You may have never heard of a man named Richard L. Findley, but without him the Bakken oil formation might be nothing but a big dry hole.
At least that's what the majors such as Royal Dutch Shell, Gulf Oil, and Texaco Co. believed in the mid- 90's.when they packed up their gear and headed home.
But that didn't stop Findley. Undeterred, the geologist and "wildcatter" pressed on. And after scrutinizing years old drilling records, it finally hit him— the big oil companies were simply drilling in the wrong direction.
According to Findley, instead of drilling into the oil rich layer of the Bakken formation, they had mistakenly gone right through them. In the process, they missed an underground river of high quality crude that was by his estimation 50 miles long and 12 miles wide.
That left a mother lode of oil that had yet to be pumped, leaving billions of dollars underground.
The bigger question though was how to actually get at it.
After all, drilling the Bakken oil formation was unconventional to say the least. That's why the giants gave up on it after sticking their straws in the ground and coming up with little more than a trickle.
However, working with Lyco Energy Corp and the drilling expertise of Halliburton, the Findley group finally managed to solve that puzzle too. In May 2000 they hit pay dirt using computer-controlled rigs, horizontal drilling techniques and hydraulic fracturing.
The rest as they say is history. The Bakken formation had finally been successfully tapped.
What has followed in the region since then has been a mad rush to pump more of that oil—especially in the face of $130 plus a barrel crude. According to some estimates, the Bakken Formation could hold more than 400 billion barrels of recoverable oil.
And with the hue and cry of $4.00 a gallon gas beginning to grow louder and louder unconventional oil shales like those in the Bakken formation have become drilling hotspots.
In fact, according to industry experts, unconventional oil like—that in the Bakken and other fields— is expected to supply more than 20% of global demand by 2025. Moreover, according to the forecasts, unconventional gas will account for over 40% of U.S. gas supply by 2010
Drilling in the Bakken Oil Shale and Beyond
But whether that unconventional energy comes from the Bakken, Haynesville, Fayetteville, the Barnett, or more recently the Marcellus shale, successfully extracting the oil and gas from these regions is done primarily with the same basic techniques that Findley's group used to great success in 2000.
First the formations are mapped. Using 3-D seismic technology, layers of gas and oil are located and defined, giving the drillers solid targets and fewer dry holes.
Once mapped, the formation is drilled vertically first and then horizontally into the target layers rather than through them. That gives the well access to thousands of feet of resource rather than the hundreds of feet typically encountered in a vertical well.
The result, is increased production rates and higher rates of return on capital. More oil and gas simply means more dough.
Moreover, the combination of the seismic mapping and horizontal drilling gives companies access to resources in places where drilling is unwelcomed, such as under shopping centers and stadiums. In fact, much of action in the Barnett Shale is actually in and around Fort Worth, Texas, accessible only through horizontal directional drilling.
Zilch without Hydraulic Fractures
Even still despite the advances in mapping and directional drilling, coaxing oil and gas out of formations like the Bakken and Barnett is loser without hydraulic fracturing techniques.
That's because shale is a "tight rock", making it difficult to extract without some serious help. As a result, the rock itself needs to be fractured or cracked all along the well before the oil or natural gas can flow from it.
In hydraulic fracturing, a water and sand mix is typically is injected into the well under very high pressure. The pressure eventually exceeds the strength of the rock and it shatters, sort of like a broken windshield. That not only releases the oil and gas, but gives it a path to the production well.
Once fractured, a "propping agent" such as sand or ceramic beads is pumped into the fractures to keep them from closing up once the pumping pressure is released. After all, at such great depths and pressures, the fractures would slam shut without the proppant defeating its purpose.
The result is an oil or gas well that can basically print money if the combination of these techniques is successful.
That's what Richard Findley and his partners ended up with in their Elm Coulee eight years ago. Since then the area is believed to contain some 250 millions barrels of oil, making it the biggest find in the lower 48 states in the last 56 years.
Hmmm. Now let's do the math on that one. It would be 250 million X 130.00 or $32.5 billion. That's 325 followed by eight zeroes, not a bad haul for an area abandoned by the big boys.
For investors that means that profiting in unconventional oil and gas plays like the Bakken and the Barnett can be accomplished with investments in the exploration and production companies that are working these regions. They include: Continental Resources Inc (NYSE:CLR), XTO Energy Inc. (NYSE:XTO), and Chesapeake Energy Corp. (NYSE:CHK)
But don't forget to consider investments in drilling services. Because it is companies like Allis-Chalmers Energy Corp. (NYSE:ALY) , Superior Well Services Inc.(NASDAQ:SWSI) and others that coax all of that oil and gas out of those "tight rocks" to begin with. Not surprisingly, sales in this segment of the business are booming.
And to think it all began in part, with a dream and guy named Richard Findley.
It's amazing what you can find when you think out side of the box.
Your energy-loving analyst,
Chief Investment Analyst
PS. The Wealth Advisory team has uncovered new oil and gas play with a fast growing business model that is taking the unconventional oil and gas world by storm.
The Bakken, the Barnett, Haynesville, Fayetteville, the Marcellus and even Russia. You name the hotspot, and its products and services are being used there.
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