The Bakken has some stiff competition, and various factors could be detrimental to the fate of production in North Dakota. Infrastructure and workforce challenges, falling oil prices, and many more states to drill throughout the U.S. are top concerns for the industry and government leaders.
Dr. Loren Scott, an economist and president and founder of Loren C. Scott & Associates, shared the keynote address at the North Dakota Oil and Gas Producing Counties annual meeting in Williston on Sept. 19 and told community leaders they should be worried about oil prices and the competition arising in the Wolfcamp Shale play of Texas and New Mexico.
“There are now 20 states that want wells and you’re having to compete with them,” Scott said. “In the old days, when there were only five producing states, (operators) had nowhere to go. You always have to balance how much you’re going to tax and regulate going forward.”
In a KLJ report presented to a legislative committee on Sept. 18, Chief Executive Officer Niles Hushka gave statistics that indicate the state must support infrastructure needs so communities in the core of the Bakken can meet goals of affordable housing, sufficient staffing and social infrastructure such as day care, mental health services and schools. Another study conducted for the North Dakota Association of Oil and Gas Producing Counties by DAWA Solutions Group and Jadestone Consulting concluded that industry has alternatives in other states if it is unable to recruit workers to North Dakota due to housing and social economic shortages (see related story, page 3).
Scott explained that the Wolfcamp is a massive play 3,500 to 4,000 feet thick holding 50 billion barrels of oil. But the good news for North Dakota is that the Bakken is relatively cheap to harvest and with a breakeven oil price hovering around $50 a barrel, it is comparable to Eagle Ford’s $49 breakeven price.
“You don’t want the price of oil suddenly coming down,” Scott said. “You always have to worry about this; you don’t want it near or below $50.”
He said natural gas prices will likely remain low because the chemical industry is a huge user of natural gas and formerly coal-driven companies are switching to natural gas. “The world demand for chemicals is still high. Our share of that pie is growing like crazy,” he said.
Adjusting to a new normal
Hushka explained that in the Bakken, fields are consolidating so oil companies are often assigning the operations to a single company in an area, and development is seeing acquisitions like Whiting with Kodiak which allows greater expertise and combined knowledge. He also sees a growth in automation within the next five years as employees become more difficult to retain. A critical struggle midstream companies are encountering is regulations with bordering states. While a pipeline may be approved in North Dakota, Minnesota or South Dakota may not be as willing, and a project often hits roadblocks. For instance, the Enbridge Sandpiper project is delayed in Minnesota as that state’s regulators change levels of enforcement, and South Dakota is not very experienced in the siting process, Hushka said. Meanwhile, he said Montana has proved to be impossible to gain pipeline approval due to the regulatory requirements in the state.
“That’s capped off our western edge so we need to make sure South Dakota stays friendly,” Hushka said.
If pipeline projects are delayed, rail transportation may not always be the answer, either. Hushka said local crude oil train regulations could prohibit trains going through certain cities which would pose a problem for moving Bakken crude. As part of a panel representing operators at the association’s annual meeting, Danette Welsh of Oneok said the problem is fortunately being addressed by those with a voice in Washington.
“Our federal delegation is doing a very fine job of trying to carry that message at the federal level of getting states to understand the decisions they make regulatorily at the state level, and even at the local level, are impacting our energy infrastructure as a country and they have to stop using that to stop energy production and energy transmission across the country,” Welsh said.
Activity projections
Affected by the challenges, the industry is zeroing in on strong production areas in western North Dakota. At the association meeting, the state’s Department of Mineral Resources Director Lynn Helms gave his annual production projections update to the group saying activity is picking up in the core areas of the Bakken, but with oil prices dipping, some counties on the edge are becoming uneconomical. For instance, Billings County production is slowing since economics are weakening and due to softening oil prices in the next couple of years, activity could be quiet. But Helms also said by then the crude by rail issues should be resolved, more pipelines will be installed and more refineries will be operating. But Dunn, McKenzie and Mountrail counties can expect higher rig counts and faster infill drilling.
“Action is going to pick up (in McKenzie County),” Helms said. “It’s only 5 percent below its peak and we don’t see any break in that action until 2025. Wells in eastern McKenzie County are off the charts. They’re world-class wells.”
Helms also noted the importance of the return of EOG Resources to Mountrail County.
“They went off and stuck a tremendous amount of money in the Eagle Ford … now they are looking at 400-foot inter-well distance in Parshall field so rig count in Mountrail will be quite strong,” Helms said.
He said operators experimented this summer in several fields in the core area of the Bakken with inter-well distances of 600 feet or less. In those areas, operators anticipate drilling 32 to 48 wells in a spacing unit.
“The lowest density that anyone sees anywhere is seven wells in a spacing unit,” Helms said.
This puts the state at the 1.4 million barrels per day mark by the end of the next biennium, according to Helms. Hushka told the legislative committee that projections indicate hitting 2 million barrels a day by 2019. Helms figures when the state produces 2 million barrels of oil per day, it will last about a decade. If enhanced oil recovery becomes more viable, that would change the statistics considerably as operators are only currently recovering about 10 to 15 percent of the oil available.
