Bakken study — Bakken Shale News

Throughout 2014, the energy market experienced unprecedented production along with wildly fluctuating prices in crude, leaving many to wonder about the long-range future of the Bakken Shale region.

The North Dakota legislature recently commissioned a massive study from KLJ, Inc. to analyze the economic forecast and possible trends for 19 counties through the year 2019. This unprecedented study concentrated on areas such as population growth, employment, housing.

The oil boom means more job opportunities in companies directly involved in oil and gas production as well as in industries that indirectly support this production. The study predicts that these jobs will spur a population increase in some North Dakota counties of more than 30%, a staggering number compared to the national average of 1.5%. This increase will add a strain on the already overtaxed housing market in the area, where a great deal of permanent housing has been depleted. In even the most modest scenario, the study anticipates that housing needs will increase by close to 30,000 units for the Minot, Dickenson and Williston regions. This may play a factor in the population projection as workers will have to make hard decisions about whether to bring family along as they move to the area for work.

“Permanent population will be largely driven by the supply of permanent housing in the region,” the study says. “Due to a lack of housing, the region will continue to have a total (service) population that is substantially larger than the permanent population measured by the U.S. Census.”

KLJ’s study was completed before oil prices began to drop sharply. Analysts will watch closely to see if falling prices affect the accuracy of this forecast.

Bismarck, ND-based KLJ Engineering recently completed a study commissioned by the North Dakota legislature to provide decision makers with data about the Bakken's potential economic impact on the state through 2019.

The full KLJ report, released in September of 2014, focused on 19 oil & gas producing counties in North Dakota, and incorporated three approaches to forecast the sustainability of oil and gas production:

Economic analysis of the Bakken and Three Forks formation
Projections of population, employment and housing needs
Potential for CO2 enhanced oil recovery (EOR)

Of particular interest to industry is the impact of falling oil prices on future development. Earlier this month, Lynn Helms, the Dir. of North Dakota's Department of Mineral Resources (DMR), said two things could hurt production: low oil prices and new flaring regulations.

The KLJ study provided some interesting insight into how oil prices would impact production based on (IP) rates. In the core areas for development (McKenzie, Williams, Mountrail and Dunn Counties) most wells are well above 1,000 b/d, but on the fringes of these core areas, IP rates tend to be lower.

“According to the study, at the $70 per barrel price, a well IP of 500 b/d would never recover its costs. In order to recover well costs within 5 years, a 500 b/d IP well would need oil prices to exceed $100 per barrel. In stark contrast, modeling sensitivity scenarios such as large drops in prices down to $35 per barrel with high IP wells, which are common in parts of the Bakken/Three Forks, still have positive economic returns. Based on modeling outputs, IPs of 500 b/d or less will not be attractive to companies if well costs equal $7.5 million, and oil prices are in the vicinity of the 2014 average price of $85 per barrel. Conversely wells in the 500 to 750 bpd IP range are attractive, but susceptible to oil price fluctuations. Wells having at least 1,000 bpd IPs are attractive at current or higher oil prices, and for the most part, will still be attractive even with a reduction in oil prices. In discussions with industry representatives, companies generally expect to recover costs in three years or less, and a five-year payback time frame would be acceptable only in very unusual circumstances. ”

BakkenShale.com will provide additional details and commentary centered around the KLJ study in future posts.