Oil Rush Begins
Dead Wells Come To Life
Oil wells in Montana, long abandoned and thought to be dry, have been resurrected, even as new oil fields are being developed. This new oil rush is a clear sign that supply concerns and sustained high prices have spurred a new wave of exploration and risk taking.
Halliburton and Marathon Oil have joined smaller "wildcatter" firms in this high risk, but increasingly profitable venture, while the majors are still lagging behind.
This is a major flip from the state of the oil industry in the high plains of the U.S., which as recenty as 1990 were thought to be a "bust," and led the major oil companies to allow their land leases to expire, as they shut down operations in the area.
Now, one Texas entrepreneur has revived the region and has spurred huge interest in the area once again.
According to the Wall Street Journal: "Richard L. Findley, a graying geologist and "wildcat" producer, thought they were all wrong. He bought up leases on the cheap and helped spark a surprising boom in one of the most heavily explored oil regions in the country. Mr. Findley discovered a new field that is now producing 48,000 barrels a day of high-quality crude oil from more than 300 wells. While oil companies have discovered bigger fields in Alaska and the Gulf of Mexico, this sizeable find is now the highest-producing onshore field found in the lower 48 states in the past 56 years, according to the U.S. Energy Department."
In fact, there is enough potential production in the area, according to estimates, to provide one percent of the nation's oil needs.
After much trial and tribulation, Mr. Findley formed a partnership with other small exploration companies. They had limited success initially, and made a proposal to Halliburton, who brought in horizontal drilling technology and hit paydirt.
Halliburton took a stake in the field, and is reportedly a partner, but will not disclose its stake in the venture.
Bigger Than Alaska
To be sure, there is going to be some hype associated with this. But there are some important points to be made.
According to the Journal, geologists estimate that there might be as much as 200-400 billion barrels of oil in an area that covers parts of Montana, North Dakota, and Canada, known as "The Bakken."
Here is where it gets very interesting. Even if the lower estimate is correct, "and if 10% can be recovered -- a conservative rule of thumb used by geologists -- the Bakken could eclipse Alaska's Prudhoe Bay as the largest recent U.S. oil find."
The Journal, cautiously adds the following: "the lofty predictions remain unproven, and skeptics remain. Most of the biggest oil companies are staying away. "Nobody has a good solid fix on this yet," notes Mr. Morehouse, (David F. Morehouse, senior geologist with the U.S. Department of Energy's Energy Information Administration) who says it will take more drilling to determine the true extent of the Bakken."
There are several key points in this story, which jibe very well with our position on Peak Oil.
- Peak oil is a reality, since it is clearly defined as a decline in production.
- Simultaneously, there is still plenty of oil to be found. But it is not easy or inexpensive to find and extract.
- Our long term caveat has been that oil companies aren't willing to go look for oil that they can't sell for a profit.
- Current prices, somewhere above the $50-$60 price range seem to be high enough to justify the increased risk of going after oil in otherwise ignored areas.
- The yields from these fields were negligible in times of plentiful supplies. But, now, when geopolitical pressures, and increasingly hostile environments, such as the high seas during hurricane season are making life difficult for oil companies, formerly "dry" holes, are looking attractive once again.
Our conclusion remains the same. There is probably enough oil on this planet to last a long time. The big problem is how to find it, how to get it out, and how to keep profit margins at a level that makes all the extra risk worthwhile.
The outcome for consumers is still the same. Higher oil prices are here to stay, barring a major economic catastrophe.
Is A Price Explosion Coming In Energy?
Is this the big run to $100 oil? $3.00 gas, is already almost a foregone conclusion, at least for drivers that use premium gasoline in their vehicles.
Oil prices remained above $67 overnight in near term contracts, as U.S. gasoline supplies fell a surprising 14.1 million barrels in the last reporting week.
Last week, we noted that the switch from gasoline containing MTBE to fuel mixed with ethanol and other additives would be difficult, due to the infrastructure problems facing the industry.
On April 1, we penned the following key points, worth repeating:
- Assuming that there is enough ethanol to meet demand, there is another issue, that of getting the stuff from one place to another.
- Because gasoline containing ethanol tends to attract water, it can't be shipped by pipeline. That means that trucks and railroad cars that specialize exclusively in the transport of the fuel will be needed.
- According to UPI: "Bill Douglass, who testified on behalf of the Society of Independent Gasoline Marketers of America and the National Association of Convenience Stores, told the committee that gasoline wholesalers were scrambling to hire more truckers as well as contractors to clean out and prepare tanks for ethanol storage."
- According to the Oil & Gas Journal: "The ethanol supply crunch already is being felt now and will continue at least through May 6 when MTBE lawsuits can be moved into the federal court system. The ethanol supply chain faces issues of delivery of this new and necessary component of gasoline into terminals, then blended with RBOB to make finished gasoline, and finally delivered into service stations."
- The situation could be worsened by the fact that "many terminals do not have the space for separate tanks" in which to blend and hold the new ethanol blends "and many terminals lack access to the rail system used to deliver bulk ethanol."
Green energy stocks rallied on the news along with oil stocks, with the Wilderhill Clean Energy Index struggling to remain near its recent highs.
Crude oil is testing the $65-$70 area in near term contracts, but the September contract was trading above $70 overnight.
Oil and energy stocks, gained nicely on 4-5 and look ready to move higher.