Time For A Reality Rant

You know, I get just a little tired of companies trolling for investors and general media reports that keep bringing up the hundreds of billions of barrels that supposedly exist in the Bakken everytime the formation is mentioned. My question to them is "so what?" Instead, why not tell me what percentage of that figure is recoverable, as isn't that what's really important? For the ignorant, these reports make it sounds like all that previously unknown oil is just waiting down there for whomever wants to put a straw into this vast underground pool like Spindletop and then just let it flow. That is hardly the case.

These enormous estimates are generated by calculating the oil in place on a section basis times the areal extent of the Bakken. Most companies are estimating about 3-5 MM bbls/section, which is open to debate, but is certainly reasonable. Now the tricky part comes in calculating what percentage of that amount is recoverable. A ten percent recovery rate would yield between 300-500K bbls/section. This certainly appears to be a reasonable rate in areas of exceptional formation quality, such as in the Parshall area, although the jury is still out as to the long term producibility of those wells. But again, it is certainly not an unreasonable calculation for that area based on the scant production history that exists. In other areas currently being developed with less favorable geology, perhaps half that, or five percent, is a reasonable recovery rate, as 300K is an often used estimate for 1280 acre units. However, in some fringe areas, the recovery rate with current technology is only a fraction of one percent, and a number of those wells will be hard pressed to ever make 100K, or even 50K, even after twenty years of production.

So what's the point here, you may ask. The point is: how much of the Bakken acreage being used to calculate hundreds of billions of bbls has poor geologic factors that has a recovery rate with current technology of less than one percent? My guess is a lot of it. Consequently, the hundreds of billions suddenly become hundreds of millions in relevant terms. Marathon and EOG both guess that they have recoverable reserves of roughly 100 MM bbls on their acreage. New technology in the next ten years could double or triple that, who knows. Now, is a couple hundred million bbls that nobody thought could be produced five years ago something to take lightly? Of course not. It's the equivalent of finding new Billings Nose, Little Knife, and MonDak Fields. It is hardly hundreds of billions of bbls though.

So if anybody tells me they think there are 800 trillion bbls down there, I really don't care. Tell me how many of those bbls you can economically put in a tank, then I'll care.

UPDATE 10/29: In today's Bismarck Tribune, while speaking at an energy expo in Bismarck, a Sr. VP for Marathon stated that the middle Bakken is a "'marginal play,' one that requires the company to move quickly from one well to the next with fewer people." Yeah, but the economics have changed rapidly what with the current hundred dollar oil. Now, 100K of recoverable reserves can gross ten million dollars in future revenue, as opposed to half that with fifty dollar oil. Marathon's original economic model was based on forty to fifty dollar oil. But I don't think anyone wants to make any hedges on what the price will be a year from now, as with a world recession, it could be thirty or less.