Countering recent reports that drilling activity in the Bakken Shale play in North Dakota was being cut back, an analyst with Standard & Poor's Ratings Services (S&P) told NGI's Shale Daily Monday that drilling and production was still "full steam ahead," although margins may compress some next year.

"I really haven't seen any of a slowdown," said Carin Dehne-Kiley, a New York-based S&P analyst watching the oil/gas sector. "There are upward pressures on costs, but things are still moving there. Activity there is going to be so robust for the next several years. It seems like every company we speak to is still ramping up activity in [the Bakken]."

She said S&P is assuming at least a 10% increase in costs for the Bakken in 2012, primarily due to higher hydraulic fracturing (fracking) costs. "To mitigate that, we are seeing some companies locking in frack crews under contract or even adding their own fleets."

Dehne-Kiley thinks recent history has showed that things don't really slow down until oil prices dip below $50/bbl. For the companies S&P follows, the drilling rig counts are supposed to be up or the same as this year in 2012, she said.

With Bakken being mostly shale oil -- not gas -- the situation may be different than some other major shale plays that are more heavily into dry gas.

"In the dry gas formations, the rig counts probably held up better than expected this year because you had people with hedges and drilling to hold acreage in the play, but we think the counts in those plays are going to drop next year," said Dehne-Kiley, noting this applies more to Haynesville and less to Marcellus where its geographical proximity to eastern markets helps.

"That geographical closeness to the East draws a premium over Henry Hub prices," she said. "That helps the Marcellus relative to Haynesville. But anytime anyone has a liquids-rich or oil-rich play in their portfolio, they will drill that first."

Data shows that drilling activity in the Bakken/Sanish/Three Forks play is actually on the upswing. According to NGI's Shale Daily Unconventional Rig Count for the week ending Nov. 18, there were 199 rigs in operation, which is down 1% from the 200 rigs in operation one week earlier, but up 4% from the 192 rigs a month ago and up 28% from the 156 rigs in operation for the similar week one year ago.

While she thinks that the Permian Basin has come up a lot, the Bakken is still the "hottest" of the shale plays, Dehne-Kiley said. "The wells [in the Permian] don't come on as big, or at as high a rate, as in the Bakken, but a lot of producers already have existing acreage there, so it is attractive without having to pay a big premium to get in, and the infrastructure is already there, and in many cases they can move the same rigs they used for gas over to the Permian and drill for oil."

In addition, Permian wells are mostly vertical and don't require the more costly, high-horsepower rigs, she said.

In terms of margins, S&P expects some compression next year in the Bakken. The rating agency is projecting oil prices in the $80/bbl area, compared to the $95/bbl average so far this year.

"We have heard anecdotally that costs are up 20% or so this year, with about half of that due to price inflation [mainly fracking costs] and half due to longer laterals," Dehne-Kiley said. "Importantly, the longer laterals should result in higher IP [initial production] and EURs [estimated ultimate recovery], so [they] could actually improve margins and returns."