About nine months ago, analysts at Petrologica began questioning the oil production data coming out of North Dakota.
Faced with low prices, spending cuts and a rapidly falling rig count, production out of the Bakken play was down, but only modestly from December 2014 levels, when production peaked at about 1.23 million b/d.
North Dakota operators were certainly struggling, but with new technology and a drilling focus on only the most prolific portions of the Bakken, supply was holding steady.
Lynn Helms, the state’s top oil and gas regulator, said production would likely stay above 1 million b/d even if prices and rig counts continued to fall.
“Operators are now committed to running fewer rigs than their planned 2015 minimum as drill times and efficiencies continue to improve and oil prices continue to fall,” Helms said in October.
Many heralded the ingenuity of North Dakota producers and shrewd cost-cutting measures by oil services contractors as staving off a serious decline in Bakken supply.
But Petrologica’s analysts believed that the supply picture could be more dismal than initial state data led many to believe. By using new technology and a variety of innovative drilling and completion techniques, these analysts said, North Dakota producers may have been boosting near term production to the detriment of long term supply.
“On the one hand, forcing a high [initial production rate] by, for example, using more proppant may be a risk/reward play—when done correctly it leads to gains in the first year, but risks clogging the fractures made during the fracking process that allow the oil to flow,” Petrologica wrote in a note in October. “On the other, increasing IP merely front-loads production at the expense of later output.”
Petrologica analysts believe their theory proved true last week when the North Dakota’s Department of Mineral Resources announced that just over 1.04 million b/d of oil was produced in North Dakota in April, a drop of more than 70,400 b/d from March, the largest supply drop in state history.
North Dakota as bellwether
North Dakota is viewed by many analysts as a bellwether for the US shale renaissance: if supply begins to crater there, the thinking goes, the overall US shale supply is likely following.
In North Dakota, 1 million b/d is popularly viewed as the psychological threshold where the production decline will be serious, a point the state is likely to see late this year if market fundamentals remain unchanged, Helms said.
But the analysis by Petrologica indicates that the state will fall below the 1 million b/d mark much sooner than Helms believes. North Dakota has not averaged less than 1 million b/d since March 2014, when production averaged less than 977,000 b/d.
One technique that analysts focused on is the increased use of natural sand, which costs less than alternative materials such as ceramic or metal beads. While more costly, Graham Walker, an oil market analyst with Petrologica, said these manufactured materials are less likely to clog fractures and slow down production rates as quickly as using a large amount of natural sand would.
Walker said this may explain why production declines earlier this year may have been more modest.
Production fell by about 8,400 b/d from February to March and 2,668 b/d from January to February.
November was the last month that North Dakota saw a month-over-month oil production increase.
Helms blamed much of the unexpectedly large drop in April production on statewide road restrictions that limited the movement of trucks carrying oil, water, fracking sand and drilling equipment and 15 days in the month where wind restrictions prevented wells from being completed.
This significant production drop was not the start of a trend, he told reporters, and would likely prove to be an aberration as production continued to either stabilize or decline more gradually.
But Walker said weather conditions would only impact completion activity, which fell from 66 wells in March to 41 in April, according to preliminary state data. This would account for about 20,000 b/d of the 70,400 b/d decline in a “best case scenario” for producers.
In addition, about 8,000 b/d in the overall decline came from wells that produced in March but were shut-in or otherwise did not produce in April.
The remaining, estimated 42,000 b/d likely came from declines in wells completed last year, which is a much larger hit to production that many analysts expected, he said.
Advanced drilling techniques helped birth the shale revolution, and the accelerated production it allowed is also what may hasten production declines.
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