If U.S. shale plays were students in a classroom, the one blowing the curve on the oil production test would be named Bakken.
Thanks to the Bakken, North Dakota oil production has climbed from a steady 90,000-100,000 b/d seen during the years 2000 to about 2006, ramping up gently to about 200,000 b/d in 2008. From there it blows out the curve, climbing to nearly 600,000 b/d in 2011. This according to Ernst & Young LLP (E&Y) and its most recent exploration and production (E&P) benchmark study, just released.
More recently in the Bakken, April saw further production gains. The number of producing wells jumped from 6,932 in March to 7,025 in April, the North Dakota Industrial Commission reported recently. Oil production hit 18.28 million bbl in April, compared to 17.9 million bbl produced the previous month. Natural gas output topped off at 19.5 Bcf, compared to 19.3 Bcf in March, according to preliminary figures (see Shale Daily, June 15).
"You hear 'Eagle Ford' and you hear 'the Bakken,' but really what you're seeing here...the Bakken play is really adding so much production that it's changing the curve of U.S. oil production," E&Y's John Russell, oil and gas assurance partner, told reporters during a briefing Tuesday. "You have the Eagle Ford coming behind that, and now you're starting to hear of some of these other...shale plays that have oil in them and it's really interesting to see...It's really changing the curve in the face of U.S. oil production."
From 2007 to 2011, oil reserves increased 23%, according to E&Y, and that growth came from either independent or large independent producers. Integrated companies pretty much held their own during the period. It was the independents that broke the shale code, first in gas and then in oil.
"It's going to be interesting to see when we talk about this next year, how much is Eagle Ford contributing because it's really ramping up, and then you see the Tuscaloosa Marine Shale [see Shale Daily, May 24], which they believe is going to be another Eagle Ford," Russell said. "You see all these plays that are developing...It's the independents that are really driving this."
During a year in which producers shifted their spending away from natural gas and toward oil and away from amassing acreage to developing what was previously acquired, "everything was up," E&Y's Charles Swanson, Houston managing partner, said.
The drilling and completion technology migration from unconventional gas to unconventional oil, coupled with robust oil prices, gave the industry a banner year in multiple categories during 2011, even if dry gas was upstaged by oil and gas liquids.
"Combined exploration and development spending increased 38% in 2011," E&Y said. "Oil reserves grew by 9%, or 1.7 billion bbl, in 2011, while oil production increased 3%. Gas reserves and production rose 4% and 9%, respectively in 2011. Oil and gas revenues experienced 23% growth in 2011."
Marcela Donadio, the firm's Americas oil and gas leader, said independents continued to lead the charge in the U.S. gas patch. However, there was a shift in companies' spending.
Total capital expenditures for the 50 companies reviewed were down 16% due to lower property acquisition activity. However, "significant" capital went into identifying new resources and developing existing reserves. The companies invested $106.1 billion in exploration and development in 2011, according to the study.
"The smaller independent producers led the growth in exploration and development spending with a 51% increase over 2010; while the large independents increased spending by 39% and the integrated oil companies increased their investments by 25%," the firm said.
There were some particularly big spenders in the pack, which increased their exploration and development spending by more than $2 billion last year. They were large independents Occidental Petroleum and Chesapeake Energy Corp., along with integrated company Hess Corp. And 96% of the 50 companies increased capital budgets for exploration and development spending in 2011.
The cost to find and develop new reserves rose, the study found, from $17.78/boe in 2010 to $19.38/boe last year.
The 4% increase in gas reserves last year to 178.2 Tcf was mainly due to shale gas or tight gas formations, the study said. "Extensions and discoveries were strong at 26 Tcf but decreased 4% from 27.2 Tcf in 2010. For the third consecutive year, Chesapeake Energy recorded the largest extensions and discoveries (4.2 Tcf in 2011) as a result of its active drilling program."
According to E&Y, gas production was 12.9 Tcf last year, up from 11.9 Tcf in 2010, a 9% increase. "ExxonMobil accounted for 47% of the total increase as additional unconventional gas volumes led to a 487 Bcf increase in its production," the study said. "Several other integrateds saw the largest declines in gas production in 2011: BP, Royal Dutch Shell and ConocoPhillips had production declines of 14%, 16% and 7%, respectively."
Overall, independents, large independents and integrated companies have grown gas reserves over the period from 2007 through 2011, E&Y said. "The integrateds' gas reserves grew 20% while the large independents' increased 5%; these results were significantly impacted by ExxonMobil's acquisition of XTO Energy in 2010," the study said. "The independents have benefited most from the unconventional gas boom as their gas reserves increased 57% over the five-year period."
Oil reserves of the surveyed companies stood at 20.3 billion bbl at the end of last year, a 9% increase from the year before. The growth mainly came from extension and discoveries of 2.4 billion bbl, E&Y found.
"The year-over-year growth in U.S. reserves is impressive," Donadio said. "Increases in exploration and production budgets in light of new potential resources create a very positive outlook for future production potential."
In the near term, though, Russell said the companies would be "really hard pressed" to generate another year of growth in gas reserves after a full year of low gas prices.