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There has been a lot of Fanfare on the huge increase of oil production coming from the Bakken Field located in North Dakota. There are many stories of people moving to the state to take advantage of the new OIL BOOM. It seems like everyone is going there to start a new life and make it rich in one of the coldest areas in the United States.
However, with all BOOMS, comes the inevitable BUST. This was true shown by the famous example of the 1800′s California gold rush:
According to the article, “The Bakken Boom: The Modern Day Gold Rush”:
Despite the low productivity of the labor-intensive process of gold panning, annual production grew from just over 1,400 ounces in 1848 to more than 3.9 million ounces by 1852. To put this into perspective, prior to 1848, cumulative U.S. gold production amounted to just over 1 million ounces.
Of course nuggets are easier to find than flakes, and the great majority were discovered in the first few years. By 1852, only four years after gold was first discovered, California gold production began a rapid descent. Production declined 50% by 1862 and 80% by 1872.
The decline was only barely checked by the adoption of ‘hydraulic mining’ – a process by which massive amounts of water under intense pressure is used to disintegrate entire hillsides. At the North Bloomfield mine, for example, 60 million gallons of water per day eroded more than 41 million cubic yards of debris between 1866 and 1884. (http://www.sierranevadavirtualmuseum.com/docs/galleries/history/mining/hydraulic.htm)
Typical of all BOOMS, production increases exponentially, peaks and then declines in the same fashion. However, Even with high-tech hydraulic water mining techniques, the industry could never produce more gold than it did in 1852 when it reached nearly 4 million ounces.
BAD NEWS FOR THE BAKKEN: Decline Rate of 63,000 Barrels A Day
The EIA – U.S. Energy Information Agency is now putting out data on the individual shale oil and gas plays in the country. While the American public and world have been made aware of the huge increase in oil production coming from the Bakken, few are privy to the dark side of the equation. The Bakken’s daily decline rate from their existing oil wells has reached a staggering 63,000 barrels a day.
This means, that every day the Bakken pumps oil, its existing wells are now declining 63,000 (bd) barrels a day. As you can see from the chart above, the rate really started to decline in a big way after 2011 when the average daily decline was only 20,000 bd. In less than 3 years, this rate has increased more than 3 times (63,000 bd).
This next chart gives us the total as well as net oil production increases month over month:
The EIA is showing what is indicated to take place in December over November. If we look at the actual data that comes out of the North Dakota Department of Mineral Resources, Bakken oil field production in September hit 867,123 bd. The difference to reach that 1 million barrels a day is coming from the Montana portion of the Bakken.
Here is an actual screenshot of the ND DMR’s monthly report released November 5th:
Moreover, if we look at total production, again using the North Dakota DMR’s data, their total oil production data for the state in September was 931,940 bd. This includes oil production outside the Bakken and Three Forks (data for Bakken in the EIA charts includes Three Forks).
Astonishingly, 93% of North Dakota’s oil production comes from the Bakken region alone.
The Bakken Drilling Frenzy Gives The Illusion of Sustainable Growth
The typical American believes the United States has all this hidden oil and gas resources that we can easily tap into. I just had a conversation with a neighbor yesterday who told me that he couldn’t understand why we weren’t “ENERGY INDEPENDENT.” Gosh, if I had a dollar for every time someone said that…
Again, the public is only told about all the huge increases in production, but for some strange reason, MSM tends to omit the negative side. The only way oil production is increasing in the Bakken is due to the massive amount of new wells that have been added. The chart below reveals the illusion of this sustainable growth:
First, the figures in white represent North Dakota’s total wells producing for their production of the Bakken. Even though the graph includes Montana’s production, it still gives us a good idea of the huge increase in oil wells it takes to grow production.
Second, in 2008, the Bakken in North Dakota only had 479 producing wells, however at last count in September when then Bakken was producing 867,123 barrels of oil a day, it took 6,447 wells to do so. Thus, the energy companies drilling and producing oil in the Bakken have to keep increasing wells each month (and year) to offset the huge 63,000 bd decline.
For example, there were an additional 135 new wells (ND) producing in Sept. over Aug. which added 20,589 bd of production. If there were only say 100-105 new wells added that month, production would have remained flat or possibly declined for Sept.
Lastly, the best and most productive wells are exploited first leaving the dead-beats for last. This will make things even more fun as the peak and subsequent bust finally arrives.
The Coming Bust of The Great Bakken Field
As with all oil fields, there are only so many sweet spots and areas to drill. The 63,000 bd decline rate at the Bakken only has one way to go — and that’s higher. If the present trend continues (highly likely) then we are going to see a daily decline rate of 75-85,000 barrels a day by the end of 2014.
Thus, the shale oil players are going to have to make those drilling hamsters work even harder as they will need to increase more wells each month just to grow production. At some point in time (sooner rather than later), the daily decline rate will reach a figure that these companies will be unable to offset.
There are only so many drilling locations available and once they run out, the Great Bakken Field will become a BUST as the high decline rates will push overall oil production down the very same way it came up.
Those who moved to the frigid state of North Dakota with Dollar signs in their eyes and images of sugar-plums dancing in their heads will realize firsthand the negative ramifications of all BOOM & BUST cycles. At this time, the word “Cold” will have more than one meaning.
Once the Bakken and Ealge Ford oil fields peak and decline, the United States has no other “ENERGY RABBIT” in its hat. This is precisely why investors need to understand energy and why its important to own physical assets such as gold and silver.
Check back for more updates at the SRSrocco Report.
Prior to 1913 the U.S. treasury issued treasury notes as currency that was backed by gold. The Gold and Silver certificates could be converted into silver and gold on demand. This kept the government on a financial leash to prevent over spending. The treasury printed its own money so they did not have to borrow it. They could print as much money as they had gold to back it.
In 1913 a non-elected body called the Federal Reserve, which is owned by some of the largest banks in the world, became the issuer of U.S. currency. This establishment went on to replace all of the sound money in the U.S. with what is today a totally fiat currency. In 1971 we were taken off of the gold standard thus allowing the FED to print as much money as they wished with absolutely no backing other than the good faith of the U.S. Government.
When the government wants to borrow money they print treasury bonds which are sold by selected traders. The bonds are sold as an interest bearing investment. The more credit worthy the issuer is, the lower the interest rate will be. This is an indication of how safe the bond is.
Just like an IOU, the bonds are the same as cash. The perception of cash value is based on the perceived ability of the issuer to repay the IOU. If it is suspected that the IOU may not be honored, it may be sold at a discount to unload it onto someone else before the issuer defaults on repayment and it becomes worthless.
When the demand for bonds is not sufficient to absorb all of the new bonds, the FED must buy them to prevent a failed auction. A failed auction would bring the credit worthiness of the U.S. into question. This would cause the interest rates to go up to reflect the increased risk.
When the U.S. issues bonds as repayment for the loan, the holders of these bonds have the ability to call the loan if they want. This is done by demanding payment at maturity of the bond rather than rolling it over into more bonds.
As the U.S. increases its’ deficit spending, its’ credit worthiness will come into question. This will cause those holding U.S. bonds to dump them for something more secure. When no one else will buy them anymore, the FED must purchase them to keep the dollar stable. We are seeing this happen now. Eventually the FED will own all of the outstanding bonds if the crisis goes on long enough. When the FED has to buy bonds it must print new money to buy them. This is called monetizing the debt. This is very inflationary.
Keep in mind that the FED is owned by other banks. What the FED owns, they actually own.
Since the U.S. government no longer prints its’ own money, it must go to the FED to get more currency if government revenues are insufficient. If the FED should one day say it will no longer issue currency to the government until the bonds it is holding are satisfied, what would the U.S. government be able to pay them with? If you borrow money from a bank and cannot repay it, they ultimately come for your assets to satisfy the loan. That is a lesson the Greeks are now learning.
The U.S. government has some very nice assets in the form of pristine real estate, much of it with a great deal of mineral wealth beneath it. If they cannot pay the banks, the bankers may demand assets in return. If you don’t think the banks would do something like that, you obviously have not been paying attention to world events lately. It may not even be the FED bankers. It could be anyone with the funds to buy up all of the worthless bonds. Someone like the IMF perhaps.
This is a larger version of what happened during the great depression. People that owned land but had no money would get a line of credit at a store to buy food. The store would continue to extend credit until it reached a certain level then they would suddenly demand payment. The people were unable to pay their bill so the store owner would demand their land as payment. This was the intention of the store owner all along. I know because this is how some of the largest farms in my county came into existence at that time.
The people never agreed to use their land as collateral for the credit, but after the debt was created, they had no other recourse. This is the position the U.S. will likely be placed in to deprive Americans of the land the rightfully own. Those in power that get a piece of the pie will willingly support this option. Americans will lose the land their forefathers fought for, all for a pile of worthless paper printed out of thin air that ultimately destroyed their standard of living.
This may not be the future of this country but at this point in time it seems likely. Unless the public understands how this could happen and resolve to fight it if it ever does come to pass, we could lose it all overnight. One thing is for certain. Whoever comes to foreclose on America will not be willing to give up easily.
- The On-Going Collapse Of The U.S. Treasury Bond Market Is A Disaster In The Making (blacklistednews.com)
- What Is The Debt Ceiling and How Does It Affect You? (edgeucationnewmedia.wordpress.com)
- Default Softly, While China Carries A Big Stick (dailyresourcehunter.com)
- Quantitative Easing Worked for the Weimar Republic, Too. For a While. (directorblue.blogspot.com)
David Stockman, author of The Great Deformation, summarizes the last quarter century thus: What has been growing is the wealth of the rich, the remit of the state, the girth of Wall Street, the debt burden of the people, the prosperity of the beltway and the sway of the three great branches of government – that is, the warfare state, the welfare state and the central bank… What is flailing is the vast expanse of the Main Street economy where the great majority have experienced stagnant living standards, rising job insecurity, failure to accumulate material savings, rapidly approach old age and the certainty of a Hobbesian future where, inexorably, taxes will rise and social benefits will be cut… He calls this condition “Sundown in America”.
SUNDOWN IN AMERICA: THE KEYNESIAN STATE-WRECK AHEAD
Remarks of David A. Stockman at the Edmond J. Safra Center for Ethics, Harvard University, September 26, 2013
The median U.S. household income in 2012 was $51,000, but that’s nothing to crow about. That same figure was first reached way back in 1989— meaning that the living standard of Main Street America has gone nowhere for the last quarter century. Since there was no prior span in U.S. history when real household incomes remained dead-in-the-water for 25 years, it cannot be gainsaid that the great American prosperity machine has stalled out….
- David Stockman – The Crisis Today Is Far Worse Than 1981- This Financial Collapse Will Be Catastrophic (planet.infowars.com)
- David Stockman: Extended Stay And The Wall Street Meth Labs (testosteronepit.com)
- ZeroHedge: David Stockman Fears Intense Resentment Over “Disaster” That Is Obamacare (silveristhenew.com)
- Marc Faber: We Are in QE Unlimited (marketsanity.com)
- Unemployment is high in both Europe and the U.S., particularly for young people (silveristhenew.com)
- Marc Faber – This Will End In Disaster (rvnewstoday.com)
- Marc Faber: Inflation and discontent (therealasset.co.uk)
- Marc Faber: I Don’t Feel Comfortable Holding Cash With Banks (etfdailynews.com)
- Marc Faber: “It’s Gonna End One Day… Through War Or Financial Collapse” (silveristhenew.com)
- It Is Happening Again: 18 Similarities Between The Last Financial Crisis And Today (zerohedge.com)
- “It’s Going to End Badly” – Jim Rogers on Money Printing (tradethenewsroom.com)
- Truthdigger of the Week: David Stockman (truthdig.com)
- Did the American Empire Kill Sound Money? (lewrockwell.com)
- Marc Faber : I am very, very Bearish on the Trend the World has embarked upon (silveristhenew.com)
- Marc Faber : In The Deflationary Shock that we have , the last thing you should own are Paper Assets (silveristhenew.com)
- MARC FABER – Obama is a Disaster – Economic Collapse (silveristhenew.com)
- MARC FABER: Not Even Gold Will Be Able To Save You From What Is Coming (rvnewstoday.com)
- Marc Faber, aka Dr. Doom, says there’s nowhere to hide from Bubblegeddon, not even gold (blogs.marketwatch.com)