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2015: Will the Bakken hit 1.2 million barrels per day?

Oil prices have tumbled from their peaks, and some roughnecks have been sent packing, but the current lull in North Dakota’s oil patch is hardly the harbinger of doom that many suspected it to be.

Jonathan Garrett, a principal analyst with Wood Mackenzie, a global energy research and consultancy group, asserts that the slowed activity is no indication of future trends. In fact, Garrett, the company’s Bakken expert, believes overall production in North Dakota will increase in 2015 from last year’s 1.1 million barrels per day to 1.2 million barrels per day.

As reported by The Bakken Magazine, he said, “There are three parts of the country that are moving the needle in this whole unconventional oil and gas revolution: it’s the Bakken, the Eagle Ford and the Permian. Because North Dakota’s so far away from a lot of the major markets and transport costs can be a concern, people were calling for the Bakken to really come to a screeching halt.”

Despite being far removed from the market and the current price slump, producers remain active in the Bakken’s core. These sweet spots, located in Dunn, McKenzie, Mountrail and Williams counties, have proven viable even as oil prices linger around the $60 per barrel levels. Garrett noted, “Everyone’s drilling their best rock. ConocoPhillips’ best rock might look different from Oasis Petroleum’s best rock. Either way, everyone’s hitting their most prospective pieces of rock right now.”

A variety of factors are pointing to a positive year ahead, including the increasing amount of innovations being applied to oil and gas operations throughout the industry. Producers are continuing to find and use methods that allow them to do more with less. Companies are now drilling multiple wells on a single pad, utilizing different fracturing techniques, powering operations with gas that would have otherwise been flared, and even designing new operations with infrastructure incorporated into the well site.

These innovations have not only led to reduced costs, but increased production as well. Whiting Petroleum, for example, has reported initial production rates increasing by up to 40 percent compared to the year prior. As reported by The Bakken Magazine, Garrett explained, “You went from 30 days to drilling and completing a well to doing that in the low 20s. From the completion side, any time you do something in a batch – on a per unit basis – the price goes down. Now you’re drilling 10 or 12 wells from the same pad. Those efficiencies shave $800,000 to $1 million of the cost of a well.”

Cost reductions have also shifted from the exploration and production sector to the service sector as companies are forced to reduce costs, sometimes up to 20 percent, in order to maintain market shares and to avoid layoffs. According to a recent report by the Federal Reserve, the cost of drilling and bringing wells into production have dropped as much as 30 percent since the beginning of the year. As a result, the break-even price of crude has been reduced by an additional $10. However, Garrett suspects that trend won’t last.

He said, “A lot of these service companies are running so deep in the red just trying to hold on to market share that it’s a question of how long they can offer these types of cuts before they either close up or have to start increasing prices again.” While he doesn’t think the industry will see this happening this year, 2016 might be a different story.

Despite the adaptability of the oil and gas industry, an improved global economy, higher market prices and increased demand remain the most favorable factors leading to market recovery. Even if these factors go unchanged, though, Garret says the short-term outlook for the Bakken is still bright. While the recent oil price rally may not be enough for the market to place bets on the future, the current price per barrel and cost reductions are sufficient enough for companies to continue investing in the Bakken’s core.

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