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Will Saudi Arabia Allow the U.S. Oil Boom?

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Technology, technology, and more technology--this is what has driven the American oil and gas boom starting in the Bakken and now being played out in the Gulf of Mexico revival, and new advances are coming online constantly. It's enough to rival the Saudis, if the Kingdom allows it to happen. Along with this boom come both promise and fear and a fast-paced regulatory environment that still needs to find the proper balance.

In an exclusive interview with Oilprice.com, Chris Faulkner, CEO of Breitling Energy Companies--a key player in Bakken with a penchant for leading the new technology charge--discusses:

• How Bakken has turned the US into an economic powerhouse
• What the next milestone is for Three Forks
• What Wall Street thinks of the key Bakken companies
• Where the next Bakken could be
• What to expect from the next Gulf of Mexico lease auction
• What the intriguing new 4D seismic possibilities will unleash
• What the linchpin new technology is for explorers
• How the US can compete with Saudi Arabia
• Why fossil fuel subsidies aren't subsidies
• How natural gas is the bridge to US energy independence
• Why fossil fuels shouldn't foot the bill for renewable energy
• Why Keystone XL is important
• Why the US WILL become a net natural gas exporter

Oilprice.com: How important are Bakken and Three Forks to US energy in the big picture?

Chris Faulkner: The Bakken Shale has been the biggest driver in America's reversal of decades of decline in oil production. It has transformed North Dakota into an economic powerhouse with the nation's lowest unemployment rate and fastest-growing GDP--and an oil production level surpassing that of some OPEC nations. An added increment of almost 800,000 barrels per day of oil output, built in less than a decade, has helped the US reduce its dependency on oil imports from often hostile countries by 22% since peaking in the mid-2000s.

US oil production is at its highest level since 1992, and in another 5 years, it is projected to reach its highest level since 1972. More importantly, the US oil production surge will help tamp down the possibility of chronically recurring oil supply shortages and help keep a lid on oil price spikes for the foreseeable future. Additionally, the Bakken surge is helping to narrow the spread between WTI and Brent, providing even more economic incentive to develop the costly unconventional resource plays.

OP: The US government recently more than doubled its estimates for Bakken and Three Forks to 7.4 billion barrels of undiscovered and technically recoverable oil and 6.7 trillion cubic feet of natural gas. How is the industry responding to this? How are investors responding?

CF: Some operators had already been developing the Three Forks formation ahead of the USGS revised estimate for the Greater Bakken play. That drilling in fact provided much of the knowledge about the Three Forks that led to the USGS upgrade. We're already seeing stepped-up drilling in the Three Forks, and some of that will entail dual horizontal laterals, a real milestone that could yield spectacular IP rates. Accordingly, Wall Street analysts are upgrading their guidance on companies such as Continental Resources that are leading the Bakken charge.

OP: What's the next Bakken?

CF: That's a tough one. In a sense, we've already seen it with the Three Forks reappraisal. But it would be exceedingly difficult to replicate the Bakken, with its vast areal extent and thick pays. Progress is being made with a modest level of drilling in the Tuscaloosa Marine Shale of southern Louisiana and Smackover Brown Dense Shale in southern Arkansas/northern Louisiana, but results have been somewhat spotty to date. Perhaps the best prospective candidate is the Cline Shale in the Texas Permian Basin. This shale covers a vast area, has very thick pay zones, and there is established infrastructure. Some estimates have put its technically recoverable resources at 30 billion barrels of oil. But it's very early days in that play. Devon Energy is moving aggressively there, and we should get some hints of its true potential before too long.

OP: How excited should investors be about the Monterrey Shale?

CF: Some restraint is in order. While preliminary estimates put potential Monterey Shale technically recoverable resources at more than 15 billion barrels, it's hardly a slam dunk. There has been a flurry of leasing and some drilling to date, but as of yet no operator has "cracked the code" for the Monterey. Even apart from the substantial technical challenges and complicated geology and petrophysics, a bigger hurdle would be the widespread and entrenched anti-oil development attitudes industry faces in California, which already has the most stringent regulatory regime in the nation. Furthermore, that anti-oil stance will just gain momentum with the anti-frac campaign that the environmental pressure groups are pushing now.

OP: The US government's next auction of Gulf of Mexico acreage is expecting a bigger turnout than previous auctions. How is the bidding environment shaping up ahead of this sale?

CF: Excellent. Even with the near tripling of minimum bid requirements in deepwater areas, I expect brisk bidding. Operators are fine-tuning their exploration strategies in the deepwater areas, and some recent significant discoveries, such as ConocoPhillips's huge Shenandoah find, will only stoke that enthusiasm. I think we're also seeing the beginnings of a revival in shallow Gulf waters, judging from the high number of bids there in the last sale. Expectations of a gas price rebound were underpinned by the latest approval of another LNG export terminal - both positive for shallow-water drilling.

OP: How important are Brazil's pre-salt finds to a revival in the US Gulf of Mexico?

Full interview can be found here: Chris Faulkner interview

James Burgess is an analyst with Oilprice.com. He is a successful small cap investor with a focus on early stage renewable energy companies.

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