North Dakota’s Bakken Shale is experiencing a small respite from a downward slope in production that started earlier this year.

Oil production in May, compared with April numbers, rose by about 32,000 barrels a day (bbl/d) to an average of 1.2 MMbbl/d. That is close to the state’s all-time high reached in December 2014, according to the North Dakota Department of Mineral Resources (NDIC).

The industry is going to find it "pretty easy" to continue to produce 1.2 MMbbl/d of oil for the next two years, Lynn Helms, NDIC director, said during a recent webinar. He added that 925 wells are currently operating in the state.

Gas volumes in North Dakota also increased by roughly 98 million cubic feet per day (MMcf/d) to a new all-time high of 1.63 Bcf/d.

Bakken, shale, oil, production, rig count, Wood Mackenzie Helms said the "fantastic four" takeaways from May production number include:

  • Doubling the rig efficiency of 2013;
  • 25% better initial production rates than 2014;
  • Per well costs down $1 million and dropping; and
  • Gas capture up to almost 83%.

Rig Count

The rig count declined by eight from April to May, and fell by 10 more by July 10. Seventy-three rigs are currently operating in the state. This is a far cry from 190 rigs operating in 2014.

"We can’t really compare 73 rigs to 190 rigs even a year ago because those remaining rigs are just so very, very good at what they do," Helms said.

With improving rig efficiency, North Dakota will likely not see 190 rigs again. On top of that, a permanent loss of at least 500 jobs is expected, according to Helms.

Despite a 67% drop in rigs from 2014 permit applications have only decreased by 48%, which shows a glimmer of optimism among Bakken drilling companies.

“It’s more a matter of when, not if” drilling will take off again, he said. “What we see companies doing is positioning themselves for those magic price points.”

According to Helms, fracking crews will start to come out when West Texas Intermediate (WTI) crude oil is at $65 per bbl, which is the point where price is sustainable in the Bakken. At $70 per bbl, the drilling rigs will go “back to work in a more significant way,” he said.

Although recent oil prices have been in the $50-60 range, companies are doing what they can to sustain production and cash flows with as few rigs as possible, Helms stated. A handful of companies in North Dakota have gone to running zero rigs some weeks and one rig occasionally.

The vast majority has only been reductions in rigs, though Occidental Petroleum Corp. (OXY) and Slawson Exploration Co. Inc. completely quit drilling, he said. Marathon Oil Corp. (MRO) almost quit, but is still running one rig. Savanna Energy Services Corp. occasionally runs one rig, but sometimes runs zero, as is the case with WPX Energy Inc. (WPX).

"I think people are hoping prices increase and we can go back into a growth mode," he said. "But we’re capable of sustaining production for a couple of years."

WPX said last month it plans to increase its activity in the Williston Basin during the second half of 2015.

WPX has more than 85,000 net acres in the core of the basin and reported proved reserves of 119 MM/boe for its Williston operations at year-end 2014. The company currently has an inventory of 14 Williston wells awaiting completion.

WPX currently has one rig deployed on its Williston acreage. The company plans to go with a second rig in August, starting with a four-well pad, and a third in November.

“The combination of cost reductions and higher EURs gives us the opportunity to generate returns in excess of 30% in today’s commodity price environment,” said Rick Muncrief, WPX president and CEO, in a news release.

Funding for additional Williston activity is primarily derived by redeploying cost savings the company is incurring and reallocating capital from its Piceance Basin operations to its Williston development. “We’re realizing the value we have on this acreage to a fuller extent through technical excellence, improving the way we develop the asset and looking at the operations through a new lens,” Muncrief added.

Backlog Of Wells

NDIC has been managing uncompleted wells carefully, Helms said.

June was the first month companies started hitting the one-year limit on completions with 125 wells. However, twenty companies violated production agreements. "They’ve got a brief period of time here. They’ve got six months to get that well on production or get approval to temporarily abandon the well or to plug it," he said.

If the companies don't act in the six-month time limit they have to post a bond, which costs $200,000 plus per well. “There's going to be a lot of pressure on them to get those wells on production before the end of the year,” he said.

Completions activity will be weighted to the latter part of the year, according to a Wood Mackenzie report.

Similar to WPX, Wood Mackenzie predicts some operators will increase the number of rigs targeting the Bakken before the end of 2015.

“While other firms have suggested that Bakken production will roll over in 2015 as a result of the recent drop in rig count, we continue to stress that acreage high-grading and more efficient drilling and completion services will enable modest production growth over the next few years,” Wood Mackenzie stated.

Contact the author, Emily Moser, at emoser@hartenergy.com.