Continental Resources CEO Harold Hamm has a dream that one day the United States will be energy independent. What's truly remarkable about the dream is that there is enough science and technology that could make it a reality. In fact, according to Hamm and others, the U.S. could be the world's top oil producer by 2017, in addition to being completely energy independent by 2020. Can this really be true?
Consider: Texas produces enough oil that if it were a country, it alone would rank 15th in the world among oil-producing nations. The state, of course, has the prolific Eagle Ford Shale as well as legacy oil production out of places such as the Permian Basin. In fact, when combined with the Bakken of North Dakota, these three oil plays have the potential to grow oil production by five million barrels of oil per day by 2017, which could potentially push the U.S. into the top spot.
To meet that lofty goal, the U.S. would need to drill a lot of wells, with estimates of about 100,000 total wells to get oil production up to full capacity, which is up from just 10,000 shale oil wells today. For perspective, that would mean oil companies would need to spend more than $600 billion given the average well cost of $7 million per well between those three major oil shale plays. Further, oil prices would need to stay at least above $65 per barrel to produce an adequate return for producers, though ideally oil would need to stay over $100 to truly give producers adequate incentive.
With oil prices currently well above $100 per barrel, oil producers have plenty of incentive to drill. Continental, for example, has taken advantage of high oil prices to become the Bakken's top producer and driller. The company sees the potential to drill more than 19,000 additional wells in that play, as well as its position in Oklahoma. That potential, when combined with high oil prices, is one reason Continental is expecting to triple its production by 2017.
It's not alone, which is clear by going back to Texas, where the Eagle Ford has been one of the big drivers for EOG Resources . The company, which expects to grow its oil production by 28% this year, has a clear path to grow its oil production by double digits annually through 2017. Overall, the company sees the potential for 4,900 additional Eagle Ford wells, which will enable it to capture about 8% of the Eagle Ford's entire estimated output.
To put this growth in perspective, ConocoPhillips , a more diversified global oil and gas producer, expects to grow its oil and gas production by just 3%-5% over this same timeframe. However, 60% of its projected production growth will come from its U.S. onshore assets. The growth is truly remarkable, as the company expects to grow its Eagle Ford production by 130,000 barrels of oil equivalent per day, or 16% annually, while growing Bakken production by 45,000 BOE/d ,or 18% annually. And last but not least, the company sees its Permian Basin production growing by 40,000 BOE/d, or 7% annually. Clearly, the U.S. is one of the key growth drivers for ConocoPhillips over the next few years.
This brings me to one final point. One area of oil production many overlook is the Permian. That legacy oil play could actually be the best of the bunch thanks to the Sparberry/Wolfcamp, which just might be the second largest oil field in the world, at 50 billion barrels of oil equivalent. That's almost double the Eagle Ford's potential and more than four times that of the Bakken. One company that sees huge potential here is Pioneer Natural Resources . Overall, the company believes it has the potential to capture about 9 billion barrels of oil equivalent as it drills about 40,000 wells over the coming years.
By 2018, this part of the Permian could be producing more than a million barrels of oil equivalent per day, with much more in the years to come:
The potential really is there for the U.S. to become the world's largest oil producer. Still, a lot needs to go right, chief among which is that oil prices need to stay high enough to reward producers for drilling all those oil wells. If that happens, and I believe it will, investors should do very, very well.