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It’s tough to get a word in edgewise as U.S. producers beat their chest over their shale oil and gas finds and impending energy independence, but one analyst has managed to deflate some of the hype. Bob Brackett, an analyst at New York-based Bernstein Research, says oil wells in Montana, part of the giant Bakken shale basin, are rapidly deteriorating.
“Something is rotten in the State of Montana and it smells like moldy shale,” Mr. Brackett wrote in a note to clients. “Montana production of oil is down 38% from its 2006 peak of more than 100,000 barrels per day.”
The state, which shares the Bakken with North Dakota and Saskatchewan, produces between 1% and 2% of U.S. output and is home to two of the largest oil fields in the country. More important, Montana is home to Elm Coulee field, the poster child of Bakken potential and was expected to recover more than 200 million barrels.
But Montana’s oil boom cycle appears to have flamed out pretty quickly. As a result, Montana’s economy, which outpaced the U.S. economy during the mid-2000s, is expected to post just 0.9% growth this year, according to JPMorgan Chase & Co. estimates. Unemployment stands at 6.9%, nearly double that of neighbouring North Dakota, where the oil boom has shifted.
The fear is, will Montana’s rapid boom-to-bust cycle be replicated elsewhere in other U.S. shale basins?
While Mr. Brackett concedes that Montana production is roughly 10% of North Dakota’s overall output, the decline “contradicts the industry canard that shale oil production growth is seemingly limitless,” he said.
Crucially, Montana output is declining not because of oil prices or fewer drilling permits, but as resource plays have limited or finite drilling locations, the best locations get drilled early, the less economic ones later, and once they are drilled, operators move on, the analyst argued.
Occidental Petroleum Corp., which bet early on a domestic production surge in the basin, is already pulling back.
“We got a lot better places to put money right now than the Bakken — that’s why I am slowing it down,” Occidental chief executive Stephen Chazen said on a first-quarter conference call with analysts — a position he reiterated at the end of the current quarter.
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