North Dakota Breaks Records for Oil & Gas Activity - Sep. 2014

November 20, 2014 Kirk Eggleston

The State of North Dakota hit 1,184,635 b/d oil in September 2014, setting a new record, according to the Department of Mineral Resources’ (DMR) November Director's Cut. That's 50,000 more b/d than August. During the same month, North Dakota also had record monthly gas production (1,403,448 mcf/d), and reported the highest number of producing wells to date (11,741).

But this month, the state's record breaking oil and gas activity is overshadowed by falling crude oil prices. September was a relatively good month for oil at ~93.00 on average for a barrel of West Texas Intermediate (WTI), but prices have dropped nearly ~$20 in the last two months.

According to the DMR's report, released on November 14, 2014, the current rig count is down 15% in the states five most active counties:

Divide - down 54%
Dunn - down 29%
McKenzie - down 4%
Mountrail - down 24%
Williams- down 19%

DMR Director Lynn Helms blames the recent drop in the Bakken rig count directly on lower oil prices. The cost of drilling a Bakken well is high - anywhere between $8-million to $9-million. If the price of oil continues to fall, some producers, depending on their location in the play and a host of other factors, will scale back their Bakken drilling programs.

Flaring Down in North Dakota Bakken

The natural gas flaring rate dropped from 27% in August to 24% in September. By comparison, the highest flared percent of natural gas was 36% in September of 2011.

New regulations have called for producers to reduce flaring to below 26%, starting with their October production figures. Helms recently pointed out that in addition to lower oil prices, flaring regulations could also impact Bakken development, because producers may face production restrictions if they fail to meet the new standards.

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.

Seismic Activity Up in North Dakota Bakken, But Leasing is Down

Seismic activity is up with seven surveys active or recording and five permitted. New leasing on the other hand has dropped off sharply. Most leases consist of renewals and top leases in the Bakken - Three Forks area.

Bakken Development Threats on the Horizon?

October 9, 2014 Kirk Eggleston

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.

“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.

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.

ND Regulators Hold Hearing About Bakken Crude Treatment

September 25, 2014 Kirk Eggleston

Executives at top oil and gas companies in the Bakken are fighting back against North Dakota regulators, opposing the treatment of Bakken crude before it shipped via rail, according to the Wall Street Journal (WSJ). On Tuesday, the North Dakota Industrial Commission (NDIC) heard testimony from oil executives, who claim Bakken oil is sufficiently treated at the well site. The paper first reported the NDIC would be holding hearings in August concerning further treatment of Bakken crude, which has been linked to several explosions, resulting from train derailments. Just under 70% of Bakken crude is transported out of North Dakota by rail to coastal refining markets and hubs like Cushing, OK.

Critics believe Bakken crude is dangerous, and needs to undergo stabilization. In similar plays like the Eagle Ford Shale in South Texas, crude is routinely stabilized before transport. At the hearing, representatives from the Dakota Resource Council, a nonprofit environmental group, asked for a moratorium on drilling permits, according to the paper.

The most appropriate action is probably somewhere between a moratorium on drilling permits and letting industry write its own ticket. As a matter of public safety, a thorough analysis of this issue is not unwarranted, but extreme measures to completely halt new development should be met with total disregard.

An issue not often discussed surrounding this issue is pipelines. North Dakota is woefully behind on its pipeline infrastructure. There are bascially two reasons - economics and regulation. It's cheap to transport oil by rail, and pipelines are expensive to build. For the companies that build pipelines, it can sometimes be difficult to secure commitments, and furthermore, state and federal government regulations have made building pipelines more challenging.

Ultimately, the transport of Bakken crude needs to be viewed from a standpoint of both safety and economics. It seems like common sense, and it would be nice if both the oil companies and the regulatory bodies could get on the same page in this respect.

Bakken Natural Gas - Too Much of a Good Thing?

September 17, 2014 Kirk Eggleston

The oil & gas renaissance in the U.S. has nearly catapulted the country to the top spot for oil production in the world, and most experts believe the U.S. will hit this target by next year. But is it possible that the country and the Bakken has too much of a good thing? When it comes to natural gas that may be the case.

According to the BP 2014 statistical world energy review, the U.S. is currently the top natural gas producing country in the world at 328 Bcf/d. Over the past five years, natural gas production has grown over 20% in the U.S., thanks in large part to the shale revolution. But the price of natural gas has struggled to break $4/mmbtu, and oil companies in North Dakota's and Montana's Bakken Shale and the Eagle Ford Shale in South Texas have flared much of their produced natural gas in favor of capturing oil, which is a much higher valued commodity. Currently, the WTI price of crude oil is hovering around $95/bbl.

In North Dakota, where production from the Bakken Shale is highest, the state flares just under 30% of its produced natural gas. Recently, the first of several new rules has been enacted in the state to combat flaring. The North Dakota Industrial Commission (NDIC), the state's regulatory body for the oil and gas industry, hopes to capture 90% of Bakken natural gas by 2020; however, serious infrastructure improvements, including gas gathering systems and natural gas pipelines will need to be implemented in the Williston Basin for this goal to be achieved. The alternative could mean operators will need to shut-in wells to meet flaring guidelines - that's bad news for them, the state and mineral owners.

What this boils down to is the U.S. has an abundance of natural gas, which is a good thing. The bad thing is the country lacks the infrastructure to capture all of it.

With world usage of natural gas accounting for 24% of all primary energy consumed, there is decidedly a market for natural gas. But the only effective way to transport natural gas to foreign markets is to liquify it, which is costly. Ultimately, natural gas production is subject to the free market. As long as the price stays low, there's less economic benefit for operators to produce it, and companies to transport it and market it.

North Dakota Hits Record Oil & Gas Production - June 2014

August 20, 2014 Kirk Eggleston

The State of North Dakota hit nearly 1.1-million b/d oil in June 2014, setting a new record, according to the Department of Mineral Resources' (DMR) August Director's Cut. During the same month, North Dakota also had record monthly gas production (1,253,154 mcf/d), and the highest recorded number of producing wells (11,079).

In April, North Dakota crossed the milestone 1-million b/d oil mark. The Bakken region, which includes portions of western Montana, exceeded the 1-million b/d mark at end of last year according to the Energy Information Administration (EIA). It is the fourth region, along with the Gulf of Mexico, Eagle Ford, and Permian basins, producing more than 1 million b/d in the nation.

About 28% of gas produced in May and June was flared, despite the completion of Hess' Tioga Gas Plant expansion in May 2014. DMR officials noted the plant has been operating below full capacity due to the delayed expansion of gas gathering from South of Lake Sakakawea.

The expansion project, which is part of a $1.5 billion investment Hess has made in the area for infrastructure improvements, began processing about 120-million standard cubic feet of gas per day (mmscf/d) in May, according to Hess. The company expects the plant will process at least 250 mmscf/d with the potential to increase beyond 300 mmscf/d.

Highlights from August 2014 Director’s Cut

May Oil – 1,040,469 b/d
June Oil – 1,092,617 b/d
May Gas – 1,192,860 mcf/d
June Gas – 1,253,154 mcf/d
May Producing Wells – 10,902
June Producing Wells – 11,079
28% of produced gas in May and June flared