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Bakken oil drillers retreat to the core: Kemp

John Kemp is a Reuters market analyst. The views expressed are his own

LONDON – North Dakota’s oil producers have pulled back to the core areas of the Bakken formation to cut costs and maximize output amid the slump in prices.

The number of active rigs in the state has fallen to just 121, from 190 a year ago, according to an active rig list published by the state’s Department of Mineral Resources (DMR) on Wednesday.

The rig count is now below the threshold of “at least 130” DMR Director Lynn Helms identified last month as needed to sustain output at the current level of just over 1.2 million barrels per day.

But more important than the raw number is their distribution across the state, with drilling now increasingly concentrated in only the most promising areas.

Of the 121 rigs active on Wednesday, 115 are drilling in just four counties at the heart of the Bakken – Dunn, McKenzie, Mountrail and Williams.

Related: Daily Bakken production over 1.2 million barrels

The number of rigs operating in the core has fallen by 30 percent from 165 on Dec. 12, according to DMR records.

The four core counties accounted for 89 percent of the state’s oil production in December, a little over 1 million barrels per day.

Only six rigs are operating outside the core counties, down from 17 in mid-December, a decline of 65 percent.

Non-core counties produced just 128,000 barrels per day in December, so they account for a trivial amount of output on a national scale.

Some analysts argue that producers will be able to offset the smaller number of rigs by concentrating them in only the most prolific parts of the Bakken.

But with the number of rigs in even the core areas down by 30 percent in just over two months, it seems more likely production will begin to plateau or fall in the coming months.

Once the backlog of well completions inherited from 2014 is worked off, which will take another two to three months, decline rates from existing wells should match or overtake production from the smaller number of new wells being drilled.

(Editing by Dale Hudson) Copyright (2015) Thomson Reuters. 

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