California_Gold_ProductionAs with all oil fields, there are only so many sweet spots and areas to drill.  The 63,000 barrels a day decline rate at the Bakken only has one way to go — and that’s higher.   If the present trend continues (highly likely) then we are going to see a daily decline rate of 75-85,000 barrels a day by the end of 2014.
Once the Bakken and Ealge Ford oil fields peak and decline, the United States has no other “ENERGY RABBIT” in its hat.

This is precisely why investors need to understand energy and why its important to own physical assets such as gold and silver.

Maples Sale(2)

The SRSRocco Report:

There has been a lot of Fanfare on the huge increase of oil production coming from the Bakken Field located in North Dakota.  There are many stories of people moving to the state to take advantage of the new OIL BOOM.  It seems like everyone is going there to start a new life and make it rich in one of the coldest areas in the United States.

However, with all BOOMS, comes the inevitable BUST.  This was true shown by the famous example of the 1800′s California gold rush:

California_Gold_Production

According to the article, “The Bakken Boom: The Modern Day Gold Rush”:

Despite the low productivity of the labor-intensive process of gold panning, annual production grew from just over 1,400 ounces in 1848 to more than 3.9 million ounces by 1852. To put this into perspective, prior to 1848, cumulative U.S. gold production amounted to just over 1 million ounces.

Of course nuggets are easier to find than flakes, and the great majority were discovered in the first few years. By 1852, only four years after gold was first discovered, California gold production began a rapid descent. Production declined 50% by 1862 and 80% by 1872.

The decline was only barely checked by the adoption of ‘hydraulic mining’ – a process by which massive amounts of water under intense pressure is used to disintegrate entire hillsides. At the North Bloomfield mine, for example, 60 million gallons of water per day eroded more than 41 million cubic yards of debris between 1866 and 1884. (http://www.sierranevadavirtualmuseum.com/docs/galleries/history/mining/hydraulic.htm)

Typical of all BOOMS, production increases exponentially, peaks and then declines in the same fashion.  However, Even with high-tech hydraulic water mining techniques, the industry could never produce more gold than it did in 1852 when it reached nearly 4 million ounces.

BAD NEWS FOR THE BAKKEN:  Decline Rate of 63,000 Barrels A Day

The EIA – U.S. Energy Information Agency is now putting out data on the individual shale oil and gas plays in the country.  While the American public and world have been made aware of the huge increase in oil production coming from the Bakken, few are privy to the dark side of the equation.  The Bakken’s daily decline rate from their existing oil wells has reached a staggering 63,000 barrels a day.

Bakken 63000 Oil Decline Chart

This means, that every day the Bakken pumps oil, its existing wells are now declining 63,000 (bd) barrels a day.   As you can see from the chart above, the rate really started to decline in a big way after 2011 when the average daily decline was only 20,000 bd.  In less than 3 years, this rate has increased more than 3 times (63,000 bd).

This next chart gives us the total as well as net oil production increases month over month:

Bakken Legacy Decline

The EIA is showing what is indicated to take place in December over November.  If we look at the actual data that comes out of the North Dakota Department of Mineral Resources, Bakken oil field production in September hit 867,123 bd.  The difference to reach that 1 million barrels a day is coming from the Montana portion of the Bakken.

Here is an actual screenshot of the ND DMR’s monthly report released November 5th:

ND Directors Cut

Moreover, if we look at total production, again using the North Dakota DMR’s data, their total oil production data for the state in September was 931,940 bd.  This includes oil production outside the Bakken and Three Forks (data for Bakken in the EIA charts includes Three Forks).

Astonishingly, 93% of North Dakota’s oil production comes from the Bakken region alone.

The Bakken Drilling Frenzy Gives The Illusion of Sustainable Growth

The typical American believes the United States has all this hidden oil and gas resources that we can easily tap into.  I just had a conversation with a neighbor yesterday who told me that he couldn’t understand why we weren’t “ENERGY INDEPENDENT.”  Gosh, if I had a dollar for every time someone said that…

Again, the public is only told about all the huge increases in production, but for some strange reason, MSM tends to omit the negative side.  The only way oil production is increasing in the Bakken is due to the massive amount of new wells that have been added.  The chart below reveals the illusion of this sustainable growth:

Bakken Production & Producing Wells

First, the figures in white represent North Dakota’s total wells producing for their production of the Bakken.  Even though the graph includes Montana’s production, it still gives us a good idea of the huge increase in oil wells it takes to grow production.

Second, in 2008, the Bakken in North Dakota only had 479 producing wells, however at last count in September when then Bakken was producing 867,123 barrels of oil a day, it took 6,447 wells to do so.  Thus, the energy companies drilling and producing oil in the Bakken have to keep increasing wells each month (and year) to offset the huge 63,000 bd decline.

For example, there were an additional 135 new wells (ND) producing in Sept. over Aug. which added 20,589 bd of production.  If there were only say 100-105 new wells added that month, production would have remained flat or possibly declined for Sept.

Lastly, the best and most productive wells are exploited first leaving the dead-beats for last.  This will make things even more fun as the peak and subsequent bust finally arrives.

The Coming Bust of The Great Bakken Field

As with all oil fields, there are only so many sweet spots and areas to drill.  The 63,000 bd decline rate at the Bakken only has one way to go — and that’s higher.   If the present trend continues (highly likely) then we are going to see a daily decline rate of 75-85,000 barrels a day by the end of 2014.

2oz Freedom Girl new proofThus, the shale oil players are going to have to make those drilling hamsters work even harder as they will need to increase more wells each month just to grow production.  At some point in time (sooner rather than later), the daily decline rate will reach a figure that these companies will be unable to offset.

There are only so many drilling locations available and once they run out, the Great Bakken Field will become a BUST as the high decline rates will push overall oil production down the very same way it came up.

Those who moved to the frigid state of North Dakota with Dollar signs in their eyes and images of sugar-plums dancing in their heads will realize firsthand the negative ramifications of all BOOM & BUST cycles.  At this time, the word “Cold” will have more than one meaning.

Once the Bakken and Ealge Ford oil fields peak and decline, the United States has no other “ENERGY RABBIT” in its hat.  This is precisely why investors need to understand energy and why its important to own physical assets such as gold and silver.

  1. Hi Steve
    Wouldn’t it be strange if  that after 40 years of playing in the middle east sand box with all its problems, getting our fingers blown off regularly,  debasing the dollar, embracing the Petro Gold complex and generally making asses of ourselves, we think it was a good idea
    BECAUSE
    we would deplete the middle east of  oil, disable our foes but taking the easy-to-find oil and then come back home to our abundant supplies of crude, only to find they’re very expensive to mine, coupled with a bleed off of production like you show in your analysis. This does not suond like a happy ending IMO
    Got Oil? 
    Hmmm.  maybe not so much.
    That could become a very nasty surprise just when the entire world is frantically trying to secure new sources of sweet crude as the giant oil wells in Saudi Arabia are depleting. 
    I guess all this will work out fine. 
    We always have Iran.
      Let’s invade tomorrow.

  2. I just read the other day in another article about decades of oil reserves in the Bakken deposit…..I know this is SRS’s field of expertise, and he does get into convincing detail here but, to be honest I must admit up front I have never believed in the ‘peak oil’ theory, to begin with. I know people who did preliminary research on the bakkan project back in the 70′s. It has been a known entity for quite awhile now. I find it difficult to believe such a rapid decline in production already exists, seemingly coming unexpectedly out of left field. Everything I have heard regarding this issue is ‘a lotta oil there.’ Even another larger deposit beneath the existing one that is being harvested now, if I got it right. If this indeed what is being promulgated upon the public, perhaps something else is at issue here….

    • I might have overlooked it, but it makes sense. Russia holds a large amount of US bonds and they know that the US is bankrupt and there is no gold to pay the debt with. They might have asked for some resources instead. Where it doesn’t make sense is the silence of the American public with respect to never stopping  looting of the country and shipping its productive capacity overseas, and many other things that used to make America different. 

    • Oil is not a problem. Water is. What do you think they pump back into the hole once they extract the oil? Fresh water. We can probably get by without fossil fuels. Helium 3 reactors is one of the substitutes for energy production. Yeah, we still going to need petrochemicals for lubrication. But even now, in the process of transition, we could have used diesel and gasoline in a different manner. You can run an internal combustion engine at a steady speed but not to power a conventional  transmission, but 4 electric motors that run off of this generator. By doing so, you would eliminate the need for expensive batteries and their even more expensive recycling, and a need for transmission.

    • Hi Mammoth.
      It could have been a joke. But. There is plenty of oil and methane gas on the bottom of the ocean. Question is does it make sense to keep using it, or shall we look into the future?

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