One Thing Leads to Another—Sweet-spot Bakken Oil Means More Gas

Crude oil producers in the Bakken region responded to the oil price collapse with drilling cutbacks and a laser-like focus on sweet-spot areas with high initial production rates. It turns out those oil sweet spots also produce a lot of associated natural gas. But there’s not enough infrastructure in place to deal with the extra gas, and that’s slowing North Dakota’s efforts to reduce flaring (burning gas that can’t be utilized for various reasons). Today, we consider the multiple, domino-like effects that low oil prices are having on one of the U.S.’s most important tight oil plays.

By almost any measure, the Bakken region has been a super-success story. In 2008, before the shale revolution, the Bakken was producing less than 200 Mb/d of crude and about 250 MMcf/d of natural gas, on average; the latest (July 2015) data from the North Dakota Pipeline Authority (NDPA) showed crude production is 1.2 MMb/d and gas production has soared past 1.6 Bcf/d--six-fold increases for both hydrocarbons. With that kind of upstream growth, it’s not surprising that the midstream sector struggled to keep up. As we’ve blogged about often, the lack of oil pipeline capacity in 2011 led to the frenetic development of rail loading terminals (see Crude Loves Rock’n’Rail), and the dearth of gas pipeline capacity resulted in a significant amount of wasteful gas flaring—and a push to quickly develop new gas processing plants and gas pipeline capacity. Flaring usually happens when infrastructure to capture the gas and transport it to market haven’t yet been developed (see Not Fade Away) By mid-2014, midstream capacity was finally catching up with upstream production—just in time for the collapse in oil prices.

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When oil prices went south, Bakken producers slashed drilling; the drill-rig count in North Dakota, the heart of the play, stood at only 69 as of late September 2015 (down from 186 at the same time last year). Producers also focused their drilling on crude-oil “sweet spots” where they would get the highest initial production (IP – usually the first 30 days of output) rates—that approach provides quick inflows of needed cash and quicker breakevens on drilling/completion investments. It turns out, though, that the crude sweet spots also generate unusually high volumes of associated natural gas.

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