Comments And Commentary On Whether The Bakken Can Ever Ramp Up Again -- March 15, 2016

Disclaimer / reminder / note: I am inappropriately exuberant about the Bakken; I see the Bakken through oily-stained glasses.

I'm curious what readers think about this article that will be in today's Wall Street Journal: many shale companies are unable to ramp up oil output. Idle equipment, limited workforce prevent shale sector from playing role of swing producer.

First of all, before getting started, it seems there are three themes in this article which makes it difficult to analyze. These are the three story lines or arguments the writers posit:

• many oil companies are in shell-shock; have little capital in which to ramp up even if/when the price of oil recovers
• the shale industry in general will have trouble ramping up because of idled equipment, limited workforce
• the shale industry may not be able to play the role as swing producer

We will dispense with the last argument first. I doubt if any roughneck really cares if US shale becomes the swing producer. It's a discussion for the ivory tower folks and for bloggers like me when looking at the big picture. Whether or not US shale is a swing producer, who cares? Not me.

I'll use the Bakken as my reference point for the rest of the article because that's what I follow most closely. 

The first argument posited: many oil companies have little capital in which to ramp up even wen the price of oil recovers. My initial thoughts:

• it's going to take a lot less money to ramp up in 2017 than it took in 2007 when the Bakken boom was just beginning; do you remember the lease rates; do you remember all the infrastructure that needed to be put in place; remember what little "we" knew about drilling the Bakken; do you remember what little "we" knew about fracking
• in 2000 when companies were looking for cash to start drilling the Bakken in Montana and in 2007 when companies were starting to drill in North Dakota, no one knew for sure how much oil, if any oil, was economically recoverable; try getting cash from a bank for oil exploration if you can't "guarantee" oil is there

Bottom line: if the price of oil recovers, the operators will find the cash from banks, investors, hedge funds.

The other argument posited by The WSJ writers: the shale industry in general will have trouble ramping up because of idled equipment, limited workforce. This is perhaps the easiest to debunk.

Again, remember, I am inappropriately exuberant about the Bakken.

In 2007 when the Bakken boom there was "no" infrastructure in place to handle the tsunami of workers flooding western North Dakota. Housing was a huge problem. Not any more.

The potential for production can only be achieved if there is adequate takeaway capacity. In 2007, there was no CBR -- none, zilch, nada. Now, there must be no less than ten CBR terminals in the Bakken. Those rails aren't going anywhere; and the tankers haven't disappeared. Rolling stock is now storing oil.

Pipelines when the Bakken boom began. A huge problem. Not any more.

Roughnecks needed for drilling? Were there any active rigs in North Dakota in 2005? A few years later there were 200 active rigs, and the rigs kept getting bigger and better. The bigger and better rigs had to be brought up from manufacturing sites out of state; now they are being stacked in the Bakken.

Will we need 200 active rigs to ramp up? Spud to TD at the beginning of the boom: 45 - 60 days. Now, 15 days. 200 active rigs to ramp up? There are upwards of a thousand DUCs that need to be fracked. At the height of the boom, about 2,500 wells were drilled each year. A thousand DUCs is not trivial.

Sand? Ceramic? Water? for fracking. Do folks remember all the problems getting sand, ceramic, water for fracking. I even received phone calls from people asking if I knew of any sources for sand. Seriously. Sand is no longer the issue it was eight years ago.

So, time for a poll: are you concerned about the ability of the Bakken to ramp up if oil goes to $100 tomorrow?

• yes, there's no way the Bakken will ever be able to ramp back up even with oil at $100
• no, the Bakken will do just fine