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Core Laboratories N.V. (CLB): 30 Billion Barrels of United States Oil Won’t Lower Prices

Even with the U.S. Energy Information Administration recently announcing that crude oil proven reserves grew at the fastest rate since the agency began publishing such information, at least one area of the U.S. is showing signs of slowing growth. The numbers from the Bakken shale in the Williston Basin suggest that without an exponential level of well expansion, production will grow at a slower clip. Earlier this year, however, Rob Wile argued that the fact that 77% of the Bakken remains untested supports a comment from the EIA that, at worst, production will plateau. Understanding the growth picture is an important first step in thinking about how to invest in the industry.

Crude Oil and Lease Condensate,
Billion Barrels
U.S. proven reserves at Dec. 31, 2010 25.2
Total discoveries 3.7
Net revisions 1.4
Net adjustments, sales, acquisitions 0.7
Production (2.1)
Net additions to U.S. proved reserves 3.8
U.S. proven reserves at Dec. 31, 2011 29.0
Percentage change in U.S. proven reserves 15%

Source: U.S. Energy Information Administration, Form EIA-23 “Annual Survey of Domestic Oil and Gas Reserves.”

Overestimating drilling capabilities?
On one side of the argument is the reality that shale-based wells have very rapid depletion rates. Raymond T. Pierrehumbet, a professor at the University of Chicago, argues that overlooking these depletion rates and the costs of each well has led us to a false sense of our production capabilities.

Core Laboratories N.V. (NYSE:CLB)

Pierrehumbert points out that with the bulk of the recoverable oil from wells in the Bakken extracted within the first few years, the number of wells needed to maintain production is unreachable, given that each well can cost as much as $10 million.

Giving some color to this was Core Laboratories N.V. (NYSE:CLB) CEO David Demshur during the company’s recent earnings call, using Bakken as an example:

If we are to keep pace with that level of production in the Bakken increase, we would need to add somewhere near 4,000 producing wells in the year 2013. The most we’ve ever added was 1,722 wells last year. Through April of this year, we’ve added 570 producers in the Bakken.

This comment was made in the context of explaining the importance of improving efficiencies overall through the use of developing technologies.

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