High Oil Production, Low-Price Environment Due To Bakken Mega-Fracks -- Mike Filloon -- July 27, 2015

Tweeting now: US gasoline price ($2.75) at 10-week low, diesel ($2.72) lowest since Oct 2009.

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Mega-Fracks

This article will no doubt be archived by SeekingAlpha.  I've also posted lengthy notes on this article to help me understand the Bakken.

The summary bullets:

• lower rig and completion numbers have not caused a rollover in U.S. oil production
• marked improvements in well design plus high-grading have been very effective in producing more resources per foot
• mega-fracs are also increasing production in adjacent wells through communication
• given the change in U.S. oil well economics, we may need to retest 52-week lows to get meaningful production off the table
• new well designs have changed the current decline curve, further skewing U.S. production estimates

There are more reasons, but these are the general beliefs. If fewer completions are occurring and depletion rates are high, why has production not rolled over? Many of the reasons are well known, including high-grading and lower oil service costs. Newer well designs skew data as depletion continues to decrease.

This cannot be emphasized enough, newer well decline rates are very low and cannot be compared to historical averages. Recent completions also produce more oil. When oil prices fell, operators moved quickly.

Exploratory programs decreased and rigs focused on core acreage. This includes the Nesson Anticline of the Bakken, Gonzales and Karnes counties of the Eagle Ford and Midland County of the Permian. There are other areas, but this provides a general idea of current core plays.

The Tuscaloosa and Eaglebine have suffered, as payback times can take several years.

Operators had rigs under contract, so they did what they do best. They started drilling holes. By moving quickly, they were able to add locations waiting on completion. Operators planned to let the rigs go after the contracts were up.

This left a huge "fraclog" of 4,000 to 5,000 wells. Wells drilled but not completed are considered part of an operator's inventory. By waiting, completion costs decrease, as do well costs. An operator may wait for higher oil prices. Last year the fraclog average was just 400 to 800.