The Unforeseen Scenario: Rig reduction, movement and sustained production

Despite the lowest rig count in years, North Dakota’s daily production has remained constant. Rig movements, efficiencies and other factors help to explain the unlikely situation.
By Luke Geiver | August 18, 2015

Comparing the current North Dakota rig count to that of four years ago is an apples to oranges scenario. The count this summer has ranged from 70 to 100, down significantly from the high 100s common the past four years. The numerical difference between then and now doesn’t indicate a massive change in oil production, however.

At a time when the rig count is at its lowest point in several years, oil production has remained consistent despite the belief by many that daily production would decrease dramatically. The belief, now disproven by May’s 70-rig production count, the state can still produce more than 1.2 million barrels of oil per day is based on the idea that as the rig count drops, the bopd also drops. 

The current fleet of drilling rigs operating in the Williston Basin is the best of the best, capable of reaching spud to total depth in two weeks, according to Lynn Helms, director of the North Dakota Department of Mineral Resources Oil and Gas Division. Many rigs operating several years ago took roughly 45 days to reach total depth. The combination of impressive rig efficiency and a better strategic approach to production has altered what many originally thought would happen with the advent of low oil prices and falling rig counts: decreased production.

For Helms, the rig efficiency and money management strategies devised by the Bakken’s operators may not increase production, but production could be sustained for several years if oil prices stay at current levels. “I think people are hoping prices increase and we can go back to growth mode. But, we are capable of sustaining production for a couple of years,” he said.

Rig Movement Ramifications
Since the beginning of the fall of oil prices into the $50 range, rigs have not only been stacked, they have been rerouted to specific areas of the Williston Basin. That area has now become a new buzz word in the Bakken known as the core. The movement of drilling rigs from the greater Williston Basin area into a specific region known for being the deepest part of the basin with the most stackable oil zones has also helped to sustain production. The core, like the drilling rigs operating today, is the best of the best for producing zones.

In May 2014, roughly 24 wells reporting for the month showed an initial production rate of 500 barrels per day or less. This year, zero wells have come in with an IP of under 500. The core is showing why it is the area of retreat for operators looking to make the most money for their reduced investment. The numbers reveal that exploration and production companies have retreated to the core. And, according to Helms, three wells have come in with IPs over 3,000 barrels per day. “The core area they are drilling in is far more productive,” he said. “Companies are still really optimistic about Bakken drilling. It is just a matter of when not if,” he said.

Along with greater rig efficiencies and the retreat into the core by most operators, pressure pumping service costs have decreased and well production costs have gone down by roughly $1 million since last year.

Production: Watching, Waiting On Price
Although drilling rigs are in the best drilling locations currently, oil prices will still impact activity levels in the play. Helms believes that completions will take place at $65/barrel and drilling activities will ramp up at $70/b. “Companies are positioning themselves for that magic price point,” he said.

But, in some cases, companies are reacting to completion regulations that stipulate a well must be completed within one year after that well reached total depth. In June, roughly 125 wells were completed due to the one year time frame. July and August only had 20 wells, respectively, in need of completion. This December and January, however, will see another 100 wells per month in need of completion due to the one-year threshold. Regardless of price or regulation, the optimism and confidence by operators in the Bakken is real. Despite the 67 percent rig count drop from the previous year, the DMR reports that there has only been a 48 percent drop in permitting applications for new wells.

Author: Luke Geiver
Editor, The Bakken magazine
701-738-4944
lgeiver@bbiinternational.com