2012 September 14

The Master Resource Report  2012-09-14

North Dakota data

Every month the proponents and skeptics of North Dakota’s Bakken oil boom wait in anticipation of the update on the latest production numbers from the North Dakota State Industrial Commission. Over the last 12 months the 200+ rigs operating in North Dakota have been adding an average of 22,152 barrels of new production a month for an average monthly increase of 4.5%. But this week the month-over-month growth came in at 9448 barrels or only 1.4%.

Proponents shouldn’t despair and skeptics shouldn’t get too elated. If history is any guide the update next month will adjust up the July figures by between 3,000 and 5,000 barrels per day. Those revisions will be followed by another couple of thousand barrels per day over the next few month’s reports. There clearly is a data collection issue that takes about six months to normalize the production data.

However unless the rig count climbs the steep decline in the wells currently in production will begin to eat away at the production and it is this trend the skeptics are looking for in the data. For example if the wells that added new production in July 2011 declined just 50% (conservative decline rate) over the twelve month period it would require a substantial portion of the 211 rigs currently drilling in the state just to compensate for the one year old wells.

To give some scale to this issue keep in mind that the well count in North Dakota is up 66% since January of 2010 and 44% since the start of 2011. So about half of the producing wells currently operating in North Dakota are in or entering the steepest decline phase of their production which a number of reports indicated can reach over 80% in the first 12 months.

So those who are skeptical have a basis for their eager anticipation of the data and the enthusiast shouldn’t break out the champagne yet either. The reality is that it is going to take several more months before the trends can be truly evaluated in the data. However there is one tantalizing indication in the recent data. The average well production fell from 93 b/d to 92 b/d in the latest period.

Brent prices

Brent oil prices are again climbing above the $115/b price while the Opec basket price approaches that price point as well. Even the WTI benchmark is again flirting with the $100/b level. Just imagine what the price would be if Europe were not depressed, the U.S. wasn’t fight to stay out of recession and China’s growth hadn’t slowed to mid-single digit rates.

This is just one more example of why predicting the future price movement in oil is a game you can only lose. Remember all the predictions from just a few months ago that WTI was headed under $70/b?