Comments From A Different Planet

The comments at this CarpeDiem post are instructive.

There are two issues that seem to keep popping up when naysayers comment on the Bakken: a) low production/well/day; and, b) the cost of wells.

COST/VALUE
1. First, the cost of wells. Operators are no longer drilling $10 million wells for $10 million. In other words, some wells will still cost $10 million but, comparing apples to apples, the $10 million wells in the past have now come down significantly in cost.

2. The North Dakota Bakken boom is now in its 6th year; it started in 2007. In Montana, the Bakken boom began in 2000. To date, operators have not written off or downgraded the value of their North Dakota shale assets. Bonuses paid for leases in the North Dakota continue to reflect no loss of interest in the Bakken.

PRODUCTION
3. With regard to productivity for the most recent month: the previous month, May, 2013, was the wettest month on record in North Dakota -- again, repeat, the wettest month on record -- not just for a few years, or a decade, but on record. Road restrictions were in place in May, 2013. These road restrictions were extended into June. I don't know the current percent, but at one time (recently) as much as 70% of all oil in North Dakota is trucked at some point, generally from the pad to the nearest pipeline terminal. Even if the distance is one mile from the pad to the pipeline terminal, it still takes a truck to get on to the pad to empty the tanks. With a measly 1.25% increase in daily production (June over May, 2013), despite all the huge wells that have been reported in the past six months, and then knowing about the road restrictions due to extremely wet weather, the dots all connect. In addition, if operators are meeting their contracts, they may be choking back their wells for any number of reasons.

4. There are a gazillion examples, but to get an idea of what "choking back a well" can do, look at #19104 at this post. This well has produced as little as 2,003 bbls back in September, 2011, and produced more than 11,000 bbls in just six days in June, 2013. That wasn't nature, folks; that was the CEO of QEP managing his assets.

Month-to-month variability is interesting to follow but longer intervals are needed to really see what is going on.

5. I think some of the folks who comment on the Bakken are also unaware of EOG/CEO's recent comments: he says ALL, not most, not some, but ALL of EOG's Bakken wells now show 100% return on investment. A year or so ago, I thought wells were paying for themselves at the wellhead when they hit 100,000 bbls cumulative which was 12 - 24 months. Now, costs of wells have come down significantly, wells are hitting 150,000 to 200,000 bbls in 12 - 24 months, and the price of oil is significantly higher this year than last year, based on NYMEX numbers. In addition, a year ago, Bakken was selling to a discount to WTI and WTI was selling to a discount to Brent. WTI and Brent are near parity now, and Bakken sold at a premium, albeit for a very short period, to WTI.

My two cents worth.