight TOC." The upper most Tyler shale has a TOC of about 10% (similar to the Bakken), while the lower two Tyler shales have a TOC of about 30%. Wow. 

It appears that the Tyler rock is its own source rock (just like the Bakken is its own source rock). "The Tyler formation is believed to be a self-sourced unit, i.e., oil generated from its shale has migrated into the producing sand intervals.

Wouldn't it be interesting if Leigh Price, the geologist who predicted the Bakken was wrong? That it would be the Tyler formation that would be the BIG one, and not the Bakken?

By the way, where is the Tyler formation bull's eye located: right in the heart of McKenzie County, but it easily extends north into Williams County, and obviously some "islands" and "isthmuses" in the southwest part of the state.

Oh, by the way, the heading for this post was "Are They Paying $14,000/Acre for the Three Forks?" One could ask the same question about the Tyler: "Are They Paying $14,000/Acre for the Tyler?"  Maybe, but I don't think so.

So, what do I think they are paying for?

Multi-formation payout.

Folks, it's just beginning. The Bakken is the cake. The Tyler is the frosting.