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Bakken operators facing shift to less prolific geography: study

Highlights

North Dakota output breaks records as operators drill best acreage

Remaining wells made up largely of low producing geography

Bakken peak performance may hinge on technology

Washington — North Dakota oil producers have broken output records already twice this year, with state regulators expecting further record-shattering output into late 2018.

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But as acreage within the Bakken Shale's core drilling areas in McKenzie, Mountrail, Williams and Dunn counties nears depletion, operators will move on to wells in what are now fringe areas, with outputs averaging a fraction of the play's more currently prolific wells, according to a study from the North Dakota Pipeline Authority.

The study shows an epic shift in Bakken well performance could be nearing, as the majority of Bakken wells go from geology with a peak monthly performance of at least 1,000 b/d of crude to a majority of wells in geology that produces a peak monthly performance of less than 500 b/d, even in the study's higher case outcome.

And while an output decline may still be decades away, producers may need to develop two or three times as many wells compared with current efforts in order to keep up the current production pace, the study indicates.

Still, there are several unknowns that could alter this outcome, including future oil prices, midstream infrastructure development and potential advancements in drilling technology that may boost well performance in fringe geology, according to Justin Kringstad, director of the North Dakota Pipeline Authority and the author of the study.

"The production decline is inevitable, but the timing is uncertain as to how this is going to play out," Kringstad said in an interview with S&P Global Platts. "The big unknown right now is how much new technology is going to impact the fringe areas of the play."

Advancements in well optimization could allow new wells to draw more oil out of even less-desirable Bakken geography and drilling technology leaps could reinvigorate older wells.

The study looked at peak monthly output in existing and remaining wells within the Bakken and the Three Forks formation, which lies below.

Among the study's findings:

  • Of the nearly 8,000 existing Bakken wells, 49% are located in geology with a peak monthly performance of over 1,000 b/d, with 18% in geology with peaks over 1,500 b/d. Just 14% of existing wells are located within geography with peak monthly performance below 500 b/d.
  • Of the remaining, more than 31,100 Bakken wells, only 20% are located within geography with peaks above 1,000 b/d in the study's low case, which assumes that four wells will be drilled within a 1,280 acre spacing unit, and 23% in the study's high case, which assumes drilling eight wells in a spacing unit.
  • Of the remaining Bakken wells, 44% are located in geography with peak performance below 500 b/d in the low case and 41% in the high case.
  • While the majority of existing wells are located in geography with well performance of 1,000 b/d or more, the majority of remaining wells will likely be located in geography with well performance below 500 b/d.

The study shows that as operators move out of the core, average Bakken well performance could plummet.

According to S&P Global Platts Analytics, initial production rates within the Bakken's core average between 801 b/d and 1,000 b/d of crude oil. Moving out of the core could cut average initial production rates by as much as 80%, according to the analysis.

The Bakken and Three Forks formations have an estimated mean oil resource of 7.4 billion barrels of undiscovered, technically recoverable oil, with a range of 4.42 billion barrels to 11.43 billion barrels, according to a 2013 assessment by the US Geological Survey. The agency is currently updating that assessment.

Current technology only allows operators to produce about 15% of a resource before a reservoir is considered depleted under primary recovery, according to Platts Analytics. Average primary recovery, which depends on natural flow or artificial lift, can range between 10% and 25%.

Secondary recovery rates, which often require water or gas injections in a nearby well to push oil to a producing well, can range from 15% to 30%. Tertiary Recovery, which is also referred to as enhanced recovery and often uses chemical injections, can see rates ranging from 10% to more than 40%, according to Platts Analytics.

The near-term path of Bakken output, however, may be hindered by a lack of gas capture infrastructure and limited skilled workforce in the state, Kringstad said. Long-term output may hinge on development of oil takeaway capacity, he said.

North Dakota officials last week announced that oil production averaged nearly 1.27 million b/d in July, breaking the record of nearly 1.25 million b/d in May, which broke the previous record of 1.23 million b/d set in December 2013. The North Dakota Pipeline Authority forecasts statewide production to gradually peak between 1.9 million b/d and 2.3 million b/d within about 15 years.

-- Brian Scheid, brian.scheid@spglobal.com

-- Edited by Keiron Greenhalgh, newsdesk@spglobal.com