Editor’s Note: (This is the second installment of a series concerning oil exploration possibilities West River and what it could mean for Mobridge in the near future. Several stories will follow with answers to questions raised in this story.)
If the state geologist says there is no guarantee that there is oil in northern Corson County and other West River areas, does that mean there isn’t?
Derric Illes, South Dakota State Geologist said on Friday, Oct. 27, there is no way there is the type of oil production in South Dakota that occur in Bakken Oil Field in North Dakota.
“South Dakota doesn’t have the same geological formations in the state,” he said. “The Williston Basin, which is what reaches into South Dakota, is shallower. There are not the same pressures in the sub-surface that create the kind of oil formations there are in North Dakota.”
Illes also said the total organic carbon content in the South Dakota formations are not the same as what is found in North Dakota. So, although South Dakota has rock formations with the same name as those that hold oil richness in the Bakken formation, there are no guarantees oil exists because of the other factors (carbon content, pressure and temperature) of the deeper formation.
He said it would be hard for South Dakota to entice oil producers to come into the state to explore the oil regions when there is the 98 percent chance of profitability in the Bakken Oil Field. The oil is there; they know it is there and they are pumping it every day. So why would they come into South Dakota without the guarantee that they would succeed in finding oil here?
The answer to that, according to an industry expert, is that at $54 a barrel on Monday, Oct. 30, extracting oil from the Bakken is not as profitable as it once was. In fact, compared to most offshore or conventional drilling, deep shale oil production is still a service-heavy industry and the high costs of extraction and production is the greatest variable impacting profit. Drilling in the Permian basin in west Texas and New Mexico is just more profitable, according to the Houston Chronicle. Drillers there can pump crude at lower costs than most places. Exxon and Chevron both reported strong profits in the second quarter, mostly due to activity in the Permian. Almost half of the drilling activity in the U.S. currently takes place in the growing basin.
Shale oil is still desirable and production is strong, according to the North Dakota State Government Statistics webpage. The site does show that both profits and tax revenue are down considerably.
There are working oil fields in South Dakota: Fall River County in the southwestern corner of the state and in Harding County, in the northwest corner of the state.
There are also working rigs in Dewey County (at Lantry) and Ziebach County, near Dupree. In Harding County, the Red River Formation has produced more than 20 million barrels.
According to Illes, the formations in South Dakota are not as deep as in North Dakota. If that is the case, and there is oil in those formations, wouldn’t it cost less to bring the oil to the surface?
He said because we don’t know for sure whether there is oil there, it would still be a crap shoot to find it.
With advances in fracking technology and 3D seismic technology, exploring for pockets of oil in South Dakota would be less of a gamble for big oil companies. The new technology improves the efficiency of exploratory projects. The State of South Dakota does not currently have this technology, but large oil companies do.
The 3D technology works by sending shockwaves through land formations and measuring the consequent seismic waves that reverberate off sub-formations in the earth. This moves drilling exploratory wells from a hit-and-miss, move-on-to-the-next-site situation, to a higher percent successful drilling project. This results in lower up-front costs.
Since the oil is in more shallow formations and the use of horizontal drilling could expand the life of a well, the cost of production would be lower, according to industry periodicals, some of which have said South Dakota is on the list of places to open up new oil fields.
So, although the production barrels per day would be lower here, the long-term production would be higher because of steady, lower cost extraction.
There are other signs that West River is about to be the new frontier in oil exploration in the U.S.:
• In the current market, North American shale oil can be produced for somewhere between $30 and $50 per barrel. When oil was priced at $80, $90 or $100 per barrel, average breakeven prices for shale were much higher, exceeding $100. With the opening of foreign markets, such as the China market, the oil glut that has brought the prices down, may be on the edge of change, according to a recent story in USA Today. In fact, two market experts said the modest under-production in the United States in 2018 could push oil prices higher and last until 2019. So, wouldn’t it make sense for oil companies to come into South Dakota for oil that can be extracted at a lower cost?
• The Dakota Access Pipeline has added to an already very desirable oil transportation network in South Dakota. The pipeline runs through or near the Three Forks Formation in Harding (where there are currently active wells), Perkins, Corson, Dewey and Ziebach counties.
• During his inaugural address on Wednesday, Oct. 11, new tribal president Mike Faith made reference to Standing Rock’s massive oil and gas resources.
• Nationally, in September, Harold Hamm, energy advisor to the president and CEO of Continental Resources, reported he would be shipping oil through DAPL. Then on Wednesday, Oct. 18, it was announced that Continental Resources would make its first-ever sale of Bakken oil, specifically for delivery overseas. The company has sold 1,005,000 barrels of Bakken crude oil for November delivery to Atlantic Trading and Marketing, which intends to export the oil to China.
Continental is the oil company owned by Hamm. He is an entrepreneur primarily involved in the oil and gas business who is best known for pioneering the development of the Bakken formation. Hamm said to expect the trend to continue.
He is well-known in politics, as presidential candidate Mitt Romney named Hamm as his energy advisor, and during the campaign Trump considered nominating the Oklahoma oil and gas mogul as energy secretary.
There are more signs there is action West River, including mineral rights changing hands at an accelerated pace and how the buy-back program on Standing Rock put large parcels of land under the tribe’s control, instead of with private owners.
All of these signs will be further explored in upcoming stories in the Tribune.
– Katie Zerr –