Over-Hyped Bakken? See Wall Street Journal Today

Another article in Wall Street Journal today, February 26, 2010.

I cannot explain the sudden excitement in the media unless "crazy numbers" is circulating among the oil industry experts.

Yesterday we had a Yahoo.com front page story reporting on the nearly quarter billion dollars going to the Native Americans on the Fort Berthold Indian Reservation, and today we have a full page spread on the Bakken in the nation's number one newspaper.

My hunch: the USGS's estimate on the percent recoverable oil in the Bakken was underestimated by a significant amount.

[Some folks won't understand the analogy, but here it is anyway. When Apple Computer, Inc., had only 2 percent penetration in the computer market, most analysts felt Apple would fail as a company; Steve Jobs noted that he could double the company's size and profitability by just getting 4 percent penetration. Apple now has about 5 percent market penetration for computers and Apple's market cap at $180 billion is not all that different from Microsoft's $250 billion market cap. AAPL's P/E is slightly higher at 20, but certainly not that different than MSFT's P/E of 16.

My point is this: if producers are excited over a 2 percent recovery rate (the USGS survey prediction), imagine the excitement if the producers can actually get 4 percent recovery. Four percent recovery ain't much, but it doubles the total amount of production. Just saying.]

Oh, one more thing. Once the wells are drilled, it doesn't cost nearly as much to go back in with a workover rig and fracking crew. The producers are already doing that on some wells. One well to watch will be Hess' RS-Brady well to see if Hess goes back in and re-fracs this well.