North Dakota: The new Saudi Arabia?

  • Article by: ANTHONY EFFINGER , BLOOMBERG NEWS
  • Updated: June 5, 2008 - 10:41 PM

The sparsely populated state likely is sitting atop billions of barrels of oil. But getting it out isn't easy.

Roughnecks from Nabors Drilling USA worked at Brigham Exploration Co.’s Manitou State well near Stanley, N.D., in April. The oil is difficult to extract.

Photo: Robbie Mcclaran, Bloomberg Markets via Bloomberg News

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John Bartelson, who smokes Marlboro Lights through fingers blackened with tractor grease, may look like an average wheat farmer. He isn't.

He's one of North Dakota's new oil barons.

Every month, he gets a check for tens of thousands of dollars from a company in Houston called EOG Resources Inc., which drilled two oil wells on his land last year. He says the day his first royalty check arrived was one to remember.

"I smiled to beat hell, and I went to town and had a beer," said Bartelson, 65.

His new wealth springs from the Bakken formation, a deposit of crude oil beneath the durum wheat fields of North Dakota, Montana and southern Saskatchewan and Manitoba. The Bakken may give the United States -- the world's biggest importer of oil -- a new domestic energy source.

Bakken crude needs little refining. Swirl some of it in a Mason jar and it leaves a thin, honey-colored film along the sides. It's light -- almost like gasoline -- and sweet, meaning it's low in sulfur. Best of all, the Bakken could be huge. The U.S. Geological Survey (USGS) estimated in 2000 that the Bakken might hold 413 billion barrels. If so, it would dwarf Saudi Arabia's Ghawar, the world's biggest field, which has produced about 55 billion barrels.

The challenge is in getting the oil out. Bakken crude is locked 2 miles underground in a layer of dolomite, a dense mineral that doesn't surrender oil the way more porous limestone does. The dolomite band is narrow, too, averaging just 22 feet in North Dakota.

The USGS said in April that the Bakken holds as much as 4.3 billion barrels that can be recovered using today's engineering techniques. That's still the largest accumulation of crude in the 48 contiguous states. But North Dakota, where Bakken exploration is most intense now, won't become Saudi Arabia unless technology improves.

For decades, the Bakken was the fool's gold of the oil industry. The name describes a geological formation that looks like an Oreo cookie: two layers of black shale that bleed oil into the middle layer of dolomite. It's named after Henry O. Bakken, the North Dakota farmer who owned the land where the first drilling rig revealed the shale layers in the 1950s.

All of the layers are thin -- about 150 feet altogether -- and none gives up oil easily. In older, vertical wells, oil often would flow for a month and then fizzle.

Now, companies like EOG drill straight down 10,000 feet and then put a slight angle in the mud motor, a 30-foot piece of tubing that drives the bit, so they hit the Bakken sideways, making a tunnel as much as 4,500 feet long through the dolomite. Then they pump in pressurized water and sand to fracture the dolomite, making cracks for oil to seep through.

It eventually winds up in a pipeline that runs east to Clearbrook, Minn., and then south to Chicago.

Several billionaires are at work in the Bakken. Harold Hamm's Continental Resources Inc. of Enid, Okla., has leases on 487,000 acres in Montana and North Dakota. Hamm, who started out driving a truck, owns 73 percent of Continental, worth $7.9 billion. Philip Anschutz, 68, founder of Qwest Communications International Inc. and Regal Entertainment Group, is there, too.

The big winner so far has been EOG, formerly a subsidiary of bankrupt energy trader Enron Corp. It drilled a horizontal well in western North Dakota just north of Parshall -- population 1,028 -- in April 2006. The well came online a month later and kicked out 1,883 barrels in the first seven days. Unlike the older vertical wells, it's still going.

Northern Oil & Gas Inc., a five-person company in Wayzata, makes money without drilling or operating wells. It leases in promising areas like the Bakken and gets paid when someone else uses the land to drill. The other people doing well in the Bakken are the mineral owners by the oil wells -- folks like Bartelson. Oil drillers have paid them millions for right of access to the oil deposits.

Bartelson's checks are about to get bigger. One more EOG well just came online, he said, and another is about to be fractured with water. Still another has been given permits for drilling. For now, he's farming. The oil market is fickle, he said. Previous crashes drove the rigs out of North Dakota for years, leaving only the wheat, and while sipping on a late-afternoon cup of coffee beside his tractor, he said: "It'll crash again."

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