Continental raises estimate based on Three Forks exploration

continental resources logoA recent story in Petroleum News details efforts by Continental Resources to test the potential of the Three Forks formation that lies under the Bakken in the Williston Basin.

The Three Forks shale formation consists of multiple layers, and this is the first attempt to drill into the deeper third layer. Continental CEO Harold Hamm, who is consistently optimistic about the potential for recoverable oil from the region, claimed it could be “a real game changer” in his statement on December 3rd.

Earlier this year the Oklahoma-based E&P independent dramatically increased the Bakken petroleum system’s estimated in-place oil by 57 percent, from 577 billion to 903 billion barrels of oil equivalent, based primarily on numerous oil-saturated core samples taken from wells at various locations within the Three Forks.

But Continental declined to say at the time how much of that resource it thought could be commercially recovered, largely because of a lack of well performance data. Continental estimated in late 2010 that the Bakken would yield 24 billion boe on 577 billion boe of in-place resource, based on the level of technology at the time. And that estimate stands today, despite strong results from its recently completed Charlotte 3-22H.

While these new results raise the estimate of total oil in place to 903 billion barrels, Continental is conservatively standing firm on it’s estimate of 24 billion barrels of recoverable oil for the time being. No doubt they will want to do further drilling and testing of well production from those lower layers before making another even more optimistic estimate of recoverable oil.

In the Bakken region, estimates of recoverable oil have traditionally been quite conservative. The original assessment released by the USGS in 2008 came back with a range of 3 to 4.3 billion barrels of ultimately recoverable oil. This is almost certainly much to low based on recent developments and production data.

In fact, the USGS themselves are currently in the process of reassessing the formation, which is very unusual. It generally takes the USGS at least ten years to undertake another study and assessment of an oil reserve, which suggests that the agency itself is probably aware that their original estimate was pessimistic.

These earlier estimates did not include the various layers of the Three Forks, so these should certainly be included in the overall total of recoverable oil in the Williston Basin. Some people believe the inclusion of the Three Forks in the total assessment will double the USGS’ 2008 estimate. The new report from the USGS is due out next year.

Since the oil in question is tied up in shale rock, only a small percentage of it is actually going to make it to the surface and be refined. Estimates of that percentage vary quite a bit too, but a 4 or 5 percent recovery rate (which is fairly conservative) of 903 total barrels in place would amount to 36 – 45 billion barrels recoverable.

Of course, recovery from the deeper layers of the Three Forks is still an unknown, and opinions differ on how productive those layers will be. In fact, if you look at the sidebar of the story, you can read some commentary from Whiting Petroleum president James T. Brown that’s not nearly as optimistic as Continental’s.

Continental’s recent exploration of the deeper shale was done in the most productive part of the Williston Basin, whereas Whiting’s experience has been different.

“We did not find the encouragement we needed,” Brown added.

It’s Whiting’s view that the oil originates in the Lower Bakken shale and was forced down into the Three Forks. The Charlotte 3-22H happens to be in a deep portion of the basin, where the oil flows hotter and under higher pressure than other areas, and where more oil is generated from the shale than any other portion of the Bakken.

“In Whiting’s opinion, it’s not going to work everywhere, but it definitely could work out in the middle part of the basin,” Brown said.

Nevertheless, “We’re going to be keeping an eye on what they do because it could become something. And we wish them all the luck in the world.”

Whether this is sour grapes, envy of Continental’s superior holdings, or the ultimate reality of total recoverables remains to be seen. Total recoverable oil is almost certainly much more than the original USGS estimate of 3 – 4.3 billion barrels. But, if it will amount to Hamm’s 24 billion, or even closer to 36 or 45 billion we will probably not know for years, or even decades.

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