Bakken has large production dip, but major frack activity starts

By Luke Geiver | February 15, 2017

Spring can’t come soon enough for Bakken oil and gas producers. After three major snowfall events, 15 days with winds exceeding 35 mph and 9 days with temperature readings below -10F during a 30-day span from November 2016 to December 2016, operators were unable to maintain a pace of work capable of sustaining daily production in North Dakota. December daily oil production numbers came in 9 percent lower than the previous month, the equivalent decrease of roughly 90,000 barrels of oil per day.

North Dakota—where 95 percent of production comes from the Bakken or Three Forks formation—is now producing 942,455 barrels of oil per day. The largest ever month-to-month production drop for the state will impact production levels into the second quarter of the year, according to Lynn Helms, director of the North Dakota Industrial Commissions Department of Mineral Resources Oil and Gas Division. Talks with crude oil truck hauling firms revealed to Helms that production should remain at similar levels when numbers come in for January.

The challenging operating conditions still have to go through an early Spring thaw-out period, a time when many roads are closed due to unstable roadbeds. But, starting in May, the Bakken will once again be bustling with truck activity. According to Helms, operators are enthusiastic about the current oil price and have already committed and planned to frack as many wells as possible this year. The expectation, Helms said, is that industry will complete roughly 700 wells in fiscal year 2017 and 1,000 wells in fiscal 18. “There is going to be a lot of truck traffic in May,” he said. “Companies are going to add as many frack crews as they can this summer,” he added.

Although it is unknown when added frack crews and better weather will positively impact daily oil production in the Bakken, Helms said many wells being completed in the core areas of the Bakken are showing production increases over previous wells in the same areas. Operators there are using super-fracks—including 50-stages, 10 million gallons of water and 10 million pounds of proppant.

Industry’s push to increase the number of wells fracked in the Bakken has already began, however. Even in December 2016, industry was able to reduce the number of DUC wells in the state by 81, an effort Helms was impressed with. Conventional wells unable to produce enough oil per day have been shut-in. Due to the weather conditions and high snow totals, many operators chose to pay for snow plowing only once to get to a well site for shut-down procedures. In most cases, those wells will be shut down for more than one month, a time frame that will require several hundred wells to need a workover rig for restarts.

Harsh weather also impacted the amount of gas produced and captured in North Dakota. At roughly 1.5 mcf/d, gas production was down by roughly 221,000 cf/d. The gas capture volumes also declined, with some operators forced to flare gas that was unable to travel through iced-over infrastructure. In certain cases, Helms said, ice formations on gathering pipelines reduced the diameter of the pipe which didn’t allow the total capacity of the pipe to be used. Because of the infrastructure challenges—none of which resulted in any damage—the state’s flare volumes rose from 11 percent to 14 percent. The state’s goal for allowable volume to be flared is 15 percent. However, Helms said some operators may be in danger of state-imposed production cuts due to their flaring increase should they not correct the flaring issue soon.

Brutal weather conditions aren’t the only significant storyline Helms wanted to discuss during his monthly update call. The state continues to follow the proceedings of the U.S. Bureau of Land Management rule that would call for similar venting and flaring rules the state believes it has already put in place.

Oil conditioning requirements may also be an issue for Bakken producers soon. Currently, the state requires crude vapor pressure to remain at 13.7 or below prior to shipment. A proposed rule by the U.S. Pipeline and Hazardous Materials Safety Administration would change the requirements for conditioning crude to a lower and different type of pressure.

 Crude Logistics

At just over 200,000 barrels of oil per day exported out of the Bakken via railcar, the region is now relying on pipeline more so than it has in the last six years. In 2011, railcar shipments of crude were similar. Crude by rail peaked around 2015 at roughly 800,000 bopd.

The Dakota Access Pipeline, if or once completed, could solidify the Bakken’s shift towards pipelines. When producers ship oil via pipeline out of the Bakken, the difference in the price they receive for a barrel of oil is roughly $1 to $2 per barrel. However, shipping crude via rail versus using the Dakota Access Pipeline would be a difference of approximately $9/b.

The West Coast has overtaken the East Coast as the main destination for Bakken crude, according to Justin Kringstad, director of the North Dakota Pipeline Authority.