The 5-Year Bakken Outlook

KLJ has completed an unprecedented study assessing the future of oil and gas production in North Dakota over the next five years. The results reveal impacts to housing, employment and the most likely regions of continuous growth.
By Emily Aasand | October 22, 2014

North Dakota-based KLJ recently completed a study commissioned by the North Dakota legislature to provide state leaders with a better understanding of the Bakken’s economic impacts on the state through 2019.

“The objective of the study was to provide the North Dakota legislature with a view into the future of oil development in the state that would assist them in developing appropriate long-term policy,” says Mike Wamboldt, the project manager at KLJ who helped to lead the study through the research and completion process. “They wanted us to address the effect of technological advances, especially in CO2-based enhanced oil recovery (EOR), the maturation of the oilfield’s development and the impact of infrastructure and environment.”

The study area focused on the 19 oil and gas producing counties in North Dakota and incorporated three approaches to forecast the sustainability of oil and gas production including economic analysis of the Bakken and Three Forks formation, the projection of population, employment and housing needs, and the potential for carbon dioxide (CO2) enhanced oil recovery.

Oil Production Picture
Mark Luther, a geologist for KLJ, headed the economic analysis portion of the study by looking at several factors, including the steep decline curves associated with Bakken wells and the role increasing initial production rates will play in the future development of the Bakken and Three Forks formations. 

The study, completed in partnership with North Dakota State University’s Agribusiness and Applied Economics Department and the University of North Dakota’s Energy and Environmental Research Center, revealed that, based on the past 18 months of oil production, North Dakota has the potential to add 18,000 new barrels of dailly oil production oil per month for the next five years. Oil production increases at that level could put the state’s daily oil production at roughly 2 million bopd, a number higher than Niles Hushka, CEO of KLJ, and his team thought was possible at the outset of the study. According to Luther, these numbers are feasible because oil producers are focusing their activities on more productive parts of the play, and there have been significant improvements in well completion techniques since the early days of the play which started around 2007 in North Dakota.

The main areas of production will continue to be in the Bakken and Three Forks during the timespan for which the study was completed, Luther says regardless of interest and work being done in other formations such as the Tyler. “In the grand scheme of things, with the drilling that will happen in the next five years, the activity [in other formations located in North Dakota] will be so minimal, that it will really have no impacts on production over the next five years.”

Production could reach the 2 million bopd mark based on the industry’s ability to cope with current challenges, according to Hushka. Market constraints linked to rail, infrastructure and oil price have all subsided or been addressed by the industry, Hushka says making the 2 million bopd milestone a highly probable outcome.

With the possibility of a 2 million bopd projection, the issue of oil exports becomes prevalent.

“I think export policies will change. We’re getting to within 1.5 million bopd of remaining light oil refining capacity and the oil companies are going to need to export crude otherwise there will be a lot of oil here (in the U.S.) and prices will go down,” Luther says. 

While exports may be on the minds of most industry players, Hushka has said that the study does highlight elements of oil production that aren’t typically discussed. Of the many takeaways from the study, Hushka points out that numbers show a misconception regarding oil producers. “Legislators think producers are making a lot of money, really fast. That isn’t the case,” he says. Because the industry requires high capital investment, the oil production business is not as profitable as people may think. Data on the best oil producing regions of the Bakken show that. Although some wells in the core of the Williston Basin offer a payback of roughly six months to two years. Wells outside the core take much longer to pay off, however, the report shows. 

Oil price may not have a significant impact on the most productive areas of the play, the study also found. In his research, Luther ran models calculating profits for producers at $35 dollars per barrel. According to Luther’s calculations, several parts of the play will still be profitable at $35 oil. Certain areas of the play, in many cases, are immune to price inflections, Luther says. 

“If oil prices go up, then other areas that aren’t getting attention will definitely be seeing more activity,” he also said.

Under current regulations and policies, roughly 20 percent of the Williston Basin is untouchable for development and one-third of all oil produced in the state comes from the Fort Berthold Indian Reservation.

Housing Supply
The study includes a look at the housing needs and growth projections for the Minot, Dickinson and Williston regions, which included the 19 counties, along with water production across the play, both elements that Hushka hopes will help the industry and other developers plan for the future. Current traffic levels and development-related activity should be considered the norm, but the state needs to remain diligent and focused on maintaining existing infrastructure.

While conducting the study, Hushka mentioned that there were constant changes happening throughout the study, which Wamboldt credits to the “dynamic oil and gas industry.”

Study Scenarios
The scope of the study was divided into three scenarios to address the uncertainty associated with the rate and extent of future oil field development. The low scenario is the basic premise that economic conditions or overall conditions remain relatively similar to conditions in 2013. The medium scenario centers on the premise that economic conditions remain relatively similar to conditions in 2013, and the high scenario considers an improved economic climate relative to conditions in 2013.

The following employment, population and housing potential estimates, not projections, are based on medium scenarios.

Employment Potential
The employment potential consists of three main components: direct employment in the oil and gas industry, secondary job creation and employment in other industries and sectors.

Research conducted by NDSU shows that the Williston region could see a 2019 employment forecast of 65,000 and 70,000; the Minot region could see an employment potential of between 55,000 and 60,000; and that the Dickinson region could see a potential growth in employment to of 40,000 and 45,000.

Employment growth is what is driving population estimates, the study says. Population forecasts showed that population will continue to be comprised of a growing number of permanent residents and a steady number of temporary or nonpermanent residents. “The two estimates combine to produce a service population, which includes individuals that work in North Dakota and live elsewhere,” the study says.

Employment in the oil and gas industry in the Williston Basin is likely to continue to grow at a pace slower than observed from 2009 to 2014 due to a combination of growth in the industry and secondary job creation.

Population Growth
Based on projections in the KLJ study over the 2014-2019 period, the Williston region could have a total population potential around 97,000 at the end of 2014, which includes permanent residents, shift workers, seasonal construction workers, and dependents and spouses of workers living in non-permanent lodging arrangements. The total population potential in 2019 has potential to reach 130,000 for the Williston region, “assuming housing is supplied and occupancy rates remain valid.”

The Minot region could have a total population potential of around 123,500 at the end of 2014 and a total population potential of 137,000 in 2019. The study also found the Dickinson region to have an estimated population potential around 60,000 at the end of 2014 and a population potential in 2019 of around 77,000.

“Permanent population will be largely driven by the supply of permanent housing in the region,” the study says. “Due to a lack of housing, the region will continue to have a total (service) population that is substantially larger than the permanent population measured by the U.S. Census.”

Housing Needs
The study distinguishes permanent housing, which is based on permanent employment, from temporary housing, which is based on temporary employment related to oilfield development activities. Since the permanent workforce and related secondary job response continues to expand, the housing demand continues to be on the rise.

Housing growth in the Dickinson region could increase by roughly 28 percent from 2014 to 2019, which translats into an increase in housing needs of about 9,500 units. The Williston region has potential to see a housing needs increase of more than 15,000 units from 2014 to 2019, while the Minot region could see a 12 percent increase or by 6,430 units within the five-year time frame, according to the study.

The EERC conducted a baseline study of the potential future oil production from CO2 enhanced oil recovery operations in North Dakota’s oil fields. The study focused on an examination of existing conventional oil fields currently undergoing secondary recovery operations and provides the basis for estimates of incremental oil production through the process of CO2-based EOR.

CO2 used for EOR can restore underground pressure in and around depleted wells to the level that existed when the wells were first drilled and the study points out that CO2 EOR should be recognized as part of a long-term production strategy for North Dakota oil fields.

The study found that there is significant opportunity in North Dakota to produce additional oil from well-established conventional oil fields through CO2 EOR and that the top 10 ranked conventional oil units in the Bakken have a combined estimated recovery of 82.7 million to 186.2 MMbbl, which would require between 13.9 million and 83.6 million tons of CO2.

“The primary challenges in the near term are all the acquisitions of sufficient CO2 supplies and a focus by operators on this target and away from the attractiveness of the Bakken petroleum system,” the study says. “There is strong potential that, within the five-year time frame, which is the focus area of this study, the Bakken petroleum system may develop into a CO2 EOR target, which would have a large effect on these projections and would be expected to be a strong driver of CO2 EOR in North Dakota.”

In its study, the EERC only found two substantial sources of CO2 that had high likelihood of availability within the next five years.

Determining Factors
It goes without saying that there is more than a handful of variables to consider when looking at the bigger picture of the Bakken’s growth.

The study found that global and local economics, infrastructure, environment, technology and socio-economics would have the greatest potential impact on oil and gas development in the study area during the 2014 to 2019 time frame.

Various factors to take into consideration include, but aren’t limited to, U.S. crude oil exports, North Dakota pipeline capacity, North Dakota landowner issues, oil rig counts on federal surface ownership, gas hub prices, Williston Basin crude prices, North Dakota weekly oil and gas permits and North Dakota oil production.

“The final baseline assumptions were influenced by variables such as: number of drilling rigs, producing wells in a specific region, technological advances in drilling and completion, development of oil, gas and water transportation infrastructure, environmental regulations, global markets and economics,” the study says.

While conducting the study, Hushka mentions that there were constant changes happening throughout the study, which Wamboldt credits to the “dynamic oil and gas industry.”

“Change occurs very rapidly and what we might’ve thought was going to happen six months ago can completely change overnight,” said Wamboldt. “It’s a constant evolution that generally boils down to global economics and the producer’s ability to make money.”

Author: Emily Aasand
Staff Writer, The Bakken magazine