Bakken Players Curbed Activity on Lower Oil Prices

Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Lower crude oil prices left upstream operators on the sidelines for the early part of the year, though activity may be starting to pick up, North Dakota regulators said.

North Dakota is home to the Bakken shale formation, an early industry darling at the start of the latest shale boom. Accounting for about 10% of total inland crude oil production, regulators said last week that operators were deterred by the market.

"In May and June, certain operators had, because of the low-price environment, curtailed some production in the state," Nathan Anderson, the director of the North Dakota Department of Mineral Resources, said Friday.

Apart from early-year spikes, and during the brief summer conflict between Iran and Israel, crude oil prices have been trading largely in the mid-$60 range for much of the year. West Texas Intermediate, the U.S. benchmark for the price of oil, was trading at around $64 per barrel early Monday.

Upstream services companies were less than optimistic in their second quarter reporting. Kaes Van't Hof, the director and chief executive officer at Diamondback Energy Incorporated (Midland, Texas) said in a letter sent to shareholders early this month that the U.S. shale sector may have plateaued in terms of production.

"We continue to believe that, at current oil prices, U.S. shale oil production has likely peaked and activity levels in the Lower 48 will remain depressed," he said.

Federal data show North Dakota crude oil production is on pace to average 1.13 million barrels per day (BBl/d) both this year and next, a marginal decline from the average of 1.16 million BBL/d from last year.

State data showed production averaged 1.15 million BBL/d in June, a 3.5% improvement over the prior month. Anderson added that his department believes operators came back online in July and August.

Anderson said earlier this year that Bakken producers needed crude oil priced at around $60 to make a drilling profit. Against his optimism on future trends, the federal government is forecasting a dramatic decline in crude oil prices, with WTI dropping from an average of $63.58 per barrel this year to $47.77 by 2026.

From a monthly report last month, he added that the gas-to-oil ratio in the Bakken formation was changing and yielding more natural gas as a result.

As the field matures due to production, heavier molecules associated with crude oil get trapped in subsurface pores while allowing lighter compounds such as natural gas to flow to the production well.

Gas production in North Dakota is expected to remain unchanged at 3.3 billion cubic feet per day. That was enough, however, for the North Dakota Public Service Commission to sign off on plans by Basin Electric Power Cooperative (Bismarck, North Dakota) to construct the natural gas-fired Bison Generation Station, which would be North Dakota's largest power plant.

The roughly $4 billion plant is designed to utilize two natural gas-fired, combined-cycle units to produce up to 1,490 megawatts of power. The first unit is slated for construction by late 2028, with commercial operations coming the following year.

Preliminary site work is expected to begin this fall.

Subscribers to Industrial Info's Global Market Intelligence (GMI) Power Project Database can learn more by viewing the project report.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).