Some recent comments on the Bakken formation by the head of a major independent oil and gas company have once again raised the question of how much oil is present in this high-growth play in the United States.
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Harold Hamm, the Chairman and CEO of Continental Resources (NYSE:CLR), said that the Bakken formation in North Dakota and Montana may contain as much as 20 billion barrels of recoverable oil. Hamm also included the reserves from the Three Forks formation in his figures. The Three Forks is a less developed oil bearing formation that lies below the three members of the Bakken. Continental Resources has close to 900,000 net acres under lease in these two plays.
U.S. Geological Survey
This is much higher than the official government estimate of the amount of oil contained in the Bakken. In 2008, the U.S. Geological Survey estimated that the Bakken held mean undiscovered volumes of 3.65 billion barrels of oil, along with 1.85 trillion cubic feet of natural gas and another 148 million barrels of natural gas liquids. This estimate was limited to the Williston Basin, and excluded Canada as well as other basins in the United States where the formation is present. A previous assessment by the U.S. Geological Survey released in 1995 reported that the Bakken had 151 million barrels of oil.
North Dakota also has its own assessment of the Bakken and Three Forks formations, and as you might expect, it differs from the estimate given by Hamm and the U.S. Geological Survey. In 2008, North Dakota estimated that the Bakken contained 149 billion barrels of oil in place, of which 2.1 billion barrels is technically recoverable. Two years later, North Dakota assessed the Three Forks formation at 20 billion barrels of oil in place, of which 1.9 billion barrels is technically recoverable. These two estimates referred only to North Dakota, and excluded Montana and Canada.
Another Saudi Arabia?
The mother of all Bakken estimates comes from Dr. Leigh Price, who worked for the U.S. Geological Survey. Price estimated that the Bakken could generate between 271 billion and 503 billion barrels of oil with an average of 413 billion barrels. Price came up with a higher amount than his peers because he argued that oil from the Bakken had not migrated to the Mission Canyon or Madison formation and was thus still trapped within the Bakken. Price also put a recoverable estimate at the Bakken resource at 50%, implying that approximately 200 billion barrels of oil could be recovered from here.
His methods of calculating the amount of oil in the Bakken are controversial and not accepted by some scientists. His paper is entitled "Origins and Characteristics of the Basin-Centered Continuous Reservoir Unconventional Oil-Resource Base of the Bakken Source System, Williston Basin," and can be found on the internet fo those that want to read his arguments. (Before jumping into this hot sector, learn how these companies make their money. To learn more, see Oil And Gas Industry Primer.)
Who to Invest in
Continental Resources is one of the largest operators in the Bakken, but there are many other exploration and production companies involved here. Here is a summary of the players and acreage positions:
|Whiting Petroleum (NYSE:WLL)||579,000|
|Oasis Petroleum (NYSE:OAS)||300,000|
|Brigham Exploration (Nasdaq:BEXP)||368,000|
|Kodiak Oil and Gas (NYSE:KOG)||72,000|
|Hess Corporation (NYSE:HES)||500,000|
|Marathon Oil (NYSE:MRO)||385,000|
|Occidental Petroleum (NYSE:OXY)||200,000|
|SM Energy (NYSE:SM)||81,000|
The Bottom Line
Some recent comments on the potential of the Bakken formation prove that he amount of oil and gas resources present in a basin is a difficult estimate to make. It's certain that controversy over the potential of the Bakken will continue for many years. (The next hot spot for energy plays in North America is the Alberta Bakken. Check out The Alberta Bakken.)
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