Bakken Development Threats on the Horizon?

October 9, 2014 Kirk Eggleston

The Bakken is one of the most lucrative plays in the country, but there are some looming concerns for development. The good news is production growth is expected to continue.

New York City, NY-based financial information services company Fitch Ratings, Inc. published its “Bakken Shale Report” this week, which found the play had the highest oil cut among U.S. shales at 85%.

Oil production has been above 1-million b/d since April of 2014, according to the Department of Mineral Resources (DMR), and officials expect production to grow to 1.3-million b/d by 2015.

“The primary challenge for upstream companies has been to balance gains from increasing production and drilling efficiencies with strained takeaway capacity,” according to Fitch Ratings.”

The Fitch report found Bakken crude averaged ~$10 per barrel below West Texas Intermediate (WTI) in 2014, and rail is estimated to provide 60% of regional takeaway capacity and costs to ship affected spread levels.

This week, the price of Bakken crude fell to ~$73, which spurred conversation online about lower oil prices and how that could impact Bakken development. On Wednesday, North Dakota's Department of Mineral Resources Director Lynn Helms updated lawmakers on the status of oil & gas development in the state. Helms said two factors could negatively impact oil production - lower oil prices and new flaring regulations.

Beginning on June 1st, the North Dakota Industrial Commission (NDIC) began implementing its first in a series of policy changes aimed at reducing flaring in the Bakken.

The NDIC’s new “gas capture plan” (GCP) rule will require E&P companies to submit a document with their application for a permit to the commission specifying how they plan to capture gas produced from their drilling operations.

According to Fitch research, a large increase in Bakken production has disrupted traditional supply and demand balance in the region, and while pipeline capacity has struggled to keep up with volumes, Fitch expects supply and demand will begin to come more into balance in 2015 and 2016 as market participants strive to find the most economic placement for their barrels.

Occidental's Bakken Assets on the Table

October 7, 2014 Kirk Eggleston

Occidental Petroleum (NYSE: OXY) appears to be on the verge of divesting its acreage in the Williston Basin, according to a Bloomberg report, which cited "people with knowledge of the matter."

Currently, OXY has ~500,000 gross acres (~335,000 net) in the Williston Basin, and is working with investment bank Tudor Pickering Holt & Co. to sell the assets.

The company is in the process of restructuring, and could draw as much as $3-billion from the sale of its Williston Basin assets, according to Bloomberg's sources. In October of last year, OXY announced it would pursue "stategic alternatives" for the trade or sale of select midcontinent assets.

In 2012, OXY's net Bakken production was 14 Mboe/d, and in the first half of last year, it was 17 Mboe/d. Proved reserves at the end of 2012 were 87 Mmboe.

OXY has increased its focus on production from fields in the Permian Basin in Texas and New Mexico.

Vitesse Energy Grabs 19,000 Net Bakken Acres -Sept. 2014

September 30, 2014 Kirk Eggleston

Centennial, CO-based Vitesse Energy, LLC has purchased non-operated oil and gas assets in the Williston Basin from EnerVest Operating, LLC for $186.5-million. Included in the deal are working interests in approximately 600 wells and over 19,000 net acres in core Bakken Counties of Williams, McKenzie and Mountrail.

“Vitesse CEO Bob Gerrity, said, “this acquisition represents a synergistic addition to our existing high-quality acreage in the core area of the Bakken and Three Forks play, and also provides new growth opportunities in developing areas of the field where technology continues to enhance returns.”

The agreement was signed on August 1st, and closed on September 8th. Vitesse Energy, LLC is a subsidiary of U.S.-based holding company Leucadia National Corporation.

ND Regulators Hold Hearing About Bakken Crude Treatment

September 25, 2014 Kirk Eggleston

Executives at top oil and gas companies in the Bakken are fighting back against North Dakota regulators, opposing the treatment of Bakken crude before it shipped via rail, according to the Wall Street Journal (WSJ). On Tuesday, the North Dakota Industrial Commission (NDIC) heard testimony from oil executives, who claim Bakken oil is sufficiently treated at the well site. The paper first reported the NDIC would be holding hearings in August concerning further treatment of Bakken crude, which has been linked to several explosions, resulting from train derailments. Just under 70% of Bakken crude is transported out of North Dakota by rail to coastal refining markets and hubs like Cushing, OK.

Critics believe Bakken crude is dangerous, and needs to undergo stabilization. In similar plays like the Eagle Ford Shale in South Texas, crude is routinely stabilized before transport. At the hearing, representatives from the Dakota Resource Council, a nonprofit environmental group, asked for a moratorium on drilling permits, according to the paper.

The most appropriate action is probably somewhere between a moratorium on drilling permits and letting industry write its own ticket. As a matter of public safety, a thorough analysis of this issue is not unwarranted, but extreme measures to completely halt new development should be met with total disregard.

An issue not often discussed surrounding this issue is pipelines. North Dakota is woefully behind on its pipeline infrastructure. There are bascially two reasons - economics and regulation. It's cheap to transport oil by rail, and pipelines are expensive to build. For the companies that build pipelines, it can sometimes be difficult to secure commitments, and furthermore, state and federal government regulations have made building pipelines more challenging.

Ultimately, the transport of Bakken crude needs to be viewed from a standpoint of both safety and economics. It seems like common sense, and it would be nice if both the oil companies and the regulatory bodies could get on the same page in this respect.

Bentek Energy: ND Bakken Hit 1.2 Million b/d - Aug. 2014

September 23, 2014 Kirk Eggleston

Crude oil production in North Dakota's section of the Bakken Shale averaged nearly 1.2 million b/d in August, according to consultancy Bentek Energy, a unit of Platts. That's a 227,000 b/d increase over August 2013.

Combined oil production from the Bakken and South Texas' Eagle Ford Shale rose by more than 78,000 b/d in August 2014. That's a 3.1% increase over July.

Bakken oil prices are on the downward trend, and fell to the mid $80.00 per bbl mark around the first of September. Eagle Ford oil prices have been below $100.00 per barrel since the middle of August.

According to Bentek Energy, increased production from shale will help keep storage levels at the Cushing, Oklahoma oil hub on pace with domestic refinery demand.