Wood Mackenzie’s Bakken expert sees upward trends

By Patrick C. Miller | October 12, 2016

Jonathan Garrett, the Bakken expert for Houston-based Wood Mackenzie, has a message for those who think the Permian Basin in Texas is the place to be. 

"The Permian has a lot of upside and the economics to support the interest, but for investors looking from a full-cycle basis, you can enter the Bakken a lot cheaper than you can enter the Permian," he said. "Some of the best parts of the Bakken rival some of the best parts of the Permian. That should at least pique the interest of folks looking outside of west Texas. Developing a portfolio in some of those core areas of the Bakken might make a lot of sense."

Garrett sees a number of trends that make him optimistic about the Bakken's future. The first is the decision by the Organization of Petroleum Exporting Countries (OPEC) to cut production, although he cautions against getting expectations too high.

"As with anything that you hear or read, it’s important to take a step back and see what was actually said," he explained. "Our interpretation of the message is that OPEC will be open to the idea of setting up a commission or group to look at what could be done from a production cut standpoint. But there haven’t been any hard numbers assigned to individual OPEC member nations to actually figure out how much each country would cut."

The good news from Wood Mackenzie's perspective is that OPEC realized a course correction was needed in the world oil market. 

"The supply-demand equation is beginning to right itself," Garrett said. "We think that it will likely come into balance by the end of 2016 on its own, but certainly from a pricing standpoint, this accelerates the sentiment that better days are ahead."

Garrett thinks North Dakota's production will probably fall below a million barrels per day before the end of the year, but he also sees trends that lead him to believe production will reach 1.5 million barrels per day by 2020.

"The Permian has been red hot, but one of the things we’ve analyzed is that some of the best areas of the Bakken—such as the Fort Berthold Reservation and particularly the southern portion of the Nesson anticline—can compete with the best parts of the Permian, the best parts of the Eagle Ford and the best parts of the Midcontinent, which is surprising to a lot of folks."

Although the number of well completions in the Bakken have been steadily declining, the types of wells being drilled and completed has prevented production from dropping sharply. 

"We track completions in North Dakota closely and while the completion count has been anemic, the wells that are getting completed are absolutely humongous," Garrett noted. "Operators are completing wells that will produce upwards of a million-plus barrels from an EUR standpoint. A few years back, wells were being completed that produced half that."

Wells with longer laterals and more frack stages being drilled in the sweet spots of the Bakken have contributed to the large production increases from individual wells. The use of diverter agents—another technological advancement in the Bakken—is also a factor, according to Garrett.

“I think that area still has a lot of running room—there’s a lot left to learn about the best way to use those agents,” he said. “I think that’s going to be a big part of future completion techniques.”

Although technology has gotten better and Bakken operators are primarily drilling and completing wells in the best part of their acreage, Garrett said there will come a time when they will have to step outside of their sweet spots.

"What remains to be seen is whether technology will continue to advance at the pace it has been so we can keep replicating that type of success outside of the core," Garrett said. "Nothing beats good geology. No amount of technology can make a marginal piece of acreage a fantastic piece of acreage.

"We’d like to see what happens three to five years from now when operators have blown through their top-tier locations. What does the average well look like in 2018 or 2020?" he asked. 

 

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