Thursday, April 8, 2021

Idle Rambling In Response To A Reader's Question -- April 8, 2021

A reader asks: Is there any future development in Williams County or is it anticipated that there is little productive acreage left to drill especially near Williston?

Let the conversation begin. I will start. Remember, I am inappropriately exuberant about the Bakken.

Answer: yes, Williams County will see continued "development" going forward.

Comments:

  • the pace of development depends almost entirely on the price of oil and relative "value" of the Bakken compared to other shale plays in the US;
    • the Powder River Basin appears to be the "new" Bakken
    • the Permian will be ... the Permian
  • operators are constantly looking for additional locations to drill; the Williston Basin's middle Bakken and Three Forks benches are pretty much mapped out; there is no longer any urgency to drill in the Bakken;
    • operators are "E&P" companies; they use their CAPEX for "E" and "P"
      • E: exploration: very little perceived need for further exploration in the Bakken
      • P: production: operators will manage their assets
        • "managing their assets": an incredibly important concept not often discussed; certainly not understood by many
  • things have changed (or so they say):
    • operators are focused on free cash flow, not focused on spending money looking for new locations;
    • for that reason, we won't see much activity above ground for the next couple of years, in terms of rigs
  • continued development:
    • fewer wells, but much, much better wells;
    • in Williams County, at $60-WTI, 30% of all middle Bakken wells that will eventually be drilled have been drilled; in other words, if WTI stays at $60 in today's dollars, for every 1,000 middle Bakken wells that will eventually be drilled, 700 new wells are yet to be drilled;
    • in Williams County, at $60-WTI, 10% of all Three Forks wells that will eventually be drilled have been drilled;
    • in Williams County, at $70-WTI, operators with few locations left (in the Bakken or elsewhere) will go back in and re-enter/re-frack wells completed before 2016; the re-entered / re-fracked wells will be much better than the original wells;
  • with regard to Williams County oil fields;
    • east and southeast of Williston: still much to be done but it will slow and measured;
    • CLR has a three-year development plan for the Long Creek Unit; upwards of 60 wells to be systematically drilled out over three years with just two rigs;

Analogy: farming

  • asking whether there will be any future "oil" development in Williams County is like asking whether there will be any future "farming" in Williams County;
  • Homestead Act of 1862
  • prior to Homestead Act, little farming activity west of the Mississippi (preceded by buffalo hunting, and then ranching; farming: difficult and margins slim; huge initial operating costs)
  • Homestead Act changed everything
    • burst of farming activity
    • infrastructure established (co-ops; railroads; grain elevators; processing plants)
  • by early 1900's farming "locations" tapped out
  • attention turned to:
    • managing assets: crop rotation; storage; 
    • better equipment (tractors; combines); better completion strategies (custom combining)
    • technology: improving yield per acre

Oil development in the Bakken:

  • how one sees the Bakken depends on where one stands;
  • this blog's primary audience: mom-and-pop mineral owners who inherited their minerals from their great-grandparents, grandparents, and parents -- those who receive mailbox money
  • the era of big, upfront lease money is over;
  • the era of huge, unexpected checks is over;
  • monthly checks will stabilize; will correlate to price of oil rather than new activity
  • farmers have good years; farmers have bad years; over the course of any decade, production from farming tends to improve, but in general, farmers probably have a pretty good idea of their annual income going forward based on decades of farming; if they don't, the banks do;
  • that's where we are with oil for mom-and-pop mineral owners.

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