More Details On The Coming Surge In The Bakken: 6,000 Additional Bakken Wells Over The Next Three Years

Disclaimer: for personal use only. Archival. Rambling. Not ready for prime time. 

Lynn Helms was recently quoted as saying folks should prepare to see a huge surge in oil production in the Bakken. In an op-ed pieced in The Bismarck Tribune, a bit of back story is provided.

Data points:

• has recently signed authorization for 530 multi-well pads (repeat: multi-well pads, not individual wells)
• another 334 are nearing completion, ready for his signature/approval

The Bismarck Tribune says:

That translates to nearly 6,000 additional wells in the next three years — more than are currently producing in the state — and a huge bump up in production.

As of February, 2013 (most recent data posted), there are 8,202 producing wells in North Dakota, averaging 95 bbls/day, a record (except for outliers back in the 1950s).

As of February, 2013 (most recent data posted), there are 5,312 Bakken/ Three Forks producing wells in North Dakota, averaging 135 bbls/day.

Story A

A couple of points: this sounds like something "new." But regular readers are well aware that operators are already drilling nearly 2,000 wells/year. So, 2,000 wells/year over the next three years is hardly news (for those who have been keeping up with the Bakken).

The impact The Bismarck Tribune is concerned about could be a lot less than they anticipate.

First of all, if we are already drilling 2,000 wells/year, why would there be a huge new surge in impact for the state if we continue at the same rate, 2,000 wells/year?

In addition, we are going to multi-well pads (we've been there for quite some time, actually) which means a lot less impact on infrastructure. We've talked about it before.

Also, a lot of new wells will go to pads that are already built; they will obviously have to enlarged, but the roads leading to the original pad is already in place. And, oh, by the way, pipelines to the original pad have already been laid in many (most?) cases.

More salt water disposal wells have been drilled; more solid waste facilities have been built: both decrease number of truck-miles.

The real question: is 2,000 wells/year the steady-state in the Bakken, or will it increase/decrease over the years. And that for me is a "toughie." Oil companies need to manage their assets, and all things being equal, I think a lot of operators will start to spread their CAPEX over several basins: Permian, West Gulf, Williston, Denver, southern Californian. 

My hunch, based on the in-depth report from Statoil at Petroleum News, reported earlier this morning, 2,000 wells/year will be the steady state for the next decade, and perhaps even drop back a bit.

I wonder if it would make North Dakotans feel a bit less anxious if they were told that the surge in oil production will not be accompanied by a huge new surge in activity. I think the "seed corn" has been planted, or perhaps a better analogy, the Bakken Assembly Line is well on its way to being completed: production will increase but it won't require a surge in manufacturing.

One exception: takeaway. The rail is in place and number of rail cars is scalable. But eventually, "everyone" in the business wants to see more pipeline. But laying pipeline, in contrast to building pads and drilling 10 wells on a pad, has a lot less impact.

Story B

Lynn Helms says he has signed and is ready to sign authorizations that equate to 2,000 wells/year over the next three years (6,000 in total).  This is huge. If the inference is that within the few weeks, another 6,000 wells will be permitted, but the NDIC will continue reviewing applications and approving permits, this is huge.

I doubt Helms is suggesting that once he signs these permits for 6,000 wells he is done with permits for the next three years.

If the 6,000 is just a snapshot in time, then there will be even more than 2,000 wells/year and the impact will be felt.

So, I am a bit confused. If he is now approving 6,000 wells, why was it stated that the wells will be drilled over the next three years? If that is accurate, it sounds like his data suggests that permitting will not be the chokepoint; the operators will have all the permits they can handle.

I haven't checked recently but I thought there was generally about a 500-well-backlog at the end of any calendar year: of all the permits signed in any given year, at the end of the year there were still about 500 of those permits to execute.

So, if he signs authorizations for 6,000 new wells now, and only 1,500 more wells are drilled this year, that leaves a huge backlog going into next year, and more permits will undoubtedly be signed in 2014.

To keep up with the permitting, significantly more than 2,000 wells per year will have to be drilled.

Another way to look at it: "they" say the Bakken/Three Forks will eventually required 50,000 wells which were to be drilled over 20 years.  That's 2,500 wells/year.

CONCLUSION

The only way I can sort this out, is to suggest that authorizing multi-well pads is not the same as authorizing well permits. The well permits will come later. But still, once one permit is approved for a given multi-well pad, won't it be fairly quick to approved the additional wells for the same pad? Perhaps the NDIC staff will get a well-deserved vacation once those 6,000 wells are permitted. Smile.