In early 1990, stories began emerging about the growth of horizontal drilling in the Bakken formation and the possibility that the technology would provide a resurgence in oil tax revenue for the North Dakota government. By 1989, plummeting oil prices had led revenue to fall to a fraction of its peak in the mid-‘80s. But in March 1990, Tracy Shatek of the Grand Forks Herald reported:
As state leaders search for revenue to replace funds lost in the referral of three tax increases, oil revenues are looking like an unexpected treat.
When oil prices bottomed out in the mid 1980s, so did oil production and state oil tax revenues, North Dakotans began paying more sales tax, income tax and gasoline tax to make up the difference.
They paid a lot more. At the peak of the oil boom in 1983-85, the state collected $387 million in sales tax and $272 million in oil tax. By 1989, the scales had tipped dramatically, North Dakota expects to collect about $479 million in sales tax this biennium and $82 million in oil tax.
Now it’s looking as if oil patch revenues may rebound, perhaps not to the 1980s level, but somewhere above their current contribution to the state budget.
The major reason for the spurt is horizontal drilling, an old technique being newly applied in certain oil formations. The results — a greater percentage of successful wells and several times the production per well — have put North Dakota ‘s Bakken formation in the industry’s spotlight.
Gov. George Sinner has plugged an element into his state-of-the-economy speech in which he recalls one oil company executive telling him “Governor, this is the most significant oil development in U.S. history, preceded only by Prudhoe Bay and the initial Texas discovery.”
Asked to clarify that statement, Sinner said he was referring to the properties of horizontal drilling, not specifically to the potential of North Dakota’s Williston Basin.
That doesn’t mean horizontal drilling won’t be big in North Dakota, it just won’t be that big, oil industry experts say.
“Whether it’s going to rival Prudhoe, Bay I don’t know,” said Sid Anderson, North Dakota state geologist. “It’s certainly significant. It’s been one of the hottest spots in the United States. Ultimately, it’s going to produce a great deal of oil, but it’s in its infancy at this point.”
The advent of horizontal drilling in western North Dakota has already raised production significantly from a year ago. There are now 22 rigs working, twice the number of a year ago. Fourteen of these wells rely on horizontal drilling.
As more oil is pumped from the ground, more oil tax money flows into state coffers. That’s good news for budget analysts trying to figure out how to close the projected $98 million gap between revenues and spending in 1991-93.
Dick Rayl, director of the Office of Management and Budget, estimates the state will collect nearly $100 million in oil tax revenues this biennium, about $15 million more than originally projected.
“Oil is never going to be the large portion of our budget it was before. The tax structure has changed,” Rayl said. “Like other energy rich states, we financed our government on resources rather than on the income of individuals. That’s why people think we’re spending so much more. We’re not, we’re just paying for it out of our own pockets.”
By way of comparison, an article early this year on North Dakota’s budget said that Governor Jack Dalrymple’s two-year, $9.3 billion budget proposal “assumes the state will collect more than $2 billion in oil taxes alone from July [2011] until June 2013.”
Earlier in 1990, Guy Boulton of the Wichita Eagle reported on a major find by Slawson Exploration:
Slawson Exploration Co. has hit an oil well in North Dakota with potential reserves of 1 million barrels.
The well, which will produce 600 to 800 barrels of oil a day, could be the company’s largest discovery in more than 10 years.
“The first day it started at 100 barrels an hour. It was screaming at us,” said Jim Robbins, Slawson’s vice president of exploration for the northern region.
A well producing 600 to 800 barrels of oil a day will generate $4.5 million to $6 million in annual revenues at current oil prices.
Slawson, the biggest oil company based in Kansas, holds a large acreage position and can drill up to 18 wells in the area, Robbins said.
”This well could easily have a million barrels of oil,” Robbins said. “And when you consider we have nine sections (nine square miles) tied up, you are talking a major oilfield here.”
But he also said the company had not completed its evaluation of the well. The $1.5 million well is Slawson’s first horizontal well, a technology which has the potential of significantly increasing the country’s oil reserves. A horizontal well is drilled vertically to a certain depth before veering horizontally. This increases the likelihood of discovering pockets of oil that are difficult to find with vertical drilling.
Slawson drilled to a depth of 12,656 feet, about 2.3 miles, then drilled 1,800 feet horizontally, the rough equivalent of three city blocks.
The horizontal well puts Slawson at “the forefront of the industry,” Robbins said. “The technology, unfortunately, is one you learn by doing.”
The well is located in Theodore Roosevelt National Park in southwest North Dakota and was struck in the Bakken rock formation.
”This is without question the best Bakken well to date,” Robbins said.
Finally, late in May 1990 Dale Wetzel of the Associated Press contributed an update on the horizontal drilling boom in western North Dakota:
Meridian Oil Co., which drilled North Dakota’s first horizontal well in 1987, has been the most aggressive in using the drilling technique.
But the Denver-based company is getting some competition. Testimony submitted to the state Industrial Commission last week indicates other companies are stepping up their exploration efforts.
Oryx Energy Co. of Dallas intends to drill 20 horizontal wells in western North Dakota in the next two years, investing as much as $30 million in the effort. Oryx has acquired-mineral leases covering 250,000 acres company testimony says.
American Hunter Exploration Ltd. of Calgary Alta, working in partnership with two other companies, has acquired oil and gas leases on about 1 million acres.
American Hunter and its venture partners want to “determine the productive capacity of the Bakken formation over a very large area,” according to company documents. . . .
The companies aggressiveness is spurred by the nature of western North Dakota ‘s oil -producing Bakken geologic formation, said Richard Ellis, a geologist for Leede Exploration of Englewood, Colo.
In the Bakken formation, oil is trapped in shale cracks, called “fractures” by geologists. The cracks usually run vertically.
Vertical wells can produce oil if they hit these fractures, but it is more possible they won’t — resulting in a dry hole. But horizontal wells have a greater chance of encountering the fractures and oil.
Wes Norton, the Industrial Commission’s chief enforcement officer, estimated last week more than 80 horizontal wells had been or were being drilled.
A Brief History of North Dakota Oil Production 