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US Bakken tight-oil output to overtake Iraq

Total US unconventional oil production may surpass second- and third-largest Opec members by 2020

Buoyed by prolonged high prices, the trickle of US shale and tight oil production is turning into a flood of new crude supply which could overtake Iraq’s and Iran’s output by 2020.

The US’ unconventional oil production could reach 6.6 million barrels a day (b/d) by 2020, according to a Harvard University Belfer Centre report published last month. This compares with Iran’s 3.6 million b/d production in 2011 and Iraq’s 2.7 million b/d, which were the second and third largest Opec producers after Saudi Arabia, Opec data showed.

The Belfer Centre report also estimated US shale oil and tight oil to be profitable at a WTI crude oil price of $50-65 a barrel, with Bakken and Three Forks at under $70/b.

And if prices stay above $70/b through 2020, then Bakken and Three Forks production alone could be more than 3 million b/d by 2020, overtaking Iraqi crude output.

“The Bakken and Three Forks are not isolated cases in the United States, but only the beginning of a revolution that will include other top shale/tight-oil plays in the US,” Harvard University research fellow and author of the report, Leonardo Maugeri, said.

Other projects already under development include the Eagle Ford Shale in southern Texas, while others still in early stages comprised the Niobrara Shale mainly in Colorado and the Utica Shale in the Northeastern US (mainly in Ohio).

Shale potential

There is also potential in the huge Permian basin under Texas and New Mexico, which contains at least six shale plays: Avalon shale, Bone Spring Shale, Leonard Shale, Spraberry Shale, Yeso, and Wolfcamp.

“In sum, the combined liquid additional unrestricted production from the shale/tight oil formations I considered (Bakken/Three Forks, Eagle Ford, Permian Basin, Utica, and Niobrara/Codell) and other shale/tight oil plays could reach 6.6 million b/d by 2020,” Maugeri said.

Maugeri also acknowledges that a lack of infrastructure, transport, and environmental concerns may restrict shale/tight oil output by 30-50%, implying 2020 unconventional production in those circumstances could be 4.17 million b/d.

And with production reaching nearly 600,000 b/d in May 2012, Bakken is leading the charge in the US tight-oil development, with WTI prices supporting more output.

The crude break-even price for the North Dakota tight-oil play could be as low as $44/b, compared with $50/b at Texas’s Eagle Ford and $68/b for the Utica shale in the northeast, according to a study by Rystad Energy consultancy.

“Production costs vary widely across light tight oil plays, and producers that sell oil at a discount to WTI due to transportation bottlenecks may, at the margin, reduce activity,” the International Energy Agency (IEA) said in its July’s oil-market report.

“However, Rystad Energy asset analysis shows that around 85% of the cumulative production is economic as long as realized Bakken oil prices stay above $60/b. The current Bakken to WTI spread is $10-20/b depending of the location of the sales point and means of transport.”

WTI has hovered around $90/b this month and is likely to remain at these levels or creep higher, according to French investment bank Société Générale and the US’ Goldman Sachs.

The IEA forecast production at North Dakota Bakken to average 690,000 b/d in 2013 compared with 560,000 b/d this year. Overall, US tight oil output is expected to grow to 1.6 million t/y in 2013 compared with 1.2 million b/d in 2012. 

Tight oil from the Eagle Shale is also expected to boost Texas oil production above 2 million b/d in 2013, a yearly average not seen since 1988, the IEA said.

US unconventional oil production has soared over the past few years, with North Dakota’s Bakken production growing over 3,000% since 2007. Following shale gas with the usage of hydraulic fracturing (fracking) to extract oil previously thought unviable, the revitalisation of US crude production is likely to lower imports in the long-run.

North American Tight Oil Breakeven Prices ($/b)

Project

Breakeven price ($/b)

Permian Delaware

44

Bakken Shale

44

Eagle Ford Shale

50

Permian Midland

50

Cardium Shale

51

Niobrara Shale

51

Alberta Bakken

55

Anadarko tight oil

64

Utica Shale

68


Source: Rystad Energy. Breakeven price is the price that will give a 10% IRR (internal rate of return) for a given acreage position. Mature acreage positions with high production levels thus have a better breakeven oil price. Includes actual F&D (finding and development) costs (not including land costs), taxes, and royalties.

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