North Dakota’s Bakken Shale is all grown up. It’s an oil powerhouse, second only to Texas in production.

In September, North Dakota produced more than 1.18 million barrels of oil per day (bbl), according to a Nov. 14 Department of Mineral Resources (DMR) report. It was another record high for the state. About 1.12 MMbbl/d is produced in the Bakken/Three Forks.

Operators have drilled 9,000 well in the state, and since 2010 the Bakken has put up double-digit growth year after year.

But the Bakken is nearing its peak, according to a report by Bob Brackett, senior analyst, Bernstein Research.

“Our model predicts that Bakken production will peak at about 1.4 million barrels of oil equivalent per day (boe/d in) 2016,” he said.

After that point, new wells drilled per year will begin to decline.

The Rise And Fall Of Bakken Growth

Year

Total Production (Mboe/d)

Production Growth (Mboe/d)

Growth (%)

2009

171

2010

283

111

65%

2011

425

142

50%

2012

723

298

70%

2013

964

241

33%

2014

1,222

257

27%

2015

1,352

131

11%

2016

1,369

17

1%

2017

1,341

-28

-2%

2018

1,252

-89

-7%

2019

1,108

-144

-11%

2020

971

-137

-12%

For years, drilling increased gradually before the pace of rigs opened up all the way.

In 2006, the state had 35 rigs drilling. By 2012, there were 200, although the number of new wells added per year appears to have reached a plateau in late 2012, according to Brackett and the DMR.

The ascent in production followed.

North Dakota’s first barrel of oil was produced in April 1951, and 38 years later it reached its first billion barrel milestone. Another 22 years passed before the second billion barrel mark was reached in November 2011.

Industry and technology have moved things along. The third billion barrel of crude is due by 2015, just four years from the last milestone.

The play’s well count “points to the fact that the Bakken is more mature than, let's say, the Eagle Ford Shale,” he said.

Setbacks

The Bakken has plenty of life left.

For the most part, oil exceeds about 80% of production across the play.

But the Bakken has also proven itself a tricky place to navigate, from moving crude by rail to finding a spot to drill profitably.

Production was initially trapped in the state until train shipments started moving oil out until enough pipeline capacity was available.

However a series of rail accidents culminated in a December 2013 fire ball rising above Casselton, N.D. A BNSF train carrying oil struck an already-derailed grain train about one mile west of the town, causing a massive explosion and thick black clouds of smoke.

On Nov. 13, the North Dakota Industrial Commission moved forward on plans to adopt new conditioning standards to improve the safety of Bakken crude oil for transport. The order requires operators to separate light hydrocarbons from all Bakken crude oil to be transported. It prohibits the blending of light hydrocarbons back into oil supplies prior to shipment.

The Bit Drills On

Making money in the Bakken can be a hit or miss proposition.

In the state’s top counties, some drilling operations are economical at $80/bbl WTI, Brackett said. The lowest 10% of locations are money losers even at $100/bbl.

The Bakken’s top operators are Whiting Petroleum Corp. (NYSE: WLL), EOG Resources (NYSE: EOG) and Hess Corp. (NYSE: HES). They’re set apart by many criteria, including the ability to exceed expected peak production rates where they operate.

Each also has the highest peak month revenue per well.

Bernstein Research’s Top 10 Bakken Operators

Company

Ticker

Well

Locations

Revenue by

well ($MM)

Rank

Whiting

WLL

1165

$52.49

1

EOG

EOG

571

$68.28

2

Hess

HES

835

$56.11

3

Marathon Oil

MRO

435

$47.26

4

ConocoPhillips

COP

442

$57.46

5

Statoil

STO

471

$58.69

6

Oasis

OAS

543

$44.86

7

ExxonMobil

XOM

627

$41.70

8

Continental

CLR

1166

$42.66

9

Occidental

OX Y

252

$36.92

10

In July, WLL said it would acquire Kodiak Oil & Gas Corp. (NYSE: KOG) for $6 billion, creating the largest Bakken/Three Forks producer with more than 107,000 boe/d based on the first quarter of 2014.

Whiting’s wells have slightly lower peak rates but make up for it with significantly slow decline rates. Adding KOG’s wells post-acquisition makes it the top operator in the Bakken, followed closely by EOG, Brackett said.

“EOG's wells have high average revenues compared to other major operators,” Brackett said. “EOG is not as levered to the play as WLL, but its results are impressive and, moreover, consistent.”

Brackett said the top Bakken counties in North Dakota are Mountrail, McKenzie, Dunn, Williams and Divide, along with Richland County, Mont.

Mountrail and McKenzie have the highest peak rates and Mountrail is particularly oily. Wells in Mountrail, McKenzie, Dunn and Williams all have revenues that peak at a minimum of $1 million per month.