A Reader's Perspective On The Bakken In The Face Of Plummeting Oil Prices -- January 25, 2015

I could not have said this better myself, a note from a reader:

The doomsdayers are having a field day-they're predicting a mass exodus from ND. As usual they're making predictions using only part of the  information.

Yes, North Dakota will lose some drilling and completion jobs -- however -- we're ready to start building two huge fertilizer plants, a huge world class plastics plant, budgeting well over one billion for catch-up infrastructure, need thousands of miles of pipeline to catch up, need more and expanded gas processing -- the list goes on and on.

Another very important thing: these oilfield workers are probably the most flexible workforce in the world, they can literally change jobs and be productive the first day in a new career.

These people are extremely hard working, have tremendous work ethics and have already proved they can be productive right through a North Dakota winter.

I also think we have other formations besides the Bakken/TF that have potential to produce at a lower cost.

AND -- don't forget -- these oil companies aren't going to stop innovating and inventing, we have a lot of innings to go. 

No, I don't think North Dakota is going to see a mass exodus, I think we'll see some temporary reshuffling and when drilling picks up again North Dakota will be ready-with a stronger and more diversified energy industry.

I think this whole story is very, very fascinating.

Events in the fourth quarter 2014 signaled a watershed event for the world, the US, Saudi Arabia, the Bakken -- literally everyone was affected. The world runs on fossil fuel and there was a tectonic shift on November 28, 2014. Daniel Yergin says the baton has been passed.

Some folks are concerned that the plummeting price of oil foreshadows a global recession (or worse). That's way beyond my pay grade. But I will say this: it is my impression that global recessions lead to lower prices overall, including energy (but not necessarily); whereas plummeting oil prices do not lead to global recessions. On the passing of King Abdullah of Saudi Arabia, one of the princes suggested that lower energy prices would stimulate the global economy. Personally, I think that statement was disingenuous if used by Saudi Arabia to explain their actions. I've never perceived a country in the Mideast, certainly not Saudi Arabia, to be a beacon of altruism. Be that as it may, regardless of why Saudi is allowing prices to plummet, the fact is, all things being equal, lower energy costs should be beneficial to the global economy.

I agree with the writer above: there is a lot of work yet to be done in the Bakken. I am still amazed, after all these years, that without rail, there is not enough takeaway capacity in the Bakken. The national crude oil pipeline system is coming up to speed -- notably with the double-pipeline Seaway to Cushing, but the local, intra-state, and perhaps regional crude oil pipelines remain inadequate. With the relative higher cost to ship by rail, operators are looking forward to more Bakken pipeline. The recent sale of Hiland to Kinder Morgan brings in another huge player, and this sale likely occurred in response to the fall in oil prices, though there may have been other reasons.

I am also amazed after all that has gone on before, that although the drop in flaring is significant, from 36% to 27%, it appears to have hit a plateau. In the most recent Director's Cut, I believe, the percent actually increased slightly. And this occurred despite more natural gas processing plants, new NDIC rules on flaring, and the drop in oil prices.

I am assuming the drop in oil prices will not completely shut down unconventional / tight oil / shale plays. If that assumption is correct, readers are well advised to look again at this post regarding the relative costs of drilling/completing wells in such plays in North America. Likewise, the footprint of the "best Bakken" has increased substantially since 2007 when the boom began as noted in the most current "heat map" available. 

This is not to say we aren't going to see some changes in the Bakken. Regular readers are aware of my thoughts on some of those changes. We see these changes, again, in the list of permits issued two days ago:

In the old days one would have been looking at 12 - 20 operators being issued 24 permits, and an expectation that there would be 12 - 20 rigs drilling these wells; today, these 24 wells can probably be drilled with six rigs. But they still all have to be fracked (eventually); this is all pad drilling on established pads, as far as I know.

And I didn't even get to the fertilizer plants and the plastics plant.

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Meanwhile, In Washington, It's All About Obama...When It Comes To Obama

The Washington Post is reporting:

That is Iran’s march to nuclear weapons, and Obama’s foolish complicity. His claim at the State of the Union that “we’ve halted the progress of its nuclear program and reduced its stockpile of nuclear material” would be laughable if it weren’t so dangerous. The claim earned him three ­Pinocchios, with four being an outright whopper, by The Washington Post.

The ticking doomsday clock is what led to the remarkable comments by Democrat Robert ­Menendez. After Obama warned that more sanctions, even if they would not take effect unless the talks collapsed, could scare off the Iranians, the New Jersey senator said Obama was repeating talking points that “come straight out of Tehran.”

That’s a zinger for the ages — and has the added advantage of being true.

I love it when politicians are honest. It is so seldom we see such honesty. The last time I recall such honest was when ObamaCare was called a "train wreck."