They Must Be Reading The Blog -- March 3, 2018

Forbes article sent by a reader: time to concede the Bakken bear call? The article begins:

With the fall in commodity prices in late-2014, and the subsequent drop in rig count and production levels, it was a natural call to write-off Williston Basin (most notably known for the Bakken formation) as yet another casualty of energy market forces. 

But are the Bakken bears hanging on too long? Sure, concerns over lack economic drilling locations over the very long-term could be warranted, but it may too soon to start planning the funeral. When you break down some of the data, the Bakken has a good trajectory. 

Yes, rig counts and oil prices are down from their 2014 peak, but initial production rates have ramped and differentials have fallen. As a result, production is on the verge of setting new highs and the recently expanded oil pipeline infrastructure leaving the area is on track to fill within 18 months.

But in the second paragraph, already falling into that same bear trap, following an outdated metric: the number of rigs drilling unconventional tight oil formations:

The drilling dynamics in the Williston have certainly changed.  At the peak when oil prices were above $100 per barrel, rig counts hit 198.  However, with the subsequent fall in oil prices in late 2014 and again in early 2016, rig counts fell to as low as 22.  Since then, oil prices have rebounded to above $60 per barrel.  In response, rig counts have also come up to above 50.  While this is a mere 25% of where they were, the rigs active today are much more productive than they were in the past.

Look at the history of the number of rigs in North Dakota. NDIC predicts that North Dakota will set new production records in just a few months:

Refreshingly, this:

The biggest driver is the fact that the 30-day average initial production (IP) rates for each well have dramatically improved.  In late 2014 those rates were around 500 barrels per day.  Following the drop in oil prices there was an immediate lift in IP rates as producers improved operationally and focused in on their most productive acreage. Since then, IP rates have continued to climb and as of late last year they were above 800 barrels per day. Top performers in the basin like Marathon Oil have seen IP rates above 3,000 barrels per day and overall average around 1,600 barrels per day.

Much more at the link.

But again, the big takeaway from this article: pipeline takeaway capacity in North Dakota could again peak out within 18 months. Wow.