Bakken Development Threats on the Horizon?

Bakken Oil Workers
Bakken Oil Workers

The Bakken is one of the most lucrative plays in the country, but there are some looming concerns for development. The good news is production growth is expected to continue.

New York City, NY-based financial information services company Fitch Ratings, Inc. published its “Bakken Shale Report” this week, which found the play had the highest oil cut among U.S. shales at 85%.

Oil production has been above 1-million b/d since April of 2014, according to the Department of Mineral Resources (DMR), and officials expect production to grow to 1.3-million b/d by 2015.

Read more: North Dakota Hits Record Oil & Gas Production

The primary challenge for upstream companies has been to balance gains from increasing production and drilling efficiencies with strained takeaway capacity,” according to Fitch Ratings.

The Fitch report found Bakken crude averaged ~$10 per barrel below West Texas Intermediate (WTI) in 2014, and rail is estimated to provide 60% of regional takeaway capacity and costs to ship affected spread levels.

This week, the price of Bakken crude fell to ~$73, which spurred conversation online about lower oil prices and how that could impact Bakken development. On Wednesday, North Dakota's Department of Mineral Resources Director Lynn Helms updated lawmakers on the status of oil & gas development in the state. Helms said two factors could negatively impact oil production - lower oil prices and new flaring regulations.

Beginning on June 1st, the North Dakota Industrial Commission (NDIC) began implementing its first in a series of policy changes aimed at reducing flaring in the Bakken.

The NDIC’s new “gas capture plan” (GCP) rule will require E&P companies to submit a document with their application for a permit to the commission specifying how they plan to capture gas produced from their drilling operations.

Read more: NDIC Implements New Bakken Flaring Rule

According to Fitch research, a large increase in Bakken production has disrupted traditional supply and demand balance in the region, and while pipeline capacity has struggled to keep up with volumes, Fitch expects supply and demand will begin to come more into balance in 2015 and 2016 as market participants strive to find the most economic placement for their barrels.