Fast And Furious -- Fifteen Minutes -- Rigs Matter; Rig Counts Not So Much- August 21, 2020

Note: I am inappropriately exuberant about the Bakken.

Disclaimer: this is not an investment site.  Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here. 

Investing: I would never, never recommend anyone invest in energy companies, nor would I recommend anyone invest in anything. Everyone's situation is different. 

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Rigs Matter; Rig Counts Not So Much

This has to do with production, not price of oil.

Of course rigs matter, but when any analyst or reader mentions the number of active rigs on any give day, my eyes glaze over (or roll). The "rig count" is a legacy metric held over from conventional and off-shore drilling. It has a diminished role in unconventional drilling or shale.

Unconventional drilling or shale? They can drill all the holes they want, but if they don't complete them, they don't mean squat. Except for a lot of wasted money, drilling the wells and not completing them.

Across the US shale basins, the important metric is the number of newly completed wells on any given day or any given week.

In the Bakken, specifically, much more important than the rig count, pretty much in this order:

• price of oil;
• cost of drilling/completing a well;
  
• takeaway capacity;
• form and cost of takeaway capacity;
  
• rules and regulations; spills; flaring; siting; BLM;
  
• number of frack spreads;
• completions;
• number of DUCs
  
• halo effect;
• weather;

After that, maybe the number of rigs. But probably not. I've probably forgotten something in that list of ten items.

The number of rigs are important in other respects, mostly in terms of measuring activity and providing jobs for roughnecks, geologists, and oil services companies. And that's incredibly important but that's not the issue here. And quit calling me Shirley.

In the Bakken, if all remaining twelve rigs were to quit drilling today and operators focused on completing all DUCs, and opening all shut-in wells, Bakken production would do just fine: link here. 

If the state banned fracking today, Bakken production would fall precipitously. 

This next February, watch the production, as fracking comes to a standstill.

Pre-Covid, there were about 2,500 wells off-line each month in the Bakken for operational reasons. That's more than twice the number of wells that will be drilled and completed this year.

In the past two months, the number of wells off-line in North Dakota:

• June, 2020: 5,113
• May, 2020: 7,070

Think about that, 7,070 wells off line in May, 2020. A terrible, terrible month. And yet, the state still saw a $10-million Legacy Fund deposit. How much money does the state really need?

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What Is The Optimum Number Of Rigs In North Dakota?

26.

That's it. Twenty-six. Twenty-six active rigs.  

In the early days of the boom, the number of days for a single rig to spud one well, drill to total depth, and then move to spud the next well was 60 days.

Now? Six days. 

Sure, a bit of hyperbole on both ends, but not much. Does anyone actually think there can be much improvement in the time it takes to drill a Bakken well:

• the vertical section (two miles down): one day (24 hours);
  
• the curve: twelve hours;
• the lateral: two days;
  

Those are the best I've seen. Probably the expectation going in:

• the vertical section (two miles down): three days (72 hours);
  
• the curve: twelve hours;
• the lateral: four days;

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Quality Of The Wells

Staggering.

See the EIA's July, 2020, dashboard. 

Remember: some years ago, several operators opined that they would not drill a Bakken well if the crude oil EUR was not a million bbls. In the early days of the Bakken, the EURs averaged about 350,000 bbls crude oil.

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The Bakken: An Oil Play

The Bakken is an oil play and yet its new wells are outproducing the Permian even with natural gas. Again, see the dashboards.

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Parent-Daughter Well Argument

The daughter wells in the Bakken are doing exponentially better than the parent wells. I can't speak to the Permian because I do not follow the Permian. Or the Eagle Ford, for that matter. 

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Finally: Proof in the Pudding

We've been at twelve active rigs for the past year (?) and production has gone from 1.5 million bbls to 800,000 bbls, and my hunch is that the number of active rigs will remain between 10 and 20 in the Bakken through the end of the year and production will gradually move up (unless Saudi Arabia floods the world with oil again and/or demand destruction worsens). But if the economy improves; oil demand improves; oil price improves, the number of active rigs in the Bakken will move very little, if any, and production will increase significantly.

So, we'll see.