The big play

  • Pumpjacks near Tioga, North Dakota, pull crude from the Bakken Formation. In 2012, output from the play – the industry term for a hydrocarbon- bearing stratum – may turn the state into the USA’s second biggest producer, behind Texas. Picture by Benjamin Lowy
  • Local geologist Kathleen Neset and her husband, Roy, founded a consulting firm that helps petroleum companies at nearly half of North Dakota’s 200-plus active rigs locate oil-rich rock. Picture by Benjamin Lowy
  • Fracking the Bakken. See article for more information.
  • Statoil’s Russell Rankin surveys a drill site outside Williston. Picture by Benjamin Lowy
  • This rig near Williston, North Dakota, drills down 3 kilometres to the Bakken Formation and then horizontally through the pay zone. Picture by Benjamin Lowy
Date:21 July 2012 Tags:, , ,

The austere prairie of the American Midwest is the unlikely centre of one of the biggest oil booms in decades. But will drilling here and in other domestic oil patches help the country move closer to the elusive goal of energy independence?  By James Vlahos

I am holding a rock that looks like an ice hockey puck, one so solid that a slap shot would result in a busted stick. It’s 360 million years old. Long before dinosaurs roamed the Earth, zooplankton, algae, and sand accumulated on the bottom of a Devonian sea. Heat and pressure transformed the sediments into a layer of shale, which is now buried 3 kilometres beneath the windswept prairies of America’s northern Great Plains. This stratigraphic layer is called the Bakken, and it is where the rock in my hand had rested, until very recently, in mute, stony peace. I’m standing inside one of the command posts for the Harvey, an oilwell in the North Dakota section of the Williston Basin, squeezed shoulder to shoulder with men in red jumpsuits. We’re watching Jared Edvenson, who sits at a control panel, and waiting for him to trigger  explosives.

These days, detonations of all kinds – social, economic and pyrotechnic – are “Rockin’ the Bakken”, as a popular local T-shirt puts it. The Bakken has inspired thousands of fortune seekers to head north in a modern-day version of the Klondike Gold Rush. It is responsible for minting millionaires but also for costing people their homes and, occasionally, their lives in oil rig accidents. It has contributed to the fear in some quarters that an environmental apocalypse is nigh, and the hope in others that the Americas, not the Middle East, will one day be the epicentre of the global energy supply. “Five years ago, you tell people you are working in North Dakota, and they would be like, what are you talking about?” says LeeDon Wiseman, the Harvey well’s lead consultant.

“Five years ago?” says a co-worker. “Last year even.” “Now we’re on every world map there is,” Wiseman continues. “Bakken. It’s an explosion. Worldwide.”

In 2001, North Dakota wells produced 31 million barrels of oil, less than 2 per cent of which came from the Bakken. Last year the state generated a record 152 million barrels, and more than 80 per cent of it was Bakken-derived. For 2012, North Dakota’s output is projected to surpass that of California (196 million barrels) and possibly even that of Alaska (209 million barrels) and to lag behind only Texas (533 million barrels). Estimates for the total amount of oil that could be recovered from the formation range wildly, from a few billion barrels or less to exponentially more. In an  unpublished but nonetheless widely referenced paper from 2000, Leigh Price of the United States Geological Survey estimated that 200 billion barrels of oil could ultimately be extracted.

The Bakken crude is exceptional, light and sweet. But it’s difficult to recover. The formation is broad, sprawling over 65 000 square kilometres beneath the US states of North Dakota and Montana and the Canadian states of Saskatchewan and Manitoba. It is also skinny, reaching a maximum thickness of only 50 metres. What’s more, the rock is dense, averaging 5 per cent or less porosity, which means that 95 per cent or more of the rock consists of just that – solid rock, rather than open pores that can hold oil. (Conventional oilfields, such as Saudi Arabia’s Ghawar, have porosity of up to 35 per cent.) Russell Rankin, a regional manager for Statoil, a multinational energy company and one of the owners of the Harvey, gestures toward my core sample. “You see that rock and say, ‘It looks like concrete,’” he says. “‘How do you get oil out of that?’”

Part one of the answer is to employ horizontal drilling, which oil companies began trying here in the late 1980s. A couple of weeks before I arrived at the Harvey, the workers started by drilling straight down, just as they would traditionally. But then, as the bit approached the 3-km depth, the workers guided it on a graceful, 90-degree curve into the Bakken. From there they drilled horizontally for another 3 km, maximising the well bore’s access to the thin geological layer.

Part two of the answer is hydraulic fracturing, another technological innovation. In the command-post truck, Edvenson
stands by to initiate the first step in that process. A man’s voice crackles over a two-way radio. “We’re at 4 544 metres, you good?”

“I’m good,” Edvenson replies from his seat in front of the control panel. He turns a dial to amp up the electrical charge he’s about to unleash, lifts a red protective cover, and reaches for a toggle switch labelled SHOOT.

The Bakken boom is the biggest in North Dakota history, but it isn’t the first. Just ask Kathleen Neset. A New Jersey-bred,
Brown University-educated geologist, Neset arrived at the height of the 1979 fuel crisis. Prices were soaring and oil companies were thirsty for North Dakota crude, even though it was costly to extract. Neset met her future husband, Roy,
while they were working on a rig near the state capital Bismarck, and the couple launched a drilling and geological consultancy to help drillers locate the most oil-rich rock. But then the crisis ended, oil prices crashed, and “the state went from 146 active drilling rigs in 1981 to basically zero”, Neset says.

In the wake of the bust, Roy, Kathleen and their two sons supported themselves mostly by working on their family farm, which had been homesteaded a century earlier by Roy’s Norwegian ancestors. But then, in the late 1990s, their oilfield business began climbing again, and since 2008, it has skyrocketed. Today, the Neset Consulting Service has crews working on nearly half of the state’s 200-plus active drilling rigs, and Kathleen Neset is one of the best-known women in the state’s oil industry.

On a cold, clear day in February, Neset takes me to visit the farm, just outside the town of Tioga. After driving between golden fields of durum wheat, we reach a small hilltop, where a windbreak of ponderosa pines opens to reveal a white farmhouse. Oil was first discovered in North Dakota only a couple of dozen kilometres from here, in 1951, and behind the Neset farmhouse is a well that was drilled a few years later. Long since abandoned, the rusty artefact is a reminder that people have been trying to suck oil out of North Dakota for six decades, and its presence raises an obvious question: why has it taken until now for production to kick into overdrive?

“Well, we always knew the oil was here,” Neset says. “But to get it out of the ground, we had to wait for the technology to catch up.”

It was the chance to see the new technologies in action that had brought me to the Harvey well, about 80 kilometres southwest of Neset’s farm. As I look on, Edvenson’s fingertips find the shoot switch and flip it, triggering explosive charges 3 kilometres down in the Bakken layer. They blast a series of cracks that extend outward from the well bore and into the surrounding rock. This step – called perforating or perfing – doesn’t release much oil; the cracks are only a couple of metres long and finger width. Rankin says perfing creates zones of weakness, and the next step is to attack them.

Rankin and I walk a few dozen paces to the frack van for another well, the Kari, which has already been perfed. Inside, well-site consultant Scott Bell shows me a sample tub of fracking solution, a beige goo consisting mostly of water and sand as well as chemicals that inhibit bacterial growth and enhance viscosity. Thousands of litres of the stuff are being pumped through hoses and deep into the well. The fracking solution then surges into the perforations, driving the cracks over a hundred metres outward from the bore. Bell and Rankin monitor the assault on a computer screen, watching as the pressure climbs to 450 bar. “She likes it, she likes it,” Rankin says.

At this point, if Bell simply shut off the pumps, the cracks would snap shut again. Instead, his team changes the mixture of the fracking solution so that it carries tiny ceramic beads, called proppant. The proppant gets packed into the fractures and stays there, holding them open so that oil can flow freely to the bore.

Until a few years ago, wells were perfed, then fracked, in a single pass. Rankin calls this the Hail Mary approach. Now well pipes are subdivided into 40 segments or more, each of which is perfed and fracked in isolation, maximising the effectiveness of the hydraulic onslaught. “Multistage fracking has revolutionised the Bakken,” Rankin says.

The new techniques have given rise to the current Bakken boom, but there are no guarantees that it, too, won’t go bust like those of the past. Even when coaxed with the latest techniques, the formation is stingy about releasing hydrocarbons; for example, whereas production from a new well in a conventional oilfield declines about 5 to 8 per cent per year, the output from Bakken wells declines 65 per cent after the first year. Ultimately, even if the most wildly optimistic estimate of Bakken oil reserves is correct – around 200 billion barrels – the amount of oil that can actually be
recovered may still be only 10 billion barrels or less.

The other uncertainty is the price of oil. Rankin says that drilling, which is more costly in the Bakken than it is in conventional fields, will be profitable even if prices drop to $60 (about R470) a barrel. The Bakken play may thus sound like a safe bet, with prices currently topping $100 a barrel. But as inflation-adjusted data from energy analyst James Williams of WTRG Economics indicate, oil prices have remained below $60 a barrel for most of the years since World War II. If prices tumble back down toward their long-term historic norms, Neset may need to return to her crops once again.

Energy blogger Ken Paulman was surfing the Web last year when he came across a time-lapse video, recorded from the
International Space Station, that took viewers on a soaring journey over the Earth at night. A geography buff, Paulman
says he was puzzled when, in what should have been a blank spot on the US map, the lights of an enormous “mystery
city” spun into view. He realised to his surprise that he was seeing the Williston Basin.

At the heart of the boom, the city of Williston in North Dakota has grown from 12 500 residents a decade ago to nearly 20 000. Driving around town, I’m flanked by tractor-trailers hauling water, sand and oil, and I pass intersections where city workers are stringing up new traffic lights. The Walmart is jammed with shoppers, and it takes half an hour for my order to come up at McDonald’s. Unemployment is around 1 cent, and Williston mayor Ward Koeser estimates that there are more than 3 000 local job openings. The work isn’t just out on the rigs, either; the newcomers need places to eat, shop, live and blow off steam. Melissa Slapnicka, the co-owner of a strip club called Whispers, recently boasted to CNN that “my best girls would rather dance here than in Vegas because they make more money here”.

Civic infrastructure, though, hasn’t kept up, Koeser and other local mayors say. Schools and hospitals are crowded, sewage systems overwhelmed, and police flooded by service calls. The numbers of burglaries and violent crimes are on the rise. The most acute problem is the housing shortage, despite all of the hotels and apartment complexes being built.

Jacob Brooks, managing editor of the Williston Herald, says that many apartment dwellers have faced annual rent increases of almost 300 per cent and that “seniors who had been living in Williston their whole lives were having no choice but to leave town”. By necessity, more than a dozen temporary “man camps” have sprouted in the Williston Basin to house thousands of workers. I spend a night in one of them and experience an ambience that is midway between a motel and a minimum security prison.

Some locals are also concerned about fracking’s environmental impacts, especially those related to water. In the Williston Basin, where typically less than 40 cm of rain fall per year, fracking a single well requires around 13 million litres of water, enough to supply a town of 1 000 people for close to six weeks.

Lynn Helms, the head of the state’s oil and gas division, said last year that North Dakota was “pretty much maxing out our available water resources”. Much of the water for fracking is delivered by truck. Helms and other state officials are hoping to obtain permission from the Army Corps of Engineers to draw water from Lake Sakakawea, which lies just south of Williston.

The idea that subterranean fracking could directly pollute the state’s aquifer horrifies environmentalists, though this concern stems in part from a faulty understanding of the process. The Williston Basin’s aquifer is 600 metres deep and is shielded from contamination by 2,5 kilometres of rock that separates it from the Bakken Formation far below. “We are
nowhere near our water zones when we’re fracking our wells,” Neset says.

Oil, however, does have to pass through the aquifer when it’s being pumped to the surface. To prevent any oil from accidentally seeping out, the well bore has double layers of steel and cement casings, which in theory are perfectly
secure – as long as workers didn’t make any mistakes during installation. (A casing failure was one of the pri mary causes of the Deepwater Horizon disaster in 2010.) “Any time you have humans and machines working together, you’re going to have an error somewhere,” says Donny Nelson, a Williston Basin cattle rancher and member of the Dakota Resource Council.

Perhaps the most significant environmental concern about fracking is not what happens during the process, but afterward. The millions of litres of chemical-laced fracking solution from each well are deep-injected into the ground after use, removing them from the water cycle, but also raising the spill risk if the transfer is mishandled. The drill cuttings, meanwhile, are dumped into onsite pits, which have the potential to leak.

The Environmental Protection Agency is investigating possible groundwater contamination from hydraulic fracturing operations further to the west in Pavillion, Wyoming. A draft report released in December 2011 stated that “detection of high concentrations of benzene, xylenes, gasoline range organics, diesel range organics, and total purgeable hydrocarbons… indicates that pits are a source of shallow groundwater contamination”.

The American Petroleum Institute’s Chilli Cook-Off is a big event on the Williston social calendar. Hundreds of attendees
pack a hotel atrium and crowd up to the well-stocked bars. A country band atop a high stage cranks out Gretchen Wilson’s “Redneck Woman”, while servers at booths from Halliburton, National Oilwell Varco, and Calfrac dish up bowls of fiery chilli. Even here, where the industry has come to toast itself, nobody pretends that the boom is impact-free. But people are making money, that finest of mood-altering drugs, and many folks believe they’re making history as well.

Sitting at one of the long tables in the centre of the room, Larene Grondahl says that she is profiting from the rush. “I’m an oil baroness,” she jokes, explaining that she inherited a one-fifty-second share of the mineral rights for a well and receives a few thousand bucks a year in oil company royalties. Some people who wholly own well rights receive far more. “There’s farmers up here getting hundreds of thousands of dollars every time they get a cheque,” Dennis, Larene’s
husband, says.

The Bakken isn’t the only unconventional play that’s boosting incomes and, potentially, oil supplies. Amy Myers Jaffe, director of Rice University’s Baker Institute Energy Forum, estimates that the Americas have 6,4 trillion-plus barrels of unconventional resources, from the oil shales of Colorado and Utah to the oil sands of Canada and Venezuela. By comparison, conventional Middle Eastern and North African fields hold about 1,2 trillion barrels. She predicts that
“by the 2020s, the capital of energy will likely have shifted back to the Western Hemisphere”.

Sceptics, meanwhile, point to those high extraction costs and low recovery rates in places such as the Bakken. North Dakota wells are indeed gushing, but haven’t made up for the longterm production declines from oil states such as Texas and Alaska. US domestic oil production peaked in 1970 at 3,5 billion barrels a year, according to the Energy Information Administration; the output today is only 2 billion barrels. Paul Horsnell and Amrita Sen, two energy sector analysts for Barclays Capital, recently cautioned investors to be wary of euphoria and excess optimism when it comes to domestic supply. “Does shale oil help the US reduce its dependence on foreign oil? Yes, it does,” the analysts wrote. “But does it remake the US into the next Saudi Arabia? No, at least not yet.”

But people at the Chilli Cook-Off know just exactly where they stand on oil in the Americas: they’re betting long. Statoil’s Rankin finds me in the crowd and invites me up to a small party in a hotel room that overlooks the atrium. There’s chilli in a Crock-Pot and Miller Lite on ice in the bathtub. Rankin introduces me to his wife. They’re both from elsewhere but are having a house built on 8 hectares of land east of Williston.

The rock beneath North Dakota has as many as 30 oil-bearing zones, of which the Bakken is just one, and Rankin is betting he’ll be working here for a while. “Today we’re targeting the Bakken; five years from now it’s the Tyler, Lodgepole, Birdbear,” Rankin says, naming stratigraphic formations. “We’re just getting started.”

Fracking the Bakken
1  North Dakota’s Bakken Formation is a layer of dense, oil-bearing rock found at a depth of about 3 kilometres. To tap it, oil companies drill to the hydrocarbon-rich stratum, then curve the well bore 90 degrees so that it runs horizontally through the thin, irregular formation.

Hydraulic fracturing, or fracking, typically frees oil by cracking rock with high-pressure bursts of water, sand and chemicals. Tight rock in shale-oil plays like the Bakken requires multistage fracking to maximise oil recovery.

In multistage fracking, engineers perforate short segments of the production casing independently. This allows them to concentrate the hydraulic assault, creating longer cracks that allow more oil to flow to the well.

Oil production is rising in the US and Canada, and American consumption is at an 11-year low. Yet petrol prices have not receded. Here’s why. Reporting by Joe Pappalardo

Global competition
Steady demand from China and other booming economies is one reason why the price of crude oil reached record levels in early 2012. And, according to Amy Myers Jaffe, director of Rice University’s Baker Institute Energy Forum, “Crude oil price is the single biggest influence on US retail (petrol).”

Overseas unrest
The price of crude is extremely sensitive to market disruptions. For example, when trouble looms in the Middle East, European nations seek more reliable suppliers, who then demand higher prices, which drives up costs for US refiners. “When people talk about attacking each other in the Middle East,” Jaffe says, “it lifts the price of oil.”

Weak infrastructure
The increase in North American production has overwhelmed domestic shipment and storage infrastructure. The inability to move crude efficiently around the US has made some refineries reliant on Middle Eastern and African suppliers and therefore vulnerable to price spikes. Those increases are passed on to consumers at the pump.

Regional standards
Even if American refineries all had equal access to domestic crude, regional prices would still vary because of differences in city and state clean-air standards. These regulations lead to local production of boutique petrol, which drives up prices. In general, big cities have tougher standards, so urban drivers pay a bit more than rural ones.

1973 Oil price shocks: OPEC embargo to punish countries for support of Israel contributes to shortages.

1979 Iranian Revolution deposes shah; the 1980-1988 Iraq-Iran War heightens oil production uncertainty.

1990 Gulf War to evict Iraq from Kuwait generates minimal disruptions due to increased Saudi production.

1997 Asian financial crisis produces a different shock: the price of a barrel of crude falls to 1972 levels.

2008 Great Recession reduces American oil use by 5 per cent while inter national demand soars.

US presidential candidates all agree on one point: the nation must end its reliance on foreign oil. As a candidate in 2008, Barack Obama promised to “eliminate the need for oil from the Middle East and Venezuela” in 10 years. Mitt Romney’s energy adviser agreed that a similar goal was attainable. Other politicians and pundits also claim that the US is marching toward energy independence; a recent pair of Citigroup reports offered speci” cs on how to reach that elusive goal. But how realistic are these expectations? PM examines the truth behind the numbers. Reporting by Steve Rousseau

Eliminating the gap between US domestic production and consumption is a daunting task. According to government statistics, the country’s imports average 11 million barrels of oil a day, or 3,8 bil lion barrels a year. For all the Bakken’s promise, production in 2011 (176 million barrels in North Dakota and Montana) closed the gap by only 4,6 percent.

The 2012 Citigroup reports offer a best-case scenario on how the US could achieve energy independence by 2020.

To reach this ” figure by 2020 would mean a lot of drilling. Shaleoil plays tend to deplete far faster than conventional fields. The Bakken’s 25 per cent increase in output between 2009 and 2012 required nearly four times the number of wells, from 891 to 3 350. Another 25 per cent increase would drive the well count to at least 9 400.

The projection is based on output from Canadian oil sands. Even so, the Canadian Association of Petroleum Producers estimates that output will hit an annual total of only 1,1 billion barrels by 2020. But there’s no guarantee that this crude will not end up in China. “Market pull will draw supply,” CAPP spokesman Travis Davies says. Canada is accelerating plans for a pipeline to ship crude from Alberta to a Paci”fic terminal, while environmental concerns delay pipelines to the US.

Natural gas vehicle boosters claim that 1,5 million vehicles could be sold by 2020 – but that saves only 150 million b/yr. The most optimistic projection of electric vehicles, from the University of California, Berkeley, sets a 2020 ”figure at 45 per cent of new car sales – up from today’s 0,0015 per cent. That change would reduce oil use by about 365 million b/yr.

The Citigroup report cites this amount as an achievable goal by 2020. But after the Deepwater Horizon disaster, few experts think there will be enough wells approved to hit this level of production. According to US government ” gures, which factor in the impact of current regulations, production in the Gulf will increase to only 0,7 billion b/yr by 2020.

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