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Redefining the profitable Bakken

Brian Kroshus, Publisher

When the first vertical oil well was successfully drilled and completed in the Williston Basin in the early ’50s near Tioga, no one at the time would have been able to fully comprehend the sheer magnitude of the oil play lying below them. Based on conventional knowledge, the discovery of oil itself was cause for headlines, an important event in North Dakota’s energy resources history. It was the beginning of an oil-era in the state, now spanning over six decades and from the standpoint of time, mostly from a conventional drilling standpoint.

More than a half century later, it all changed dramatically following the successful completion of some of the first horizontal, hydraulic fractured wells in the western reaches of North Dakota in 2006. The technologically advanced, unconventional wells drilled in the basin marked a new phase of oil development in basin, distinctly different than from the preceding time period. As a result of tight oil discovery, the “Bakken,” rapidly became a household name in the oil and gas industry riding the wave created by new extraction technology.

Arguably, the shale play remains in its infancy in terms of development and a certain type of rawness and untapped potential exists. Drillers, seeking to maximize return on investment, continue to probe the formation and look for ways to improve upon and enhance current drilling techniques. Though horizontal drilling and hydraulic fracturing are anything but new – the technology has been around for decades – cracking the most efficient code for Bakken shale hasn’t come easy, with considerably more yet to be learned.

During initial stages of the play’s most recent development – supported almost exclusively by innovative and economically viable extraction models – wildcatting and leasehold securement reached a heightened pace shortly after the first horizontal wells were successfully tested. As more rigs made their way into the basin, dotting the landscape in greater numbers than before, production spiked upward. Towering above the wind-swept prairie, they announced a second rebirth of the Williston Basin, transforming it overnight into one of the world’s premiere shale oil plays.

As additional rigs transcended into the basin, new job creation quickly caused workforce shortages, creating opportunities for those willing to make the trek to North Dakota. Workers have, and continue to arrive, seeking opportunities to draw meaningful paychecks in an otherwise sluggish economic picture nationally. Some view the Bakken as the equivalent to a modern day gold rush, an economic phenomenon that stands in contrast to the type of economic hardship continuing to persist, stubbornly, in other parts of the United States today.

Through each phase of development, speculation and rumor generation have been as prolific as the play itself. At the onset, speculation primarily by those outside the industry was that Bakken wells would eventually occupy a significant portion of western North Dakota, the production footprint solidly covering a 17-county area. Mineral leasehold activity across that geography peaked shortly following some of the first test well results in the basin, as drillers and investors positioned for the future. There were more questions than answers at the time, particularly related to the extent of the play and where economically viable drilling areas existed.

A revised sweet spot

With some of the initial questions answered, today’s Bakken is certainly more precisely defined than during its early stages of non-conventional development. Although still sizeable in terms of geography, a more condensed four-county area – including Dunn, McKenzie, Mountrail and Williams counties – is now considered the sweet spot, comprising approximately 85 percent of North Dakota’s total present-day production.

Smaller, less-defined pockets do exist outside of the high-value geographies, scattered across the remaining thirteen counties. With more likely to be learned in the years ahead on what their true production potential might be, the current balance could change over time. However, based on present-day models, infrastructure build-out and associated expense required to properly service outlying areas must be weighed and considered. Well-density levels on a per pad and spacing area basis, economies of scale and availability of downstream facilities, obviously influence bottom line results.

When analyzing the four highest producing counties, not all are created equal in terms of their contribution toward total production. McKenzie, the unquestionable leader in terms of barrels of oil produced currently, accounts for roughly half the annualized production of the top four counties. Along with Dunn, output continues to increase while Mountrail and Williams are slowing in comparison.

Wells capable of producing in the four counties as of January, 2014 include McKenzie with 2,614 followed by Mountrail at 1,946, then Williams at 1,630 and Dunn with 1,362. Their aggregate total – 7,552 – accounted for two-thirds of the 11,360 wells capable of producing in the 17-county area this past January. With a high number of multi-well pads in place in the leading four counties, their two-thirds ratio could advance further as a percent of the overall total if rig activity remains steady, or increases.

Bitter winter, low production

Overall, rig count in the Williston Basin is slowly increasing after colder than normal winter temperatures and sustained high winds negatively impacted production. January in particular was brutal with temperatures 6 degrees below normal, resulting in three days too cold for fracturing work. High winds in the basin, the more influential of the two, contributed to 12 days where well completion work wasn’t able to occur. Statewide, rig count in North Dakota continues to hover around the 190 mark, relatively stable over the past several months but still down from the all-time high of 218 that occurred in May, 2012.

Crude oil extraction and the ability to do so profitably in any given play, including the Bakken, is understandably influenced by a multitude of factors, rig count being but one. The ability to increase recovery rates with the aid of scientific research and technological advances, effectively reducing costs associated with drilling and well completion, countering adverse weather events, contending with regulatory issues and tax rate structures along with a host of other variables are only some of the many elements that need to be considered.

Drilling wells in the Bakken without first establishing reasonable benchmarks related to anticipated production volume, cost to complete and maintaining wells along with price projections for light sweet crude would obviously expose oil producers to unnecessary risk. Though a well thought out model doesn’t necessarily guarantee a profitable outcome, it does suggest where the most economically viable drilling opportunities might exist, and geographies best to target.

Successfully completing wells in the Bakken based on a single test – extraction of crude regardless of volume – isn’t the underlying question since that opportunity exists across most of the 17 oil-producing counties in western North Dakota. The true litmus test is where the greatest potential lies to do so economically. At this time, four counties in particular based on their track record, clearly stand above the rest.

Original Article

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