pump jack

A pump jack at a well site north of Williston.

There a pressure on the Bakken both from global market forces and ESG concerns. That’s likely to hold Bakken production flat through the foreseeable future, an Enverus analyst tells the Williston Herald.

“We’ve seen a huge move up in oil prices throughout this year, really a night and day difference from here we were 12 to 16 months ago” Steve Diederichs with Enverus said. “But with that, there’s also been a really kind of significant change in investors sentiment, that sort of not allowing or not encouraging operators to take advantage of the high oil price environment like they maybe would have say five years ago.”

What investors are looking for now, Diederichs said, is capital discipline, and, better still, returning capital to investors.

“That same kind of broad story holds true in the Bakken as well, where most operators are kind of viewing the play as sort of like a free cash flow engine, both to provide cash to redeploy to areas where they grow like the Permian, or kind of more significantly, to provide cash just to return to shareholders via share buybacks or dividends,” Diederichs said. “The way that most operators seem to be thinking about the play is kind of just deploy enough capital and activity to kind of hold things where they are and really just use their existing production base for free cash flow.”

The scenario suggests the Bakken will hang at the 1.1 million to 1.2 million barrel per day mark without much growth, and the chance of the play holding onto its spot as the nation’s No. 2 oil producers is unlikely.

“I would say (the chances) are quite slim,” Diederichs said. “If we were to kind of rank the most economic wells across the country, you kind of have to start with the Permian as No. 1 and more specifically the wells right around kind of the New Mexico Texas border are the most productive and economic.”

That area is less mature, and has a lot more runway compared to the Bakken, in addition to better economics.

“So just looking at the current activity levels in the Permian, that’s really the only U.S. oil basin that we’re projecting to grow for probably the next five years or so,” Diederichs said. “So I think you’re gonna see New Mexico overtake North Dakota fairly soon.”

It would take a significant change in market dynamics to return the Bakken to growth at this stage of its maturity, Diederichs added.

“The big thing is, you always kind of have to consider what OPEC is doing,” he said. “They’ve sort of shifted back to their role from a few years ago, kind of controlling the price to some extent and providing the marginal barrel. And they seem quite happy to kind of maintain what we like to refer to as kind of their Goldilocks price of around a mid-$60 Brent price.”

Bakken operators can still make significant money at that price point, of course. But the inventory of wells with the necessary economics to drill is dwindling. Bakken breakevens are around the $40 mark, while in the Permian, breakevens are around the $30 mark.

“In terms of how many locations operators have left (in the Bakken), it really kind of pales in comparison to say, the Delaware and the Midland Basin,” Diederichs said. “So without that huge kind of backlog of inventory, I don’t think you’ll see growth any time soon.”

Meanwhile, flaring continues to be a concern in North Dakota, particularly as there is more and more ESG pressure to improve emissions metrics.

“I think we’ll need to see kind of further work on the gas capture side of things or, you know, some of the larger kind of multinational companies could potentially look to divest their positions,” Diederichs said. “That’s sort of the easiest way to get rid of the exposure to the relatively high emissions productions.”

Particularly with activist investors, this is a space to watch.

Last but not least, uncertainty surrounding Dakota Access Pipeline has had a flattening effect all its own. Operators were hesitant to really grow production amid a scramble to source new takeaway from the Bakken, just in case legal rulings turned unfavorable.

“The shutdown seems like it’s more or less of the table,” Diederichs said. “And we’ve actually had an expansion of the pipeline, just due to some compressor station upgrades in the last couple of months. So really, the outlook there kind of did a complete 180.”

That’s had a positive effect on differentials in the Basin, even if it doesn’t alleviate the other market forces that will hold production flat for at least the next five to 10 years.

There are two potential wildcards in all of this. One would be the discovery of a new layer that is oil rich and economic to drill in the Williston Basin. North Dakota has more than just the Bakken layer with oil in it. Those layers are being tested and probed for their future potential.

The Bakken also has a large number of wells that were completed using old technology. All of them are potential candidates for refracturing. In general, they have only slightly worse economics than drilling a new well right now, and the techniques are continuing to evolve and get better.

They should continue to lengthen the Bakken’s lifespan, even as the state looks to pivot into the hydrogen game, which will put the state’s natural gas stream and favorable carbon capture geology to work producing decarbonized blue hydrogen.

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