With oil prices now in the mid-$50/bbl range, a new landscape in North Dakota's Bakken Shale play has emerged with operators moving more rigs out to the fringes and the market for natural gas products being re-energized, according to top state energy officials.
In a recent monthly production report, state officials also noted that operators in the Bakken are beginning to see direct benefits of the Trump administration's policies that allowed the opening of the Dakota Access Pipeline (DAPL) and the bottom line economic incentives for oil/gas operators from the recently enacted federal tax reform act.
As a result of the latest price spurt, North Dakota is now looking at 44% more acreage that is economic. Consequently, officials are expecting rigs to be placed along the fringes of the core Bakken, according to Justin Kringstad, director of the North Dakota Pipeline Authority.
"We're looking at more acreage that could be considered as economic for producers to develop," Kringstad told a monthly production webcast hosted by the state Department of Mineral Resources (DMR) on Jan. 16. "[But] just because it is economic doesn't mean it is the most economic [for specific producers].
"We'll likely continue to see activity focused on the prime portions of the state, but we should expect those rigs to move outward to areas that wouldn't have been considered economic a year earlier."
As oil prices fluctuate but trend upward, Kringstad said rigs, activity and completions will move outside of where everything has been focused over the past two or three years. In the anticipated outward movement of drilling activity, he reiterated that pricing is the first and foremost driver.
"For example, if you look at 500-b/d wells, it takes between $49-$61/bbl to be economic. So a year ago, when prices were at $40/bbl, you couldn't drill a 500 b/d well; it wasn't economic. But now, as prices have risen, operators are able to move into portions of the play that aren't capable of high producing wells, but they can still produce good wells that as the higher price points become economic.
Technology is the other motivating factor, Kringstad said, noting that recent improvements have made wells that were not economic a year ago with break-evens of $60/bbl now economic because technology has lowered the break-evens to around $50/bbl today.
Kringstad said natural gas liquids (NGL) development in North Dakota is strengthening for either future in-state development or for sale to petrochemical plants out-of-state. "As we move forward, I think there are enough NGLs to not only be used in-state, but also for connecting to markets out of state as various pipeline systems develop and interconnectivity increases," he said.
Gas volumes from flaring remained relatively high in November, the most recent month for complete statistics, sitting at about 282 MMcf/d. Lynn Helms, director of the state DMR and the state's chief oil/gas regulator, said that at current prices there are going to be more economic incentives to use gas supplies associated with oil production, rather than to flare them.
"The recent flaring volumes represent enough supply for almost three conventional gas processing plants," Helms said. "There is obviously investment opportunity here, and I think it is encouraging that now with better NGL pricing, it is actually profitable to gather and process natural gas again. That wasn't the case for all of 2016 and most of 2017."
Helms added that the DAPL oil pipeline project has "completely changed the world for North Dakota operators." Most of the Bakken operators are now receiving West Texas Intermediate (WTI) prices or WTI with a premium with the added takeaway options offered by DAPL. "It has shifted economic interest back toward North Dakota in terms of oil prices, and made us highly competitive with the Eagle Ford and Permian Basin," he said.
In a similar vein, the federal tax reform has "pumped up the bottom line" for many of the large independent oil producers in the Bakken, Helms said. "When you look at many of the other [Trump administration] regulatory reforms, it has been a lot slower and harder."
A major power outage struck the core of the Bakken Shale in McKenzie County, ND, earlier this month, impacting multiple compressor stations and nearby producing wells. Helms said gas processing plants in the area were able to get through the outage by using onsite backup power sources, but with compressor stations shut down the processors were "starving for gas supplies." Helms said production was impacted for nearly two weeks and that production totals for January may be lower as a result.