[Editor's note: A version of this story appears in the April 2019 edition of Oil and Gas Investor. Subscribe to the magazine here.]

With earnings’ season upon us, watercooler discussions are swirling around questions about shale. This month, Stratas is shining a light on the Bakken Shale, the granddaddy of shale oil. Our aim is to draw attention to new information arising from recent company announcements that could shape the play in the near term.

Recent activity and renewed guidance from operators suggest stable rig counts and lower production growth for the Bakken in 2019, a departure from stout growth in 2018. Hess Corp., the first major Bakken operator to report financial results earlier this year, communicated that its production rose 7% from the third quarter to 126,000 barrels of oil equivalent per day (boe/d) despite some minor weather challenges in the final quarter of the year. Given the recent extreme weather conditions, Stratas expects another challenging quarter in the region. Fortunately, current prospects for spring flooding look low, according to National Weather Service reports. Snow packs and soil saturation levels are low due to dry conditions.

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Stratas estimates 2019 year-end production of 1,693 Mboe/d for the Bakken, essentially unchanged from the 1,680 for December 2018. This stable production outlook reflects the play’s relative maturity and expectations for operators to live within cash flow. Rig counts are expected to range between 60 and70 during the next two years. Notably, rail exports of Williston Basin crude have been holding steady at roughly 20% of production, while refinery processing in the region dipped slightly, according to North Dakota Pipeline Authority reports.

Price volatility rose in 2018 on shifting upstream investments in shale, global trade uncertainty and risks associated with supply-demand fundamentals. As a result, leading operators adopted a variety of hedging strategies in different basins. This is also true within the Bakken community. Generally, Bakken operators have hedged around 60% of estimated 2019 production.

Since early 2008, when hydraulic fracturing began to take hold in the Bakken, operators in the top two categories (MVPs and All-Stars) controlled roughly 30% of all wells turned online. Recently, we have seen these top operators move to controlling nearly 90% of all wells in the play.

Stratas frequently refers to the following categories for producing wells: MVPs, All-Stars, Starters, Second-String and Benchwarmers. MVPs are wells which have achieved peak rates (30-day average rate) of 800-plus boe/d, All-Stars post 400 to 799 boe/d, Starters post 200 to 399 boe/d, Second-Stringers post 100 to 199 boe/d and Benchwarmers post zero to 99 boe/d.

What’s behind the rising share of MVPs and All-Stars? Improving knowledge of geology and completions. Digging into completions a little further, MVPs averaged just less than 550,000 pounds per 1,000 foot of lateral length in 2013, while All-Stars averaged just over 420,000 pounds per 1,000 foot lateral.

Meanwhile, Starters typically used under 375,000 pounds per 1,000 foot. Since then, MVPs have been trending north of 1.2 million pounds per 1,000 foot, and All-Stars are trending just below at 1 million pounds per 1,000 foot, while Starters are using just over 600,000 pounds per 1,000 foot.

Looking into 2019, top operators are expected to continue pushing proppant thresholds, with completion techniques breaking the 1.5 million pounds per 1,000-foot bar.

The differences in proppant usage have led to improvements on peak rates of around 40%. Average peak rates for the MVPs increased from approximately 1,000 boe/d in 2013 and now trend north of 1,400 boe/d. The market share of MVPs in the Bakken has risen from approximately 20% of total wells turned online in 2013 to nearly 70% currently.

Lateral lengths in the Bakken have remained relatively unchanged for years. However, that is not the case with completions. Higher proppant loadings (pounds of proppant per thousand foot of stimulated rock) have become more common in recent years.

The Bakken rebounded in 2018, with operators putting more capital and rigs back into the play. Production of about 1,550 Mboe/d represented more than 10% of U.S. shale production in 2018. Going forward, we anticipate the Bakken to continue its transition into harvest mode. Rig counts are expected to range between 50 and 70 with capex ranging from $1- to $2 billion per year. Production is expected to grow 6% in 2019 to more than 1,660 Mboe/d, with an average production of about 1,750 Mboe/d during the next five years.

There is still running room for operators in the Bakken. By Stratas’ estimates, the top quintile wells have enough locations to keep drilling into the early to mid-2020s with locations in the second quintile wells depleting in the early 2030s. Of course, changes in well design and completion techniques could alter this estimate. But for now, with breakeven prices on the majority of Bakken wells below $60 per barrel and ample drilling inventories, capital will continue to flow into the Bakken.

Stephen Beck can be reached at beck@stratasadvisors.com.

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