Rystad Energy: Shale Newsletter - June 2017

Bakken Shale performs even out of the limelight

With the recent heightened attention to the Permian plays, Bakken Shale has taken a back seat in the North American shale landscape. However, the play remains attractive and operators have been adding rigs and completion crews during H1 2017.

Since the beginning of the year, rig counts in Bakken have increased by around 25%, from 36 rigs in January to 45 by the end of May. Marathon Oil has increased activity the most from one to eight rigs, while Whiting Petroleum, ConocoPhillips and Continental Resources have maintained a stable rig count of 4-5 rigs each. Hess added a rig in late February and another in April, bringing its rig count in the play to four.

Additionally, well performance and economics have improved over the last year and into Q1 2017, with increasing IPs, EURs and falling breakevens. The highest increase in 30-day IPs has been realized by Marathon Oil and Whiting Petroleum for wells put on production in 2016, as shown in Figure 1. Marathon Oil, specifically, has transitioned to enhanced completions with higher proppant use and more stimulation stages (45-50), focusing on the Myrmidon area in Mountrail County. Similarly, Whiting has achieved significant well performance improvements over the last year through larger fracs with 40-stage completions. ConocoPhillips, Continental Resources and Hess show sizeable IP improvements in the first quarter of 2017.

A marked high-grading of acreage has been observed in Bakken as can be seen in Figure 2. Around 80% of the wells completed in Q1 2017 were in the core area of the play, compared to only 50% back in 2013. In Q1 2017, most top operators were completing wells in the core parts of their acreage (Figure 3). Tier 1 and Tier 2 wells have the best average breakeven prices (25^th percentile and 25^th to 50^th percentile respectively) and constitute the core, while Tier 3 and Tier 4 are classified as non-core and include wells with lower breakeven prices. Marathon Oil and Hess were focused exclusively on the Tier 1 acreage during the quarter. Alternatively, QEP Resources and Statoil completed only 60% and 25% of Bakken wells in the core, respectively.

Improved well performance from larger completions and acreage high-grading combined with well cost reductions seen over the past year contribute to Bakken exhibiting one of the lowest wellhead breakevens among US shale oil plays (Figure 4).

For the wells completed in 2016-2017, wellhead breakevens average around 38 USD/bbl for the play, and around 36 USD/bbl in the core acreage. Continental Resources has one of the lowest wellhead breakevens at 28 USD/bbl, while Marathon, Oasis and Hess exhibit wellhead breakevens around average.

Given the, albeit cautious, expansion in activity, a large inventory of drilled uncompleted wells and favorable well economics, Bakken light oil production is expected to grow in the second half of 2017. A light oil addition of 20-25 kbbl/d is estimated in April, while the drilled not yet producing inventory is expected to contribute materially to the growth in Q4 2017, keeping production in the play relatively flat year-over-year.