New drilling taps vast fields

A new drilling technique is opening up vast fields of previously out-of-reach oil in several states, helping reverse a two-decade decline in domestic production of crude.

Companies are investing billions of dollars to get at oil deposits scattered across North Dakota, Colorado, Texas, and California. By 2015, oil executives and analysts say, the new fields could yield as much as two million barrels of oil a day - more than the entire Gulf of Mexico produces now.

In the more immediate term - over the next five years - this new drilling is expected to raise U.S. production by a million barrels per day, or 20 percent. Within 10 years, it could help reduce oil imports by more than half, advancing a goal that has long eluded policymakers.

"That's a significant contribution to energy security," said Ed Morse, head of commodities research at Credit Suisse.

Using the same controversial method of drilling that has opened up vast natural gas reserves in formations such as Pennsylvania's Marcellus Shale, oil engineers drill horizontally into shale formations and then hydraulically fracture the rock with high-pressure injections of water, sand, and chemicals.

Engineers thought the process couldn't economically squeeze sticky oil molecules out of shale. But drillers learned how to increase the number of cracks in the rock and use different chemicals to free up oil at low cost.

"We've completely transformed the natural gas industry, and I wouldn't be surprised if we transform the oil business in the next few years too," said Aubrey McClendon, chief executive of Chesapeake Energy Corp., which is using the technique.

Petroleum engineers first used the method in 2007 to unlock oil from a 25,000-square-mile formation known as the Bakken under North Dakota and Montana. Production there rose 50 percent in the last year, to 458,000 barrels a day, according to Bentek Energy, an energy analysis firm.

It was first thought that the Bakken was unique. Then drillers tapped oil in a shale formation under southern Texas called the Eagle Ford. Drilling permits in the region grew elevenfold last year.

Now newer fields are showing promise, including the Niobrara, which stretches under Wyoming, Colorado, Nebraska, and Kansas; the Leonard, in New Mexico and Texas; and the Monterey, in California.

"It's only been fleshed out over the last 12 months just how consequential this can be," said Mark Papa, chief executive of EOG Resources, the company that first used horizontal drilling to tap shale oil. "And there will be several additional plays that will come about in the next 12 to 18 months. We're not done yet."

Environmentalists fear that fluids or wastewater from hydraulic fracturing could pollute drinking-water supplies. The Environmental Protection Agency is studying its safety in shale drilling. The agency studied use of the process in shallower drilling operations in 2004 and found that it was safe.

In the Bakken formation, production is rising so fast there is no space in pipelines to bring the oil to market. Instead, it is being transported to refineries by rail and truck. And unemployment in North Dakota has fallen to 3.8 percent, lowest in the nation.

"We have redefined how to look for oil and gas," said Rehan Rashid, an analyst at FBR Capital Markets. "The implications are major for the nation."