A recent test well by Continental Resources (NYSE:CLR), an operator with vast acreage in the Bakken Shale in North Dakota, may hint at a much higher recoverable reserve number for this oil bearing shale formation that is being rapidly developed by the exploration and production industry. (For a primer on the oil industry, refer to our Oil and Gas Industry Primer.)

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There is a debate in the exploration and production industry regarding the stratigraphy of the Bakken Shale. The Bakken Shale is currently composed of three zones, an upper, middle and lower zone. Just below the Lower Bakken is a zone called the Sanish/Three Forks. The conventional wisdom is that the Sanish/Three Forks is not a separate producing formation, and that operators that have drilled here have "drained" oil from the Bakken Shale above.

Continental Resources just released data on a well, designed to prove that the zones are separate producing formations. The company drilled the Mathistad 2-35H into the Middle Bakken Shale, just 50 feet above and parallel horizontally to the Mathistad 1-35H, which was drilled in 2008 into the Sanish/Three Forks.

Continental Resources shut in the Mathistad 1-35H, which was producing at 187 barrels oil equivalent (BOE) per day, before drilling the second well. After the new well was completed, it produced at a seven-day average rate of 995 Boe per day, four times the production of the first well. This convinced the company that a new reservoir had been stimulated.

If other operators confirm this, it may increase the recoverable reserves of the Bakken Shale significantly as it will increase the number of drilling locations that are possible. The U.S. Geological Survey recently estimated the amount of recoverable oil in the Bakken Shale in a range from 3.0-4.3 billion barrels of oil.

Whiting Petroleum (NYSE:WLL) is a large producer in the Bakken Shale, and its total net production averaged 15,448 BOE per day in June 2009. The company's latest wells in the Bakken Shale came in at initial production rates of 2,528 and 2,376 BOE per day.

A small cap company in the Bakken Shale is Brigham Exploration Company (Nasdaq:BEXP), which just restarted its development program in the area after suffering funding problems during the first half of 2009. The company has two wells being completed and one more set to drill shortly.

Producing oil has some benefits over natural gas from the point of view of the operator. First, if the area is capacity constrained, that is to say that there are not enough pipelines available, oil can actually be put in a truck and driven to where pipeline is available. This is not the ideal and most cost efficient method, but it can be done in a crunch. Natural Gas producers don't have this option.

EOG Resources (NYSE:EOG) did just that in the first quarter of 2009, and had to ship some of its oil out of the Bakken Shale area by truck to get it to market. The company decided to restrict production from its wells here, as the cost to ship was estimated at $22 per barrel. The company said that it would be back to full production in the Bakken Shale by July 2009.

The Bakken Shale continues to reveal its secrets during quarterly earnings, as an operator produces evidence that reserves here may be much higher than generally accepted. This prolific oil bearing shale may yet help the U.S. get rid of some of its dependence on foreign oil. (For related reading, take a look at A Guide To Investing In Oil Markets.)

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Tickers in this Article: CLR, WLL, BEXP, EOG

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