Crescent Point's CEO Calls North Dakota's Growth Into Question

Updates

May 14, 2013: Compare the IEA's prediction with the comments of the CEO, Crescent Point, in the original post. North American shale revolution is displacing OPEC. Bloomberg is reporting:

The U.S. shale boom will send “shockwaves” through the global oil trade over the next five years, benefiting the nation’s refiners and displacing OPEC as the driver of supply growth, the IEA said.

North America will provide 40 percent of new supplies to 2018 through the development of light, tight oil and oil sands, while the contribution from the Organization of Petroleum Exporting Countries will slip to 30 percent, according to the International Energy Agency. The IEA trimmed global fuel demand estimates for the next four years, and predicted that consumption in emerging economies may overtake developed nations this year.

“The supply shock created by a surge in North American oil production will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15,” the Paris-based adviser to 28 oil-consuming nations said in its medium-term market report today.

The development of U.S. shale resources, enabling the nation’s highest level of energy independence in two decades, is creating a “chain reaction” in the global transportation, processing and storage of oil that may escalate as other countries try to replicate the American oil boom, according to the IEA. Crude futures for settlement in 2018 are trading at a discount to current prices, signaling expectations for increasing supplies and constrained demand.

Original Post

The Globe and Mail is reporting:

North Dakota is an oil hot spot. Its production has climbed every year since 2003, with annual output growing by five times between 2003 and 2011. If optimists are right, it will be a huge help in the United States’ dream of shunning foreign oil. But this growth put enormous pressure on the continent’s pipeline network.

Scott Saxberg, Crescent Point Energy Corp.’s chief executive, thinks North Dakota’s prospects are overblown – a scenario which, if correct, will ease the pipeline conundrum.

“A lot of the growth projections are overstated in the U.S., in North Dakota in particular,” he said in an interview Wednesday. “You’ll see change of slope of the growth of North Dakota over the next years that won’t, obviously, be as great as the previous years when it was sort of the gold rush era.”

Growth, Mr. Saxberg said, is waning because companies no longer have to drill to secure land tenures. Further, the land is now held by big oil and gas companies rather than smaller outfits or private equity.

“We’re past the gold rush stage,” he said. Crescent Point holds leases in North Dakota, Saskatchewan, Alberta, Manitoba, and Utah. It is best known for its work in Saskatchewan.

I certainly wouldn't argue with the CEO of an oil company drilling in the Bakken. I know less than 1% of what is going on.

But to make sure readers are clear on this: the CEO is saying that the SLOPE of growth over the next years (PLURAL) won't be as great as the previous years.

This goes along with the Rolfstad presentation. I don't think the Crescent Point CEO is saying anything new. 

All things being equal, the SLOPE, or as I would prefer to say, the RATE of growth should start leveling off. 

He is not saying that the USGS 2013 Survey of the Bakken/Three Forks is overblown, or that the estimates of some operators are overblown. He is just saying the RATE of growth won't be as great as it was.

I am not sure what "overblown prospects" he is referring to.

However, having said that, a couple of things.

I think the argument that operators will slow down now that they hold their leases by production is an overblown argument. To date there is no evidence that drilling has slowed down in the Bakken. The number of active rigs has remained stable for the past year, fluctuating around 185 rigs, day in and day out. In fact, it's been quite some time that the number of active rigs went down to the post-boom low of 179. In fact, the number of rigs has jumped on one occasion to 191. Where operators drill depend on a lot of factors, and HBP certainly makes that part of the decision easier.

Crescent Point Energy is a Canadian company with a lot more drilling locations in Canada than in North Dakota, but some Bakken-centric companies have nowhere else to go. Think KOG. As far as I know, they are only in North Dakota.

Other Bakken-centric companies have other places to go (CLR to Oklahoma, for example) but there are few other areas as exciting as the Bakken right now for some of them. In addition, there is some excitement right now to see how good the lower benches of the Three Forks might be.

The RATE of growth: 

On February 22, 2010, there were 95 active rigs in North Dakota (which tied a previous record). One year later, February 17, 2011, there were almost twice that many rigs: 170.

And one year later, February 1, 2012, there were 205 active rigs. The record of 218 rigs was on May 29, 2012. 

Today, as noted above, almost as many, with 187 rigs.  And these 187 rigs, for the most part, are bigger, more effective than the 95 rigs that were here in 2010. In addition, they are reaching total depth sooner. They are spending less time between wells (pad drilling). The completion techniques are much, much better, and the wells are getting better.

Rule of thumb: Bakken oil production has been increasing about 3% month-over-month.

By the way, just after getting this story about drilling slowing down in North Dakota, I was alerted by a reader about the four CLR rigs in one section north of Williston, in a section with permits for 14 Bakken wells. This spacing unit is held by production (twice -- two wells already there) and yet, CLR has four rigs in this one section.