Bakken Operators Look Optimistically to 2017

The Bakken rig count remains stalled, but some major operators in the Bakken Shale Play plan to increase activity in 2017.

Related:  Continental Resources Raises Expectations for remainder of 2016

As the year comes to a close, major Bakken operators are reporting their plans for 2017, with some announcing they will increase spending and drilling activity.

  • Continental Resources plans to work down its inventory of 29 drilled but uncompleted Bakken wells in 2017. The company expects continued low operating costs in the new year with an estimated budget of $1.1 billion. The company has a new completion design that has resulted in a record 30-day initial rates for Continental-operated Bakken wells in 2016.
  • EOG Resources is increasing its crude oil organic production growth outlook through 2020, which includes growth in the Bakken. In addition to the growth illustrated in the outlook, the company continues to evaluate high-quality emerging plays through its ongoing exploration efforts.
  • Enerplus Corp. will increase its North Dakota oil production by 25% in 2017. 70% of the company's $400 million budget will be spent in North Dakota. 
  • ConocoPhillips has seen unexpected production increases and recovery rates from its Bakken operations, which caused the company to speed up their timeline of adding three rigs to the Bakken. The improved characteristics of its Bakken operations pushed the team to secure drilling rigs and pressure pumping crews earlier than its originally scheduled plans for 2017. 
  • John Hess, CEO of Hess Corp. spoke optimistically about the Bakken in the company's third quarter earnings call and indicated they plan more rigs for the Bakken are in the 2017 
Our Bakken team continues to offer excellent operating results and returns in the core of the play that are competitive with the Permian and Eagle Ford. Our high-quality Bakken acreage, industry-leading drilling and completion costs, and advantaged infrastructure position set up our Bakken assets to be a major contributor to the company’s future production and cash flow growth.
— John Hess, CEO of Hess Corp.

The Bakken-Three Forks rig count fell by one this week with Baker Hughes reporting 31 rigs running across our coverage area by midday Friday.

Crude by Rail Will Increase if Pipeline Remains Stalled

As the standoff over the Dakota Access Pipeline drags on, producers will have to use rail to get their product to market.

Related: Protests over Pipeline Spread Across U.S.

Last week, the U.S. Army Corps of Engineers reversed its position and denied Energy Transfer Partners the permit needed to complete the pipeline.

Oil and gas operators were counting on the pipeline's capacity to ship 570,000 barrels a day in 2017.  This latest set-backs means they will be looking to alternatives and many will be forced to rely on rail to ship product.

Controversy over the safety of moving crude by rail has skyrocketed as several high-profile accidents have recently made headlines. This combined with a sharp increase in crude by rail since the start of the oil boom has many concerned.

Decreased volumes and more pipeline construction in 2016 meant there were fewer safety incidents, with only nine reported this year. But this trend may change if major pipelines cannot be completed and operators rely on rail. 

In 2015, the National Transportation Safety Board (NTSB) gave the following recommendations that would require:

  1. All new and existing tank cars used to transport all Class 3 flammable liquids be equipped with thermal protection systems that meet or exceed the thermal performance standards
  2. All new and existing tank cars used to transport all Class 3 flammable liquids be equipped with appropriately sized pressure relief devices that allow the release of pressure under fire conditions and that minimizes the likelihood of energetic thermal ruptures
  3. An aggressive, intermediate progress milestone schedule, such as a 20 percent yearly completion metric over a 5-year implementation period, for the replacement or retrofitting of legacy DOT-111 and CPC-1232 tank cars to appropriate tank car performance standards
  4. Establishment of a publicly available reporting mechanism that reports at least annually

Construction on the pipeline was almost complete when protest erupted in October. Demonstrators are concerned about the environmental impact of the pipeline, including contamination of the Missouri River, which is the primary water source for the Standing Rock Sioux Tribe. Tribal leaders are also upset that the pipeline will disturb sacred burial grounds.

Energy Transfer Partners and Sunoco Logistics Partners own a majority stake in the Dakota Access Pipeline project. Energy Transfer Partners and Sunoco Logistics have lost ~17% and ~27% of their market value since the beginning of the protests. Energy Transfer Equity, which depends on Energy Transfer Equity and Sunoco Logistics for distribution income, fell~15%.


Whiting Petroleum Sells Bakken Assets

Whiting Petroleum has announced its intention to sell its Bakken midstream assets to a subsidiary of Tesoro Logistics.

Related: Whiting Plans to Drop Bakken Rigs

The $375 million deal includes Whiting's 50% stake in the Robinson Lake natural gas–processing plant along with the associated natural gas–gathering system located in Mountrail County, North Dakota.

We expect this sale to further strengthen our balance sheet and provide us with additional financial flexibility to invest for growth in Whiting’s top tier producing assets in the Williston and DJ Basins. This sale aligns with our ongoing strategy to divest non-core midstream assets and focus capital in the company’s highly productive upstream business.
— James J. Volker: Chairman, President and CEO

2016 third quarter capex for Whiting was $85 million was under budget and relatively flat with the second quarter. Other quarterly highlights include:

  • Production totaled 11.0 million barrels of oil equivalent (MMBOE), an average of 119,890 barrels of oil equivalent per day (BOE/d)
  • Production was 85% crude oil/natural gas liquids (NGLs)
  • Lowered lease operating expenses averaged $7.98 per BOE


Helms Predicts Oil Will Stay 'Lower for Longer'

North Dakota's Department of Mineral Resources announced that the state's crude-oil production dropped in September to the lowest level in more than two years.

Related: Bakken Production Dips Below 1 Million Barrels a Day

Low crude prices are still wreaking havoc on the oil and  gas industry with North Dakota experiencing another drop in production, with volumes staying below the one-million-barrel-per-day mark for the second month in a row.

Crude production fell 1.1% on the month to 971,658 barrels a day in September, the lowest level since February 2014, when output was 952,055 barrels a day, and follows a 4.7% drop in August.

In a recent address to the North Dakota Association of Oil and Gas and Coal Producing Counties (NDAOGCPC), Director of Mineral Resources, Lynn Helms provided his forecast for future growth in western North Dakota. Helms estimates under that it is likely the price of West Texas Intermediate (WTI) will stay below $60 a barrel and rigs will continue to focus drilling in the four core counties of Dunn, McKenzie, Mountrail and Williams for the next ten years. Under his "lower for longer" scenario, well count reach a maximum of fifty-five thousand wells by 2050. 

Each year I look forward to providing this outlook to county leaders. Now that lower oil prices have held on for an extended period of time, I’ve included a “lower for longer” and a “price shock” forecast to give leaders an idea of how to plan for growth under suppressed drilling conditions as well as rapidly increased drilling activity.”
— Lynn Helms, Director of DMR


Total production in North Dakota was 29.2 million barrels of oil in September, down from 30.4 million barrels in August, the state said.

Natural-gas production in North Dakota fell 1.7% in September to 1.61 billion cubic feet a day, state figures showed. Energy producers burned off, or flared, 11.9% of gas output, up from 11.4% in August. Gas is a byproduct of oil production.

Most oil in North Dakota is extracted by hydraulic fracturing, or fracking, where a mixture of water, sand and chemicals is pumped into rock formations to push oil out. Such wells are first drilled and then put into production after being fracked, or completed.


Continental Resources Raises Expectations for remainder of 2016

Bakken Shale powerhouse, Continental Resources, is counting on continued momentum as it raises its expectations for North Dakota activity and production for the rest of the year.

Read more about Continental in the Bakken Shale Play

Oklahoma-based Continental announced third quarter results, saying it is betting on recovery from enhanced work at the Bakken shale oil reserve basin in North Dakota, and the SCOOP and STACK reservoirs in Oklahoma.

The company expects to end the year with production volumes that are about 5 percent more than it estimated in August. 

We brought on several excellent producers in the Bakken using enhanced completion designs, including two wells that generated CLR-record 30-day initial rates for the Bakken. This is an encouraging start as the Company begins working down its large backlog of Bakken uncompleted wells and capturing their value.
— Harold Hamm, Chairman and Chief Executive Officer

Third quarter highlights:

  • First STACK Density Test Flows at Combined Initial Peak Rate of 21,354 Boe per Day (70% oil) from Eight Meramec Wells; Seven New Wells Flow at Average Well IP of 2,653 Boe per Day
  • Company Initiates Development in STACK Over-Pressured Oil Window
  • Bakken Enhanced Completions Yield Company Record Initial 30-Day Production Rates
  • Company Begins Working Down Uncompleted Bakken Wells
  • Annual Production Guidance Raised and Production Expense Guidance Lowered; Capital Expenditure Guidance Raised on Increased Well Completions

Looking forward to the remainder of 2016, the Company plans to increase the total number of gross operated well completions by 32. They also expect to complete 119 gross operated wells with first production for the year, including 29 gross operated wells in the Bakken.

The Company plans to increase from two to four stimulation crews in North Dakota by year-end 2016. The Company now expects to end 2016 with approximately 175 gross operated uncompleted wells in the Bakken and approximately 45 gross operated uncompleted wells in Oklahoma. The projected year-end Bakken uncompleted well count of 175 excludes approximately 15 wells that will have been stimulated by year-end 2016, but not produced with first sales until 2017.
— Continental Press Release

"We have expanded the productive footprint of STACK, SCOOP and the Bakken core, and are increasing the value of these assets," Chairman and CEO Harold Hamm said in a statement.

State mineral resource officials in North Dakota said there's been a steady increase in exploration and production activity there since June, but operators still showed reluctance to move very aggressively so long as oil prices stayed below the $60 per barrel mark. Oil prices on Thursday were in the mid $40 range.

In Oklahoma, the state governor declared a day of prayer last month for the oil sector as the downturn for oil and gas sectors spilled over into other labor pools like manufacturing. Gross production taxes from the oil and gas sector are on pace for two straight years of contraction.

For the third quarter, Continental said its net production was about 5 percent lower than the second quarter and 9 percent lower year-on-year. Most of the decline came from North Dakota, though the company said it had curtailed production there in response to lower oil prices and was now picking up the pace.

Continental reported a net loss of $109.6 million, a loss that's 33 percent greater than the loss from third quarter 2015. In August, the company sold off some of its assets in and around the Bakken area for about $600 million in a move Hamm said helped reduce debt and strengthen the balance sheet.