While the 12 counties with Bakken production between North Dakota and Montana have lost the majority of their horizontal rigs over the last eight months, core areas of the shale play remain attractive, especially as oil prices creep toward $70 per barrel, according to an analyst with research and consulting firm GlobalData.
According to Jonathan Lacouture, GlobalData’s Upstream Analyst for Onshore Americas, IP30 rates, which measure a well’s average production over its first 30 days of active life, show that there are clear productivity differences between each county.
“Mountrail and Mckenzie counties both possess median IP30 values of 550 barrels per day, between 17 and 50 percent greater than the other counties [that]contain productive Bakken areas,” Lacouture explains. “Both counties possess break-even prices that still generate profit in the current market. However, the margin of this financial gain is dramatically lower than the same date last year. This is reflected starkly by the over 50 percent drop in active rigs capable of multi-stage lateral drilling in the Bakken.”
The analyst adds that rig activity will likely remain depressed until prices are up to twice their break-evens. Rig counts have already begun to level off in core areas as the price continues to slowly rise and economic returns increase with it.
“The scalable nature of the Bakken affords it a flexibility, which allows marginal cost barrels to be gradually added or removed as quickly or slowly as prices allow,” Lacouture continues. “However, the more frontier counties, which have lost virtually every active rig, may not see renewed exploration and production efforts in the near term, as they require higher oil prices to remain worthwhile investments.”
Bakken crude also sells at a relatively large discount to WTI crude due to high transportation costs, contributing further uncertainty to already wary investors and operators.
“If a given Bakken well produces over 50 percent of its total estimated ultimate recovery in the first nine months of activity,” Lacouture concludes, ”withholding on drilling and completing wells by a few months to a year, until prices climb to, say, above $70 per barrel, will prove more economically fruitful than the alternative.”