Shale Daily / NGI All News Access

North Dakota Production Climbs; Prices Suppressed

Oil and natural gas production in North Dakota's Bakken Shale continued climbing in April, according to a state Industrial Commission preliminary report released Wednesday. A continuing supply glut wreaks havoc on prices for Bakken crude, according to an analysis from RBN Energy LLC.

With continued production growth at record levels (see Shale Daily, May 30), no real price relief is expected until 2014 when more new takeaway infrastructure is in place.

The number of producing wells jumped again from 6,932 in March to 7,025 in April, the state agency reported. Oil production hit 18.28 million bbl in April, compared 17.9 million bbl produced the previous month. Natural gas output topped off at 19.5 Bcf, compared to 19.3 Bcf in March, according to the preliminary figures released by the unit of the state Department of Mineral Resources.

There were slightly more than 800 wells capable of production that were idle according to the latest monthly totals: 7,879 capable and 7,025 actually producing during the month. The production is spread over 17 counties mostly, with the bulk of the activity taking place in four of them (Dunn, McKenzie, Mountrail and Williams).

An analysis by RBN Energy's Sandy Fielden concluded that crude oil prices obtained at the Clearbrook, MN, hub are considerably higher than crude postings -- on average by about $14/bbl, and after subtracting transportation costs of about $5/bbl from the Bakken to Clearbrook, there is a $9/bbl premium for oil aggregators that buy at the postings and sell at the hub (Clearbrook or on another less-highly traded hub).

"Larger producers that have access to pipeline capacity at Clearbrook can, of course, ship their crude on to Cushing, OK, and realize an even better price [than Clearbrook]," said Fielden in a two-part analysis, "The Bakken Buck Starts Here," outlining what is described as an "uncoupling" of the relationship between Bakken crude postings and WTI.

Fielden calculates that the uncoupling has developed because Cushing is oversupplied and pipeline capacity between the Bakken and WTI is "maxed out." Rapidly expanding Bakken production as reported again by the state and increased imports from Canada have caused the oversupply.

"The current producer price pain will only end when the supply glut evaporates, and that must wait for infrastructure access to the U.S. Gulf [of Mexico] market," Fielden said. "That reality doesn't look like it's happening now until 2014 when Seaway pipeline is expanded (see Shale Daily, March 28), the Keystone Gulf Extension is completed and new pipeline projects like Pony Express come online to expand capacity out of the Bakken."

The Bakken land grab has been running at a fast and furious pace over the last few years. According to company reports analyzed by NGI's Shale Daily, there are at least 19 companies that hold more than 100,000 net acres in the play. The top five are Continental Resources (938,940 net acres), Hess Corp. (900,000), Whiting Petroleum (701,751), EOG Resources (600,000) and ConocoPhillips (558,000).

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