BAKKEN SHALE:

Prosperous play's new oil estimates could influence pipeline plans

HOUSTON -- The resource potential of the booming Bakken Shale oil and gas zone is much bigger than previously thought, U.S. government geologists announced yesterday.

A new assessment of oil and gas reserves in that region by the U.S. Geological Survey concludes that industry could have access to almost double the amount of hydrocarbons previously calculated in parts of North Dakota, South Dakota and Montana. That rapid increase in the reserve estimate comes mainly from a first-time assessment of the Bakken Shale's sister geologic zone underlying it, the Three Forks Formation.

The finding could have major implications for future oil and gas industrial activity in the region, particularly for pipeline companies.

A longer lifetime for Bakken exploitation may boost the economic attractiveness of building the vast majority of the controversial Keystone XL pipeline project entirely in the United States, with or without a green light from the Obama administration. But the recent cancellation of a competing Bakken pipeline project could suggest otherwise.

TransCanada, the company proposing the massive Keystone XL project, has already indicated that the line would also be used to carry Bakken crude south to the Texas Gulf of Mexico coast. Overdependence on rail for moving oil out of Bakken fields has producers eager for new pipeline capacity, but the possibility of building just the U.S. segments of the Keystone XL pipeline, which would require no formal approval from the federal executive branch, is still only a vague idea that the company has not committed to.

Combining the Three Forks and the Bakken together, USGS now believes the region holds approximately 7.4 billion barrels of undiscovered, technically recoverable crude oil. That about doubles the initial assessment the agency made back in 2008.

USGS scientists believe that the Three Forks Formation, which is deeper than the Bakken, is likely actually larger than the Bakken Shale, the formation that has been the target of drilling during most of North Dakota's recent oil boom. The government estimates that Three Forks holds about 3.73 billion barrels of recoverable crude oil, compared with 3.65 billion barrels for the Bakken Shale.

During a call to announce the new findings, Interior Secretary Sally Jewell called the findings "important information as we continue to reduce our nation's dependence on foreign sources of oil." Though some industry sources have produced higher estimates, Jewell indicated that Interior trusts USGS's calculations.

"This represents sound science by U.S. Geologic Survey scientists using the best available data, which includes data from industry, the state of North Dakota and Montana," Jewell said. USGS's second look at the Bakken region "is based purely on science and the best available information, and that's what this represents," she added.

The government's geological agency also increased its estimate of the natural gas potential for the region. USGS said the Bakken and Three Forks combined likely hold about 6.7 trillion cubic feet of recoverable natural gas, also about double the figures arrived at in 2008.

Three Forks now a factor

The 2008 Bakken geologic assessment did not include Three Forks, mainly due to the lack of apparent interest in it on the part of drillers back then.

"In 2008, there were almost no wells in the Three Forks, so no one really knew it was going to be productive at that time," said Stephanie Gaswirth, the lead author of the newest USGS assessment, during a telephone interview. "They didn't know that the Bakken oil had migrated that deep into it, and so I think that was part of the reason."

Three Forks is also more difficult and costly to exploit than the shallower Bakken Shale. But the oil and gas industry is still finding ways to make it profitable as companies have enhanced and improved their horizontal drilling and hydraulic fracturing capabilities.

"It's geologically different in that the reservoirs are mainly in a very fine-grained tight dolomite reservoir," Gaswirth said. "They're pretty different depositional environments."

North Dakota oil and gas regulators reported this month a preliminary statewide oil production of nearly 780,000 barrels of oil per day on average in February, up from about 738,000 barrels per day in January. The North Dakota Pipeline Authority says that 20 percent of the crude oil moved out of the Williston Basin -- which encompasses the Bakken and Three Forks -- was carried in pipelines, while 71 percent of it was transported out on rail cars.

The Keystone XL tie-in

The main section of the new Keystone XL line that TransCanada wants to build would extend from Hardisty, Alberta, to Steele City, Neb. The southernmost portion is under construction now, a line running from oil storage facilities in Cushing, Okla., to Nederland, Texas, with an extension to Houston and its Gulf refineries.

The northern route passes right through the Bakken and Three Forks oil fields, in eastern Montana. Jeff Share, editor of Pipeline & Gas Journal, said that this routing was strategic.

"TransCanada made plans a couple of years ago to scoop up as much of that Bakken oil as they can so Keystone would tie into that region," he said in an email. "The producers up there have been hamstrung because there is no major pipeline out of that region so they've had to resort to rail, especially to get it to the East Coast refineries."

Last year at a pipeline industry conference, Les Cherwenuk, a project director at TransCanada, told E&E that his company had no separate plans to build much of the northern route of Keystone XL to tie into Bakken output. He indicated that his company was intent on winning final approval from the U.S. government for the entire project and that no alternative plans would be pursued until after the Obama administration made its final decision.

Share speculates that building the line anyway, without crossing the border, may be one option for the company. Doing so would only require permission from state governments and permits from the Army Corps of Engineeers.

"TransCanada has always been a step ahead of everyone in looking ahead at transportation possibilities, so obviously they do have a backup plan in mind," he said.

But building Keystone XL from Montana to Nebraska may depend on the willingness of producers in the United States to help pay for it through contractual agreements. One project has already been scuttled because that willingness wasn't there.

One year ago, Tulsa, Okla.-based ONEOK proposed a $1.8 billion pipeline project to carry Bakken-region crude oil to Cushing. Last November, the company announced it was scuttling those plans, citing a failure to ink long-term contracts with oil shippers.

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