US Bakken rig count hits highest total in nearly two years as upside grips play

Bakken gas production continues to show upside as the rig count strikes its highest number in nearly two years while flaring and takeaway capacity improve.

Bakken gas production averaged 3 Bcf/d during the final quarter of 2022, according to data released Feb. 14 by the North Dakota Department of Mineral Resources. Operators flared just under 6% of all gas produced during the quarter, which is the lowest amount flared on record due to added gathering and processing capacity. With 200 MMcf/d of gas being flared in the Bakken, molecules to market could increase on new infrastructure alone.

S&P Global Platts Analytics forecast Bakken shale oil production to increase 155,000 b/d in 2022, or around 10%, reaching nearly 1.4 million b/d by the end of the year. This will drive associated gas production growth in the Bakken. Platts Analytics is forecasting Bakken dry gas production to increase more than 400 MMcf/d, or 20%, by late 2022.

Enverus calculates the number of active Bakken rigs at 35 as of Feb. 9, which is the highest count in the Williston Basin since April 2020.

Increased Bakken gas could displace more Canadian supply to other routes into the Midwest in the current elevated price environment, lending bearish pressure to cash AECO prices. If increased Bakken supply backs into a weaker AECO basis, downstream Midwest markets could see downwards price pressure in turn.

Expanding Western Canadian production is another factor that could lead to lower prices at AECO and the US Upper Midwest. Production in 2021 fell just short of decade highs, so a planned 1.2 Bcf/d increase in 2022 will mean record production for the region. This production strength would allow for exports into the US Midwest to maintain their current strength around 4 Bcf/d through the winter of 2022-2023 and also allow for storage to fill back to nearly five-year levels by the end of this summer.

Bakken internal rates of return are more than 50% according to Platts Analytics. Only the Permian Delaware and the Eagle Ford shale boast higher IRRS. Platts Analytics forecast WTI will average $72.31/b and Henry Hub will average $4.31/MMBtu in 2022, which is higher than last year and provide operators with another strong year of earnings.

Platts Analytics IRRs are based on a half-cycle, after federal corporate tax analysis, which excludes sunk costs such as acreage acquisition, seismic and appraisal drilling.