Investopedia: Bakken Booming

How many folks in the Midwest scrambled to find ways to play ethanol during its mini-boom (and then bust) in the first decade of this century, only to see reality come up well short of the hype? What makes that rush all the more regrettable is that there was a huge pool of oil waiting beneath their feet. As the news from the Bakken formation in North Dakota continues to suggest, the best move investors could have made was buying loads of acreage in western North Dakota and waiting for the energy companies to come calling. 

Good, Moving to Great?
In a report that came out over the holiday weekend, North Dakota officials talked of oil production estimates from the Bakken that could vault North Dakota into the #2 spot in oil production in the United States. Operators in North Dakota are currently producing about 350,000 barrels per day, and indications suggest that number could double in the next five years or so. While that number sounds impressive, and would make North Dakota second only to Texas in domestic production, 700,000 barrels per day would cover only about 3% of the U.S.'s daily consumption. So, even with these rosy predictions, North Dakota will only have us all covered from about 8am to 8:45am. (For related reading, check out Oil And Gas Plays You've Never Heard Of.)

The Danger Of Predictions
Some of the statistics underlying the success of the Bakken play should interest not only energy investors, but those who follow energy policy. More to the point, what is going on in North Dakota (and Montana, as well as Saskatchewan) would not have been practical only a decade ago, and probably not even thought possible two or three decades ago. The oil in the Bakken is not easy to access - it is certainly not a matter of just drilling a hole and seeing oil come gushing out of it. Rather, it requires more advanced techniques like horizontal drilling and hydraulic fracturing.

This is where energy skeptics (and "peak oil" buffs) often get it wrong - what energy service companies like CGG Veritas (NYSE:CGV), Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI) have done is basically revolutionize how companies can access oil and gas. By improving seismic and electromagnetic surveying to find and define reservoirs, and developing technologies and techniques to exploit those reservoirs (like horizontal drilling), these companies have turned nonviable energy fields into major producers.


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