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Bakken Still Premium Shale Play, But Global, Geographic Impacts Remain

The low-price correction period in the oil/natural gas sector may have helped the Bakken transition from a high-priced shale play to one of lower prices and greater value, according to Ron Ness, president of the North Dakota Petroleum Council (NDPC).

"In the downturn in prices, operators have to get more efficient, find more ways to reduce cost and boost efficiency, and I think we have done that and made the Bakken a $65/bbl, rather than a $85/bbl. shale play, which for the longer term is good to help withstand price cycles," Ness told NGI's Shale Daily on Monday.

Even though North Dakota sweet crude is some of the most geographically and geopolitically remote major shale supplies nationally and globally, the price downtown has shown it is not immune to the global energy markets, and those markets can change with impacts for everyone, Ness said during an interview following a North Dakota Industrial Commission meeting in which an array of state-funded oil/gas research projects and administrative rules were reviewed.

"The Bakken is still in the top one or two world class energy resources in the asset portfolios of all these producers," Ness said. "It still has an economic price, and price is what determines the level of investment.."

In these extreme price-sensitive times, Ness contends the Obama administration nuclear deal with Iran that pushed that nation's crude supplies back into the world market to a bigger extent had a significant negative impact on Bakken producers. "I think the Iran deal had a significant impact the first part of this year," he said. "The concerns and potential concerns to markets sometimes are of more dramatic than the actual event itself, and that was probably the case here because that oil probably would have found a way to market anyway," he said.

"The ramifications and build up to it led to a lot of false beliefs in terms of what the inventories would be. Certainly that deal did not help us one bit at a time when we did not need it one bit."

North Dakota's chief oil/gas regulator, Lynn Helms, during a separate interview echoed some of Ness' comments, noting that state officials responding in early 2015 to the oil price crash did not consider the additional impact from Iran.

"We've learned you have to plan for the mid- and long-term, but you also have to protect yourself for the near-term collapses in commodity markets," said Helms, director of the state Department of Mineral Resources, who ascribes the "second-leg" or lengthening of the current price downturn to the Iranian deal.

In late 2014, when North Dakota's legislature was tempering state budget forecasts for the collapsing oil prices "all of the experts said [the Iran deal] was of very low probability, and no one expected the Iran deal to happen," Helms said. 'But it did, and we got the second leg of this thing, and it was deeper and much worse even than OPEC expected."

Ness sees all of this year as a "tough one" for Bakken producers because prices will fluctuate and mostly below what is needed for more economic activity, so he sees a period of "continuing hunkering down." He sees the ramp up coming in $5/bbl increases in prices with the first $5 increase going into operators' balance sheets; the next $5 for bringing idle wells back online, and waiting until mid-2017 to "get back out to the investors on Wall Street."

While promoting the high value of Bakken supplies as a world resource, Ness acknowledges that North Dakota's relative remoteness hurts in maintaining an adequate oilfield workforce in these current down times. "Our work force is substantially different than it is in the Eagle Ford, for example. In the Eagle Ford you're over some old gas fields, and you have immediate access to markets," he said.

"The nature of the build out of the infrastructure changes dramatically once you know you have a good market for your product, and here [in North Dakota] that has always been a big challenge."

In response over the past decade, Ness said the NDPC has kept up a steady stream of programs to help producers with attracting a talented, albeit transitory, workforce, and the state and industry have invested billions of dollars in new highways and natural gas pipeline and processing infrastructure, respectively.

"We've spent $13 billion on natural gas infrastructure since 2007, and we still have more to go, but that is a staggering number."

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