The Associated Press October 19, 2011, 6:53PM ET

North Dakota's booming oil patch swelling south

North Dakota's booming oil patch is sweeping down to South Dakota, amid speculation that a reservoir similar to the rich Bakken shale formation could contain millions of barrels of crude.

The Associated Press has learned that a flurry of recent leasing activity in South Dakota is tied to hopes for the Tyler Formation. State geologist Ed Murphy in North Dakota said the formation extends from the western part of that state into northwest South Dakota and may hold up to one-third the volume of oil estimated in the prolific Bakken, a formation the U.S. Geological Survey called the largest continuous oil accumulation it had ever assessed.

The prospect of tapping the Tyler using technology learned from the Bakken in western North Dakota has spurred excitement -- along with worry -- in both states. While the Bakken boom has given North Dakota a near billion-dollar budget surplus and the lowest unemployment rate in the U.S., increased oil activity also has brought more traffic, damage to roads, housing costs that have priced out some locals and worries about crime.

"We're watching this as it's coming south," said Kathy Glines, the auditor in Harding County, S.D., which produces the bulk of the state's oil and gas at present, using traditional vertical wells. The prospect of increased oil activity in the region has been a "mixed bag" with residents, she said.

Energy companies are gambling on South Dakota having a bigger piece of the oil action. The state's Office of School and Public Lands auctioned off some 67,000 acres of oil and gas leases this month worth more than $521,000, mostly in Harding County. All but four of the 189 lots were leased to Bedrock Oil & Gas. Randy Coleman, a landman for the Boerne, Texas-based company, told The Associated Press the acres were leased based on speculation.

"It was bought based on a geological idea, and there is nothing to back it up," he said. "It is a high-risk, underdeveloped area, period. But you got to start somewhere, and the first place to start is with a lease."

Jarrod Johnson, the School and Public Lands commissioner, called the record lease sale to the Texas company a landmark.

"We're excited, but we have to be cautious in thinking `here comes our North Dakota,'" Johnson said.

Dean Wagner, a rancher who also serves as a Harding County commissioner, said the state, which has cut spending in recent years, could use the oil revenue from increased production. But residents would rather not put up with the swarm of activity, he said.

"There are benefits to it and there are problems. We're kind of not necessarily looking forward to it," said Wagner. "We're hoping if it comes, it doesn't come near as hard as it has in North Dakota."

North Dakota has risen to become the nation's fourth-largest oil producer, accounting for about 6 percent of U.S. production, thanks largely to production from the Bakken and underlying Three Forks formations. Officials believe more than 4.3 billion barrels can be recovered in the state using current technology.

Oil activity in sparsely populated southwestern North Dakota and northwest South Dakota -- where cows outnumber people -- would radically alter the landscape of rolling prairie and wind-carved buttes, as it has in North Dakota's once wide-open oil patch. There, oil rigs and nodding donkey pumps rise from the prairie and flames from waste gas light the night sky.

Lynn Helms, the director of North Dakota's Department of Mineral Resources, said the southwest part of the state may have up to 7,000 wells aimed at the Tyler formation within five years, if initial drillings are successful. Helms and other North Dakota officials are slated to hold meetings in Hettinger County on Thursday to discuss the Tyler formation and its impact.

"Overall, there is a general sense that this is an exciting growth opportunity, but there also is some fear," Helms said.

North Dakotans increasingly are expressing worry about the explosion of oil activity in the state and the crush of workers that has come with it. Hotel rooms have become nearly impossible to book, and some cities and counties have banned temporary housing villages used to accommodate the influx of workers, fearing unsafe conditions. Those concerns would likely bleed south.

Drilling into the Tyler formation, or Minnelusa formation as it's known in South Dakota, has been happening in southwest North Dakota since the 1950s using traditional vertical wells, said Murphy. Some 285 Tyler wells have produced about 85 million barrels of oil over the past half-century. Geologists believe the Tyler, which is located about a half-mile above the Bakken, may share some of its characteristics.

"We hope it does," said Derric Iles, South Dakota's state geologist. "We know pretty much nothing about the potential -- it is underexplored, untested, use your adjective."

So oil companies now want to exploit the Tyler using horizontal drilling and hydraulic fracturing technology learned from the Bakken and Three Forks. Helms said the first test wells are slated to be drilled this winter.

"We think it could be a couple of years before they unlock the secret of drilling the Tyler," Helms said. "In our mind, we look at this as the equivalent of Bakken test wells in 2004. Things were very slow in the Bakken play for about two years until they cracked the code."

South Dakota produced 1.6 million barrels of oil last year, or the same amount North Dakota produces in less than four days.

"Right now, we're blessed with the activity that we have," Glines said. "But we're paying a lot of attention and hopefully we can be prepared as we can be for the issues that are facing North Dakota."


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