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Can the Bakken fuel America? Don’t bet on it

Much of the talk about U.S. oil production for the last couple of years points to a remarkable conclusion: The country is on the road to energy self-sufficiency.

There is good reason for this. Oil output from shale formations such as the North Dakota Bakken and Eagle Ford in Texas has gone great guns and is on track to keep setting records. Together, the pair of crude-oil plays are now pushing two million barrels per day, representing nearly 60 per cent of Canada's overall output.

The success with horizontal drilling and hydraulic fracturing has made more than a few energy investors very rich in the past six years and, according to the International Energy Agency (IEA), has the United States poised to become the world's top oil producer in 2015. In fact, it predicts, America could be self-sufficient in the next two decades.

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To some, though, it's not an open-and-shut case. Scott Saxberg, for one, has run the numbers and he says they don't add up. In fact, North Dakota could be nearing the tipping point on production growth.

From the perspective of Canada's export-dependent oil patch, this could be a long-term positive.

Far from a Bakken dilettante, Mr. Saxberg is CEO of Crescent Point Energy Corp., the largest producer in the Canadian part of the formation, which extends into Saskatchewan and Manitoba. Crescent Point also has operations in North Dakota.

He said the state cannot sustain annual growth rates in the 40 per cent range, which it has averaged since 2008. There just isn't enough industry-related equipment, or even housing and other social necessities, to support a major increase in the manpower that would be needed.

"They have to add a significant number of rigs to continue the pace of growth that they're on today, and it's physically impossible," Mr. Saxberg said in an interview.

There are other factors. At least some of the North Dakota drilling boom was driven by a land-tenure system that required investment within two years to hang on to acreage, he said. That phase is ending.

Bigger companies, including international majors, are becoming more dominant and they may not have the same impetus as domestic exploration and production firms to drill up a storm. Also, existing wells have high rates of decline after the first year of production, meaning new wells have to make up for the loss as well as contribute to gains.

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"We've looked at every single well, well-by-well, in North Dakota and put the model together and evaluated it. We have that profile. Unless something changes – i.e. they add a whole bunch more rigs – that profile is not going to increase at the rate you've seen," Mr. Saxberg said. "The Eagle Ford's going to do the same thing at some point."

This does not mean the oil boom that has turned North Dakota into the second-largest producing state is done. Far from it.

The Bakken along with the Eagle Ford and other oil-shale plays are expected drive increases in U.S. oil output to 8.5 million barrels a day in 2014 and 9.3 million in 2015, up from 7.5 million in 2013, according to the U.S. Energy Information Administration.

As a result, imports are expected to drop to 24 per cent of U.S. consumption next year, compared with 60 per cent in 2005 and the least since 1970.

Still, the Paris-based IEA has forecast U.S. oil production – which in its calculations include natural gas liquids – to hit 11.6 million barrels a day by 2020 from 9.2 million in 2012. That means the United States will have to add the equivalent of nearly a Syncrude Canada Ltd. oil sands plant worth of new oil, and deal with declines, every year through that period.

Mr. Saxberg said that's just too much for the Bakken and other major shale fields to shoulder as resources to keep production growing get stretched.

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North Dakota's stunning gains have complicated life for Canadian oil producers by taking up pipeline space and feeding some of their traditional U.S. Midwest markets with competing supplies. They have also forced oil sands producers to rethink plans for upgrading plants that would turn bitumen into synthetic light oil, which is much more expensive to produce than the Bakken light.

However, if Mr. Saxberg's call on the future of the Bakken plays out, Canada is far from a fading force in the U.S. oil-supply game.

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