A Williston Basin Petroleum Conference Unlike Any Other

The 2016 Williston Basin Petroleum Conference was unlike anything the Bakken's vast group of companies and participants have ever experienced. Here is a breakdown of the event and takeaways.
By The Bakken Magazine Staff | July 22, 2016

The 2016 Williston Basin Petroleum Conference was unlike anything the Bakken’s vast group of companies and participants have ever experienced. This year’s mainstay Bakken gathering was held in the midst of the longest oil price slump in the Bakken’s history. It also took place during the nation’s presidential primary election races. Despite the price of oil, the mood and general consensus on the exhibit floor, delivered on the mainstages and in the hallways weaving throughout the venue were similar, and in some ways, unexpected. The 2016 WBPC had a positive sensibility. People were talking about projects currently happening and sharing their perspective on what they could have been, wanted to or were doing―instead of what they weren’t.

From the presentations to the Donald Trump presser, The Bakken magazine team was immersed in the WBPC throughout the event. The following highlights the main storylines from the event, and what all can expect in the Bakken throughout 2016 and 2017 according to those at the WBPC.

The 500-Mile Race
To explain the current state of the Bakken and how it will look in the years ahead, Lynn Helms, director of the North Dakota Department of Mineral Resources, told attendees to think of the Bakken like a race and a gear shifter. “We are at lap 100 of a 500 mile race,” Helms said, adding that, “if you take a five-speed shifter and replace it with oil prices, you get a sense of what is going to happen going forward.”

In essence, the price of oil can move the hypothetical Bakken gear shifter forward or in reverse. At $35 per barrel oil, Bakken activity levels will be shifted in reverse. At $40/b, activity levels will stay neutral with previously shut-in wells being put back online. At $40, workover rigs will also be mobilized. The drilling of new wells—and the average of 120 employees that accompany the process—will not take place until oil steadies at $60/b. If $60/b is a cruising pace, $70/b will be much faster, he said.

With only 11,000 wells currently drilled, the Bakken race still has to reach 65,000 wells to be near a finish. The DMR currently has 31,000 new wells already permitted and waiting for higher oil prices or other industry variables to change. In some ways, Helms believes the industry has already begun to work at stopping their continual chase of the oil price. With well costs down 30 percent across the play and the average well production up 20 percent, the cost to produce a barrel of Bakken crude is down roughly 60 percent, he said. “This will be a more efficient and better oil patch moving forward.”

Next year, North Dakota will most likely have 50 drilling rigs operating and in 2018, the number should double.

The Real Rig Count
Bruce Hicks, assistant director to Helms, explained what the state’s rig count truly reflects. In 2009, a single drilling rig operating in the Bakken could drill 8 to 10 wells per year per rig. In 2016 however, a single rig can drill 20 to 24 wells in the Bakken per year per rig. Today’s rig count, Hicks said, can drill just as many wells per year as almost double the amount of rigs could in year’s past.

Entering The Bakken Is Still Ideal
Jim Arthuad, CEO of MBI Energy, spoke in tandem with Ernie Graham, a real estate developer that has worked in various oil plays. Both explained why the Bakken remains an attractive place to work and invest regardless of oil price. The Bakken has billions of barrels of oil and trillions of cubic feet of gas waiting to be mined, an undertaking that will take a lot of people, resources and time, said Graham. “Don’t bail on the Bakken. Things will get better,” he said.

According to Graham, the current activity slow-down is at least half-way through. The Bakken presents many opportunities to those that want to enter the play as well, including those looking to purchase land. Land that was selling for $15 per square foot a few years ago is now selling for $3/sq. ft.

Arthuad is focused on adding skilled and talented workers to his team that may have been displaced from other organizations. The move is crucial to long-term success, he said, based on the probability of future activity pace. According to both Arthuad and Graham, a comeback will not be slow and gradual.

Finding The Right Storyline
North Dakota Gov. Jack Dalrymple said that outside media coming to find a bust in North Dakota are struggling to do so. “We see the industry going on for decades and decades to come,” he said, despite recent statewide budgetary shortfalls linked to lower tax revenues from oil and gas activity. Part of the greater Bakken story, he added, is the impact it has had on the state’s other industry’s—both new and old. “This [the Bakken] has been an opportunity for the entire state of North Dakota and we have used these dollars wisely.” The wells drilled but uncompleted are the greatest economic hindrance to the state’s oil-based revenue.

$100 Oil Ever Again?
John Gerdes, managing director and head of research for the KLR Group, believes that by 2018 or 2019, the price of oil could be $100/b. The average price of oil should stabilize around $80/b based on energy demand in India and China. Eventually, by approximately 2030, world oil demand will be 110 to 115 million barrels per day, roughly 20 million barrels per day above today’s world daily demand. “Just the investment required to maintain that base to 2040 is phenomenal, probably in the neighborhood of a trillion dollars per year,” he said.

In the Bakken, Gerdes believes that by the summer of 2018, drilling activity will be comparable to what was happening entering 2015.

Leading The Bakken From The White House
Donald Trump, the presumptive Republican nominee for the U.S. Presidency, created a new dynamic at this year’s event. By choosing to stop in North Dakota on his campaign trail, Trump was able to address the WBPC crowd—and others who paid specifically to see Trump—on a range of issues, including energy.

During a news conference prior to his speech, national, regional and local media heard Trump speak on hydraulic fracturing, the Keystone XL pipeline, Hillary Clinton and the broader energy stance the U.S. should take. Standing near him during his press conference speech was Harold Hamm, CEO of Continental Resources, Rep. Kevin Cramer, R-N.D., and several unbound delegates who earlier in the day pledged their vote to Trump in a move that pushed him over the requirement to become the Republican nominee heading into the Republican convention.

Trump does not want to limit hydraulic fracturing, unlike Hillary Clinton or Bernie Sanders, he said. “They want to absolutely knock out fracking, and you do that, and you’re going to be back into the Middle East,” he said. “We’re going to be begging for oil again. It’s not going to happen; not with me.”

Achieving energy independence is a key part of Trump’s energy vision for America, he said. “We also want to sell our energy to other places that don’t have the great natural resources that we have.” To do that, U.S. federal government needs to take a step back, he added. “I think the federal government should get out of the way; the federal government is in the way. We have so much potential energy that people wouldn’t even believe it.”

Trump’s speech was open to the public and nearly 7,000 people attended.

Refrack Potential
For roughly $1.5 million per well, Bakken operators can perform a refrack through Halliburton, said Kumar Ramurthy, technology manager for the Rockies. Ramurthy’s team performs refracks for three reasons: to target bypassed reserves in vintage completions, to target loss of fracture conductivity or to maintain a parent well’s production when infill drilling is occurring. Although any refracked well’s proved developed reserves will not be altered, predicting additional production increases can be difficult.

“The biggest obstacle in refracks is predictability and the second obstacle is the budget,” Ramurthy said. In most cases, the best performing wells are the best candidates for refracks. Most Bakken refracks performed to date have removed damage in a well bore or reconnected existing fracks. At $70/b, refracks can create an initial rate of return (IRR) of 62 percent and at $54/b, IRR is roughly 33 percent by 60 months.

Most operators want to think of refracks as a one-size-fits-all approach, but Ramurthy breaks them down into separate categories. In the future, he believes operators will consider and even factor in refracks as part of their infill drilling development plan. Parent wells—wells drilled first on a multi-well pad—benefit the most from refracking as their pressure drops when other wells are drilled and brought onto production.  “With the lessons learned so far, refracks can be economical and predictable,” he said. Before performing a refrack, Ramurthy’s team goes through well candidate selection and screening, and also does engineering of a refrack design based on client desire and budget. Following that, the refrack is performed (the cheapest portion of the process) and then refrack diagnostics are ran to determine the impact of the job.