The Reality of Peak Oil Sinks In Oil Revival or Harvard Hype?

Too much optimism can be a dangerous thing.

Sure, it's easy to sit back and say everything is fine and dandy for the U.S. oil industry right now. After all, success stories from our oil patch are saturating media headlines (I've read a few dozen in the past few days alone).

The latest report out of Harvard is adding fuel to the fire.

It predicts U.S. oil production will climb to nearly 16 million barrels per day within the next four and a half years!

Now, understand I'm not trying to be pessimistic or rain on anyone's parade...

But seeing the glass as half full in this case can lead to delusion. And delusion allows people to blindly accept whatever story the media or politicians are spewing on any given day — that U.S. oil production is booming! — instead of educate themselves with the details behind the U.S. shale boom.

Had they been informed, these people would understand that some of the jaw-dropping shale plays that have become household names in the last few years have misled them...

What the media isn't shouting from the rooftops is that several states have been unable to reverse their decades-long production declines.

The truth is many states are locked in a bitter struggle against Peak Oil.

We've covered some of the more famous cases in the past.

Alaska is still a shining example as to what happens when you aren't a part of the shale bonanza.

During the last five years, the state's oil production plummeted nearly 200,000 barrels per day, or roughly 26%.

To put that into perspective, the oil production we lost from Alaska practically negated the increase we saw in Oklahoma, New Mexico, Wyoming, and Colorado during the same period. Of course, that doesn't include the nearly 100,000 bbls/d of lost oil production from both California and Montana.

And keep in mind this boom isn't taking place evenly across the board.

You can break down the numbers easily with a quick look at the EIA's data.

I'll warn you, things can be deceptive at first glance...

Take a careful look at those figures, and you'll find that between 2007 and 2012, 18 states were able to increase their oil production by a total of approximately 1.7 million barrels per day.

Sounds like a boom to me.

But remember the devil is in the details...

Look again and you'll see that North Dakota and Texas accounted for 83% of that increase! What's more, output in 12 of those states grew less than 20,000 barrels per day.

So yes, the U.S. is still enjoying a boom — but only in a select few regions.

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16 Million Barrels a Day or Bust

The Harvard report out last month is perfectly clear on where we will get our future oil.

According to the report, Texas' crude production is expected to double from current levels. Contrary to popular belief, however, it won't be the same story going forward.

Dig deeper and you'll find the rosy outlook for U.S. oil production will come with a hefty price tag...

The report explains the fact that producing oil from shale formations requires an intensive amount of drilling. And over 4,000 shale wells were brought online last year.

That's certainly true in North Dakota. But let's not forget what it took for them to get to this point...

As of last April, the state had more than 8,500 producing wells, practically all of which were targeting the Bakken/Three Forks Formations.

That means roughly 5,000 wells started producing oil during the last five years.

But there's another important tidbit to remember, and that's that companies are getting much more efficient at drilling into the Bakken.

To give you an idea of what I'm talking about, in April 2007, the average North Dakota well produced 1,021 barrels of oil. By 2012, that amount nearly tripled!

The Harvard report noted that a few years ago, a typical Bakken well would take up to two months to drill...

Today these companies are taking advantage of a highly specialized drilling technique that drastically cuts the time and cost to finish a single well.

So it's not necessarily about finding companies that are sitting on oil, but rather the companies with the technical savvy to efficiently extract that crude. And some are simply better at extracting the light, sweet crude oil out of the Bakken Formation than others...

Distinguishing between the two means all the difference in today's volatile market.

I want to give you a leg up on the investment herd...

My readers and I have our eyes set on the next round of these shale profits. I'll tell you all about these opportunities on Thursday.

In the meantime, if you're interested in reading the Harvard report in full, you can find it here.

Until next time,

Keith Kohl

@KeithKohl1 on Twitter

A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.