Several Articles On The Shale Oil Boom -- For The Archives: How The Bakken Has Affected Global Oil Industry; The State Of Texas; And An Indian Reservation In North Dakota

A reader sent me two interesting articles on the "tight oil" revolution we're experiencing in the US. Both articles are quite long, particularly one of them, and there are so many more stories within the articles that it is hard to figure out how to capture all the issues, and all the data points.

For now, I will simply post the links with only a few comments.

First the links:

The impact of the US oil boom; global re-ordering.  

Texas oil boom: another oil boom that is changing everything.

The StarTribune has a story on the reservation. 

With regard to the actual boom, in Texas and in North Dakota, I don't think there's anything new for regular readers of the blog, in the big scheme of things.

From the second article:

Drilling and fracking are expensive, and shale wells tend to decline quickly, so new drilling is constant, according to a Harvard University study. Only the United States, with 60 percent of the world's supply of drilling rigs, most of which can do the horizontal drilling fracking requires, has the wherewithal to maintain the pace. For comparison, the Harvard study noted, the U.S. completed 45,468 oil and gas wells last year; the rest of the world outside of Canada completed just 3,921.

Also:

Wilson said he's noticed many of his fellow operators drilling wells closer and closer together at the major fields in Texas and North Dakota. That makes money quickly and satisfies shareholders. But then the wells start competing with one another for the same oil and decline quickly, he said.

I think the jury is still out but whenever I see comments about decline rates and well spacing it makes me think that some folks still have not adjusted to a new way of thinking: conventional vs unconventional oil. I don't think we've seen evidence in North Dakota that putting wells more closely together is hastening the decline rate.

However, remaining focused on the decline rate seems to be missing the bigger picture. Unless I'm missing something, EURs seem to be the more important metric. If the EURs of Bakken wells exceed the EURs of Madison wells, and Bakken wells pay for themselves in one to three years, who cares what the decline rate is. That's always been the problem in the oil and gas industry. Wells deplete.

Hitting a Bakken well or a great Madison well is sort of like hitting the lottery. With the Bakken, you take the winnings upfront; with the Madison, you have an annuity over a lifetime. [I used to say that with more conviction; now that we have moved into the manufacturing phase of the Bakken, anyone who has a well on his/her section, will have Bakken annuities (plural) that will easily last a lifetime.]

When I first started blogging, they were talking about recovering 1 - 3% of original oil in place; then it went to 3 - 8%. I believe I have seen numbers that are higher. The operators continue to explore new methods and new technologies. Completion methods being introduced by EOG and Whiting in North Dakota are resulting in significantly better wells.

The third article is on the challenge the Native Americans have "managing" their spiritual land:

Theodora Bird Bear and Corey Sanders are the unlikeliest of protesters.

She’s 62 and works as a bookkeeper at a Catholic church just up Bureau of Indian Affairs Road 12 from the simple brown house she shares with her sister.

He’s 44, similarly soft-spoken and ranches down BIA Road 14 with his brother, running cattle on dozens of hilly acres climbing from a creek-lined ravine.

“When you have roots buried deep here, there’s something intangible that really connects you to the earth,” said Bird Bear, who has spent her entire life on this arid terrain that’s now in a bull’s-eye for the next burst of oil extraction in North Dakota’s frenzied Bakken boom. “Yes, it’s rough and hard out here. But this is our land, darn it, this is what we’ve got left and we’ve got to fight for it.”

Some other comments:

Hudson, like many tribal members, inherited mineral rights. She and her siblings share a $10,000 check each month, royalties she calls “a real blessing” in tough economic times. But she’s been through earlier oil booms here and knows it might not last. “Oil is a fickle business; if they can find a cheaper way to produce it, they’ll pull out of here in a New York minute.”

Neighbor Lisa Deville, 39, a mother of five from Mandaree, is less torn, despite her husband’s royalty checks that helped them pay off $70,000 of their home mortgage.

“We’re supposed to be keepers of the earth,” she said. “We’re supposed to be the water that makes things grow. We’re losing that connection.”

For newbies, it is important to remember that the folks living on the reservation are divided on the issue, some even insisting that their tribal leaders were "cheated" in their leases -- referring to the WPX deal a couple years ago.

I doubt the folks on the reservation have problems all that different from other folks in the oil patch who do not live on the reservation.

By the way, anyone who is getting $10,000/month in royalties will eventually get ten times that amount, or $100,000/month in royalties, from the Bakken. The reservation appears to average one or two wells/section. Before the drilling is over, is very likely that the better Bakken (and much of the reservation is in the better Bakken) will support eight to sixteen wells/section.

The problem I have with the StarTribune story: a) we've heard this before and before and before; b) it's more of an op-ed than a news story; c) the journalist had an agenda -- the story was written to fit the thesis, and thus not objective, though it looks like an objective news story; and, d) there seems to be more than a bit of hypocrisy in the article. I think this quote will be the takeaway for me: "...a $10,000 check each month, royalties she calls “a real blessing” in tough economic times." The writer should have asked what their income was prior to the royalties and how the royalties have changed their life. Most importantly, is most or all (or even, any?) of the royalty being used to fuel the campaign stop the oil industry from drilling on the reservation?

Newbies may want to take a look at this post to see what the Native Americans are complaining about.