Saturday Morning Musings On The Bakken

This is, without question, the best time of the year, at least as I remember it, looking forward to summer. Mornings can still be cold, frightfully cold, in northwestern North Dakota, but compared to February, it is time for short sleeves to start showing up. I imagine the mud from the spring thaw is a real mess in the Bakken, but this, too, will get better. It is unlikely that the Bakken will see any more snow unlike northern Minnesota which is still getting snow this weekend.

I was not surprised to see the number of active rigs decline this past week which I attributed to road restrictions during the spring thaw, but it was disheartening to hear that the word "on the street" (at least one street, I suppose) is that the number of rigs will remain down or continue to decline this summer in the Bakken as operators move assets to other shale plays in the United States. The Permian and the Eagle Ford (or as they say down here, the "eagelferd") in Texas and the Bakken in North Dakota are the three big shale plays in North America. Texas and North Dakota are now producing more oil than the entire country of Canada. Is that a typo? I don't think so. I think I read that over on Carpe Diem.

But it was not the "rig story" that caught my attention. It was the housing story.

Some weeks ago, Williston, North Dakota, made international news when it was widely reported that Williston had the highest average rent for apartments in the United States. That's pretty impressive, but not what we like to hear.

For every action, there's a reaction.

I was impressed how quickly the reaction came. Unfortunately it should have come two years ago. But that's another story.

The reaction to the fact that Williston holds the record for rent? The first story was reported in The Wall Street Journal on April 23, 2014: man camps gain ground in the Bakken.

Target Logistics, a Boston-based builder and operator of dormitory-style housing, recently landed a nearly $30 million contract to provide lodging for hundreds of oil-field workers in North Dakota over the next three years. The deal is the latest example of rising demand for professionally managed "man camps," sprawling barracks that house mostly male workers at American and Canadian oil sites.

The second story came from a personal conversation about a new 700-unit development project underway north of Williston.

Those were huge stories. 

For newbies, I truly thought we were well past the era of man-camps in the Bakken. Even polls from quite some time ago suggested most folks reading the blog and voting in the polls, thought we had seen the peak with regard to man-camps. So, when I saw a single $30-million contract for Target Logistics for new and continued man-camp projects, I was quite stunned.

But that was nothing compared to hearing that a brand new 700-unit development was already under construction north of Williston (at least I think it's under construction). If I understood correctly, folks were already out there and buying lots or homes. [Later: I am not sure if this development is the "North Star Center" or a separate entity. Machts nichts.]

That would have been enough to suggest to me that the Bakken boom was not over. I think a lot of folks equate the boom with drilling, and once The Atlantic Monthly suggested drilling had reached its peak in the Bakken, the boom was over. I don't think folks understand all the work that goes into maintaining those wells. One has to remember, that for the most part, the oil and gas industry was pretty quiet in North Dakota after the 1980's. Not much was done. No infrastructure going in. Really nothing.

Then the drilling boom. But the infrastructure is still far behind. The story about the tremendous amount of natural gas being flared on BLM-land in the reservation tells us how much work is left to be done. They say it will take five years just to cut the flaring in the reservation by half, and that will still be too high. In a mature field, about 3% of natural gas produced should be flared. They are flaring almost 50% of produced natural gas in the reservation; cutting that in half still brings us only to 25%. Cutting that in half gets us to 15% and so it goes. The story was all about the federal bureaucracy in getting pipeline easements but that suggests to me that folks don't understand natural gas. Neither did I when I first started blogging and I still probably understand about 1% of all that goes on with natural gas, but I do know that one needs to "gather and process" natural gas before it is put into the national grid. Processing natural gas required processing facilities that look a lot like, and cost a lot like, small oil refineries. ONEOK announced a flurry of new natural gas facilities some months ago (more than a year ago? I lose track of time), most of the around Watford City, a couple west of Williston, but since then, no new announcements.

Back in 2011, when I stumbled on the first natural gas processing plant I ever saw being built, I was amazed at all the pick-up trucks on site. There must have been 200. Maybe I'm exaggerating. Maybe it was only 100. But it was a lot, and I think the project took about a year, from first dirt being moved to coming on-line. (I think the Hess expansion in Tioga probably brought the unit off-line for six months, maybe less.) The point is that there is still a lot of work to be done, just with natural gas.

For newbies, the Bakken is 95% oil. If there is all this work to be done with just natural gas in a boom that is an oil boom, not a natural gas boom, imagine all the work yet to be done in the oil arena.

I think about that a lot.

But yesterday's announcement that Williston had approved more than 2,000 residential units for one development was beyond the pale. It is being reported in The Williston Herald. [By the way, based on close reading of the article, one starts to see why Williston was so slow to respond to the severe housing shortage. Greed.]

We are eight years into the Bakken boom in North Dakota, fourteen years after it started across the state line in Montana. This one development will have more units than all the units approved by Williston all of last year. That is simply incredible.

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When the boom first began, there was a lot of talk about how families would not move to Williston, they would not settle in Williston.

I talked about that one one or two occasions based on my experiences in the military.  Folks who thought girl friends and wives and families would not follow their husbands to Williston did not understand the strong nuclear force that holds families together, something that always impressed me during my military career.

So, that happened.

And then something else happened, which was also predictable. Newly arrived families wrote back home and said things weren't so bad in Williston. And that brought more families.

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We might have gotten a hint that this was all yet to come. The tea leaves began to swirl on Monday, April 14, 2014, when there were numerous stories that more construction workers were needed for the Bakken. On April 17, 2014, there were rumors that a shortage of welders could impact the Bakken.

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By the way, near the beginning of this post I mentioned that the "word on the street" was that some operators would be moving some of their assets to other shale plays in the US. That may very well be, but four things need to be noted: 

• new operators are moving into the Bakken
• some operators have said they will increase the number of rigs in the Bakken this year
• some operators are operating only in the Bakken (KOG, Oasis, come to mind)
• some operators have operations elsewhere, but the Bakken is their focus (CLR, comes to mind, possibly WLL)

One might add some minor points:

• the drilling environment in North Dakota remains one of the best for the oil and gas industry
• it is unlikely California will do much this year with regard to new shale operations

For newbies, the number of rigs, for me, represents "activity" and jobs. The number of rigs has become less important over time with regard to overall production. The new rigs are more effective (I purposely use the word "effective" and not "efficient" for reasons I've discussed before). Drilling times have decreased and down time between drilling wells has decreased. IPs have increased, and decline rates are decreasing. 

The number of active rigs also represents the amount of truck traffic. A decrease in the number of rigs in the Bakken is not necessarily a bad thing. For me, setting new records in the Bakken (with regard to production, for example) no longer matters. I think most folks would like to see orderly and steady improvement in the quality of life in the Bakken more than they would like to see new production records.