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What a Difference a DAPL Makes - How the New Crude Pipeline May Spur Bakken Gains

A number of the Bakken’s leading producers are talking up the shale play’s prospects for crude oil production gains in 2017—and especially in 2018—but we are still waiting on numbers that would prove that the play has truly turned a corner. What is crystal clear, though, is that the Bakken’s biggest takeaway project ever, the 470-Mb/d Dakota Access Pipeline to Illinois, is finally nearing completion and operation after a very public delay. When DAPL comes online this spring, it will further reduce crude-by-rail volumes out of the Bakken and should help to increase the odds that production in the play will begin to rebound in earnest. Today we update production and takeaway capacity in the nation’s third-largest crude-focused shale play.

The Bakken formation, and especially the core of the play in western North Dakota (where well over 90% of total Bakken production occurs; most of the rest comes from eastern Montana), proved to be one of North America’s most prolific and fast-growing crude oil production regions in the early years of the Shale Revolution. As we said recently in I Can See Clearly Now, forecasters routinely underestimated how quickly Bakken crude production would grow. For one thing, many failed to appreciate the ability of producers to increase their drilling and completion efficiencies; for another, it was remarkable how rapidly the midstream sector responded to the Bakken’s serious (and growing) pipeline takeaway shortfalls earlier this decade by building more than 20 terminals where crude could be loaded into rail tank cars for delivery via existing rail networks. In Slow Train Coming, our 2016 Drill Down Report on crude-by-rail, or CBR, we discussed the fact that railroads moved more than half of the oil produced in North Dakota through all of 2013 and 2014, and that while new pipeline capacity continues to be developed (including the Dakota Access Pipeline, which we will get to in a moment), CBR still plays an important role in the Bakken.

When oil prices started collapsing in mid-2014, producers pulled back on drilling. According to Baker Hughes, an average of 170 rigs were active in North Dakota in January 2014, when Bakken output was still rising fast. A year later (January 2015), the rig count was only down 15, to 155 (producers were hoping the price downturn wouldn’t last), but by January 2016 the count had shriveled to only 46 (red dashed line and right axis in Figure 1). And the downward slide didn’t end there: in both May and June 2016 an average of only 27 rigs were active in North Dakota—one-sixth as many as there were in January 2014. Since last spring, the rig count has been recovering (albeit only gradually, and in fits and starts), averaging as high as 35 in November before slipping to 32 (on average) in December and inching up to 34 and 35, respectively, in January and February 2017.

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