North Dakota Likely to See Big Drop in Oil Production as More Companies Turn Away from Bakken

Researched by Industrial Info Resources (Sugar Land, Texas)--North Dakota's state regulators said last week that weak crude-oil prices and frigid winter weather likely will push oil production in the state below 1 million barrels per day by the end of January. The estimate is one of several trends, including rising exploration expenses, which have dampened the long-term outlook for North Dakota's oil production. Industrial Info is tracking more than $1.3 billion in active projects in North Dakota's Oil & Gas Production, Pipeline and Terminals industries.

While the state's Bakken Shale has been one of the most-watched areas in the U.S. shale boom of the past decade, its remote location has resulted in high transportation costs for the many companies involved in exploration, while a lack of infrastructure, such as a large number of multi-lane roadways to accommodate heavy trucks, has bedeviled them as well.

According to Reuters, North Dakota pumped 1,033,693 barrels per day (BBL/d) in November, down from 1,043,693 BBL/d in October, consistent with a downward trend throughout much of 2016. Prices also declined, with the state's oil producers getting 12% less in November for their crude.

In contrast, Texas' Eagle Ford Shale is seeing renewed interest among exploration companies, such as Sanchez Energy Corporation (Houston, Texas) and Venado Oil and Gas LLC (Austin, Texas), buying up acreage at hefty prices. The Eagle Ford Shale doesn't have to deal with the Bakken's brutal winter winds and is hosted by a state that has put more effort into building out its industrial infrastructure.

Texas's Permian Basin also seems to be a beneficiary, as SM Energy Company (NYSE:SM) recently announced that it was exploring a sale of its major Bakken acreage so it can turn its attention to more profitable prospects in the Lone Star State.

Two of the largest active Oil & Gas projects in North Dakota are international projects in the Pipeline Industry, which is struggling to address the infrastructure gap amid longstanding public protests over similar projects: Enbridge Incorporated's (NYSE:ENB) (Calgary, Alberta) $168 million replacement work on a 12-mile portion of a 1,200-mile pipeline running from Hardisty, Alberta, to Superior, Wisconsin, and TransCanada Corporation's (TSX:TRP) (Calgary, Alberta) $160 million segment of the Upland Crude Oil Pipeline, the entirety of which originates in Moosomin, Saskatchewan.

Enbridge's project will widen the line from 34 to 36 inches in diameter to accommodate stronger capacity, while the new Upland line would initially transport 220,000 BBL/d, with the potential to increase to 300,000 BBL/d. For more information, see Industrial Info's project reports on the Enbridge and TransCanada projects.

Two projects that are expected to finish construction soon in North Dakota are Energy Transfer Partners LP's (NYSE:ETP) (Dallas, Texas) $75 million crude oil-gathering terminal in Watford City for the hotly disputed Dakota Access Pipeline, and Hess Corporation's (NYSE:HES) (Houston, Texas) $30 million crude oil-storage facility in Hawkeye. The Watford City project will include three tanks--two with 100,000-barrel capacities and another with 150,000-barrel capacity--to support the planned, 450,000-BBL/d Dakota Access Pipeline, while the Hawkeye facility will include two trucking areas to handle 80,000 BBL/d of crude oil from the Bakken. For more information, see Industrial Info's project reports on the Energy Transfer and Hess projects.

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