Oil production increases in Montana in 2012: Well activity on the rise for first time since 2006

Montana vs. North Dakota, 2012

Number of drilling rigs
Montana: 10
North Dakota: 183
Producing wells
Montana: 4,712
North Dakota: 7,997
Average barrels per day
Montana: 72,600
North Dakota: 768,977
Barrels of oil yearly
Montana: 26.5 million
North Dakota: 242.5 million

Oil production increased 9.5 percent in Montana in 2012, the first time the state’s seen an increase since 2006, with oil activity drove up the state’s payroll by more than $300 million in the the past year.

In 2012, 26.5 million barrels of oil were produced in Big Sky County, compared to 24.2 million in 2011, said Tom Richmond, administrator of the Montana Board of Oil and Gas.

Accounting for the increase were new wells in eastern Roosevelt County and successful “infill” wells drilled in the existing Elm Coulee field near Sidney in Richland County, Richmond said. Elm Coulee is the area where the original successful horizontal wells were drilled in the Bakken formation.

“Production in Roosevelt County is what’s adding a nice increment,” Richmond said.

Sidney Mayor Bret Smelser said the first well drilled in the Bakken in Montana in 2000 was in the Elm Coulee field with 400 wells eventually drilled in western Richland County before moving to North Dakota. Operators there were the first to tap the Bakken formation with what Smelser calls a one-stage, or a “hail Mary” frack, in which hydraulic fracturing was used on the entire length of the lateral section of the well. The first lateral drilled was 400 yards. Today laterals can be up to two miles.

Hydraulic fracturing is method whereby high volumes of water and sand and a chemical mix is pumped into the wells to break up rock and release oil.

Now operators are returning to Elm Coulee to drill new wells and using better technology to do multi-staged “fracks” in the lateral sections, he said.

When a single frack is used, the mix goes to only the weakest rock, Richmond said. In staged fracks, shorter sections of the lateral line are targeted one at a time.

“It is a more efficient way to contact a reservoir with your frack fluid, and it’s a little more controlled,” Richmond said.

Today, Elm Coulee has 840 horizontal wells and 230 vertical wells are producing in the county.

“There’s millionaires out this way,” said Smelser one day earlier this month as he drove through Elm Coulee outside of Sidney, where pump jacks could be seen in every direction.

The city of Sidney even has a piece of the action, owning the mineral rights under city parkland abutting one well that’s recently been drilled near town. If it flows, it’s expected to produce roughly 200 barrels a day, which will generate about $16,000 for the city annually, Smelser said.

Production in Roosevelt, Richland and Fallon counties still accounts for the bulk of oil production in the state, Richmond said.

There were 4,712 producing wells in 2012, up from 4,520 in 2011.

Currently, the state has 10 drill rigs working on the ground. That isn’t particularly high, Richmond said, but good wells are being drilled.

Oil production peaked in the state at about 34 million barrels a year in 2006, Richmond said.

While oil activity is robust in eastern Montana, it’s not an oil “boom” akin to what’s occurring in North Dakota, said Patrick Barkey, director of the University of Montana’s Bureau of Business and Economic Research.

On average, Montana produced 72,600 barrels a day in 2012 compared to 768,977 in North Dakota.

Montana production is now leveling off but that indicates that new wells are coming on line to replace declining wells, Barkey said.

Oil activity continues to drive up wages in all sectors and the footprint extends beyond the oil field, creating a tremendous amount of service work in communities such as Billings and Glendive, ranging from legal to survey to repair and maintenance, Barkey said.

“What’s really putting the zip into the economy clearly is oil and gas particularly oil and it’s on both sides of the border,” Barkey said.

In the past year, payroll in Montana increased by $300 million, more than Wyoming, South Dakota and even Colorado. The primary engine for that growth was oil activity, Barkey said.

Five smaller eastern Montana counties bordering North Dakota outpaced most of the rest of the state in wage growth including larger counties such as Yellowstone, Gallatin, Missoula and Cascade, according to the University of Montana’s Bureau of Business and Economic Research.

Roosevelt County, for instance, saw a payroll increase of 6.7 percent in the past year, and Richland County, 9.4 percent. Cascade County’s total payroll declined by 0.9 percent in the past year.

The oil field work also has driven up wages in other sectors, Barkey said.

In Richland County, inflation-corrected wages per worker in all fields increased from $28,400 in 2002 to $44,330 in 2011. Salaries of food service workers in Richland County jumped from $8,900 in 2002, which was 75 percent of the state average, to $13,200 in 2011, which is just more than 100 percent of the state average.

Wage growth is even more amazing in North Dakota, where the state’s payroll increased by $2 billion in the last year.

“It’s becoming pretty clear to me that this Bakken oil development, we’re not likely to see another event like this in our lifetime,” Barkey says.

In April, the U.S. Geological Survey released a report updating a previous assessment of the Bakken Formation and providing the first governmental assessment of the Three Forks Formation.

The estimate in the newly released report doubled the estimated resource from a 2008 USGS assessment. The new report maintained the estimate of 3.65 billion barrels of recoverable oil and added an addition 3.73 barrels of recoverable oil from the underlying Three Forks Formation. The Bakken Formation includes western North Dakota and eastern Montana.

Of the total estimate of 7.3 billion barrels, 5.7 billion barrels are believed to be in North Dakota and 1.6 in Montana.

“That says from a resource point of view, production and for that matter drilling could go on for quite a while if the economics support it,” Barkey said.

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