The Black Gold Rush
by Joe Duarte, MD
Joe-Duarte.com & IntelligentForecasts.com
April 8, 2006
In the Peak Oil Series, Dr. Duarte has explored numerous aspects of the concept that the world�s oil reserves are dwindling. One common theme in the series, and in Dr. Duarte�s weekly discussions with Jim Puplava on the Financial Sense Newshour, is how little oil companies and politicians are doing to increase oil supplies and/or diversify the world�s energy sources. In this installment, Dr. Duarte looks at a new �Black Gold Rush� in the Upper Plains of the United States and Canada and the impact of this new dynamic on the oil markets and consumers. Other installments of this highly timely and �must see� series include:
- Peak Oil: Long, Hot Summer Looming for Drivers
- Peak Oil: The Covert War & The Uneasy Triangle
- Peak Oil: The Gulf Jitters
- Peak Oil: Bush, the Middle East Conflict, & Alternative Sources
- Peak Oil: China & Iran - The Energy Tightrope
- Peak Oil: Big Oil Companies Want Reserve Accounting Change
- Ethanol Hits the Big Time
- Peak Oil: On the Verge of Hitting Prime Time
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 pay dirt.
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.
© 2006 Joe Duarte, M.D.
Dr. Duarte's Bio and Archive
This analysis appeared on April 6, 2006 at www.joe-duarte.com.
Joe Duarte, M.D.
Joe Duarte M.D. is founder and Editor in Chief of Joe-Duarte.com. Dr. Joe Duarte's Daily Market I.Q. is a premium service that provides daily intelligence, trading strategies, and technical analysis at www.joe-duarte.com. Duarte offers free analysis and news coverage at www.intelligentforecasts.com . Dr. Duarte is a board certified anesthesiologist, a registered investment advisor, and President of River Willow Capital Management. He is author of "Successful Energy Sector Investing" and "Successful Biotech Investing" (Prima/Random House). Duarte's analysis appears regularly in major outlets including CBS MarketWatch and Investor's Business Daily.