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The Bakken is not special – analysis

Speaking at the annual North Dakota Petroleum Council meeting, Scott McNally dissected the Bakken’s potential in the global energy market and its ability to swing the market. The verdict? Despite being the number two producer in the U.S., the Bakken isn’t all that special.

McNally, a graduate research assistant at Harvard University and fellow for the Center on Global Energy Policy at Columbia University, addressed the current downturn, price sensitivity, production and the Bakken’s potential, as well as the nation’s, to become a swing producer.

Nine years ago, he said, North Dakota’s oil production sat around 120,000 barrels of oil per day. Fast forward to the current slump, which has lasted longer than predicted, or wanted, of which the effects are obvious: layoffs, cancelled contracts, acquisitions, and the list goes on. One fact remains, though: the proven resiliency of U.S. shale production in light of the persistent oil price slump and global oversupply.

The new swinger?

Posing the question of whether or not the U.S. will become the new swing producer, thus dictating the global market, McNally said, “Probably not.” According to Baker Hughes, the U.S. rig count tallied in at 644 on Tuesday. About a year ago, there were roughly 1,931 rigs active nation-wide. Despite the dramatic drop, production has continued to climb.

From 2005 to 2009, the natural gas market witnessed similar activity. Gas prices fell by about half, but production continued to climb. He commented that this is amazingly similar to what is happening with oil right now. Due to increased efficiencies in drilling rigs, the same number of wells are being drilled with half the number of rigs.

But, what is the Bakken’s role in this production increase, and how much will the play affect the market? Not much, McNally said. When prices fall, he said, everybody feels the squeeze, but not equally. Last November, regulators were unsure how rigs would move as the numbers dropped along with oil prices when 165 or 183 rigs were active in the core. This week, there are 60 of 69 rigs active in the Bakken’s core counties. Considering, though, that a single breakeven price in the Bakken doesn’t exist, only about half of producing wells will generate returns exceeding 10 percent. With continued improvements in efficiencies and the building of infrastructure, though, operators are still able to do more with less in the current price environment.

Same party, same outfit

When compared to other major shale plays in the U.S., such as the Eagle Ford and the Permian, the Bakken doesn’t stand apart and is, well, pretty average. McNally explained that the Eagle Ford and the Permian both have a higher number of wells, and subsequently, witnessed greater losses along with the oil price decline. The Bakken is quite comparable to the activity in these formations, even typical, as evident in the number of wells awaiting completion. In the Eagle Ford there are about 1,400 uncompleted wells and about 900 in the Permian. The Bakken touts 914 drilled but uncompleted wells.

Despite not being all that special, the Bakken remains a driving force for overall U.S. production levels. Posing the question of how much will North Dakota produce in the future, McNally answered simply, “a lot.” With oil prices between $40 and $70 per barrel in the foreseeable future, production levels should persist around the 1 million barrels per day mark, not accounting for any further advances in technology and efficiencies, evidence of McNally’s assertion that U.S. shale, and the Bakken shale, are much stronger than what many are saying.

The immense reserves of the Bakken, although not particularly unique, are still poised to produce well into the future. With current technology and recovery rates between 3 and 5 percent, the formation will continue to pump oil for generations to come. There are currently about 13,000 wells producing in the Bakken, only a fraction of the estimated 57,000 total wells predicted. Although it’s not particularly unique, the Bakken remains, without a doubt, one of the juggernauts driving U.S. shale production.

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