Tuesday, January 10, 2012

North Dakota Sets More Oil Production Records in November; Above 500k Daily Barrels for First Time

The "Economic Miracle State" of North Dakota pumped another record amount of oil during the month of November at a daily rate of 509,754 barrels, which was 43% above last year's output, and the first time that the state's daily production exceeded 500,000 barrels (see chart above, data here).  Oil production in the Peace Garden State has more than doubled from 246,000 barrels per day two years ago, and North Dakota is now producing enough oil to completely displace the imports of crude oil from Colombia (364,000 bpd) or Iraq (422,000 bpd). 

Other highlights of the November production report: 

1. The number of wells producing oil in the state increased to 6,060, which sets a new record, and exceeds 6,000 wells for the first time ever.

2. The amount of oil produced per well also reached a record high of 84 barrels per day in November, which is 50% higher than the 55 barrels per day two years ago, and probably reflects both increasing productivity from fracking technology and drilling in more productive areas.  

3. The combination of a record number of wells producing oil at record-setting productivity levels has put North Dakota on a trajectory to surpass both California (539,000 barrels per day) and Alaska (555,000 bpd) this year to become the No. 2 oil-producing state in the U.S.  At the current pace of record-setting monthly gains, North Dakota's oil production is currently on track to break the 600,000 barrels per day level by next March, break the 700,000 level by next August, and exceed 800,000 barrels per day by the end of this year.  At that point, North Dakota oil could be enough to displace either Venezuela's or Nigeria's imports.  

4. North Dakota's oil production has now surpassed OPEC-member Ecuador's daily production of 485,000 barrels.    

As a result of the ongoing oil boom in the Bakken area, North Dakota continues to lead the nation with the lowest state unemployment rate at 3.4% for November, more than 5 full percentage points below the nation's average 8.7% rate for November.  There are nine North Dakota counties with jobless rates at or below 2% for November, and Williams County, which is at the center of the Bakken oil boom, boasts the lowest county jobless rate in the country at 0.9%.

Bottom Line: The ongoing record-setting oil production in North Dakota continues to make it the most economically successful state in the country, with record levels of employment and income growth, increasing tax revenues, the lowest foreclosure rate in the country, a strong real estate market, and jaw-dropping jobless rates in many counties of the Bakken region below 2%.

23 Comments:

At 1/10/2012 6:32 PM, Blogger Benjamin said...

The glut of natural gas looks like it will have legs.

Why? The next stop for industry oil hotspots is Ohio. They are soon to start doing the oil shale thing there---but will get a lot of gas as a sideshow. Free gas, so to speak.

Gas will be soft for years, maybe decades.

CNG baby? Methanol? LPG?


"The prices are low because there is a lot of gas available," U.S. Energy Information Administration industry economist Alex King said. "Production has grown dramatically over the last couple of years, particularly in 2011."

That's good news for consumers, who are likely to see low bills this winter if natural gas is their heating fuel (and, of course, if the weather stays mild), but potentially bad news for natural gas firms.

However, the Utica Shale (in Ohio), a rock formation thousands of feet below the eastern half of the state, is home to not only trillions of cubic feet of natural gas, but billions of barrels of oil and natural gas liquids. The latter is what attracted investment and will keep money flowing into Ohio, said Tim Rezvan, vice president of senior energy analyst at Sterne Agee.

"I don't think anybody went into this, picked up leases, with the intent of making money from dry gases," Rezvan said."

But the gas comes up with the oil.

 
At 1/10/2012 7:25 PM, Blogger Craig Howard said...

Gas will be soft for years, maybe decades.

Oh, I don't know. These things have a way of correcting themselves. Low prices spur demand.

 
At 1/10/2012 8:52 PM, Blogger VangelV said...

Oh, I don't know. These things have a way of correcting themselves. Low prices spur demand.

Actually, low prices seem to have a way of driving out high cost producers out of business. And when looking for high cost producers look no further than shale gas companies that need around $7.50 to break even.

 
At 1/10/2012 9:03 PM, Blogger VangelV said...

The "Economic Miracle State" of North Dakota pumped another record amount of oil during the month of November at a daily rate of 509,754 barrels, which was 43% above last year's output, and the first time that the state's daily production exceeded 500,000 barrels (see chart above, data here).

Funny how production per well is still below 100 bpd. That is not a lot for an industry that pays $5 to $7 million per new well and has a depletion rate of 75%-90% per year.

Oil production in the Peace Garden State has more than doubled from 246,000 barrels per day two years ago, and North Dakota is now producing enough oil to completely displace the imports of crude oil from Colombia (364,000 bpd) or Iraq (422,000 bpd).

If you look at the data you cited you will notice that it took the drilling of at least 1,653 new wells that cost almost $10 billion. I don't know about you but the math does not seem very promising to me. It means that you will need quite a bit of new drilling just to keep even with depletion and a hell of a lot more to increase production further.

This seems to be a problem that the shale optimists ignore. The story does not work unless you can guarantee easy financing. But given the fact that many of the players in the sector are overbought sooner or later the short sellers will come in with a vengeance. At that time the math and the fundamentals will matter and the financing gaps that are discussed on the conference calls will be much harder to fill.

 
At 1/10/2012 10:10 PM, Blogger PeakTrader said...

Oil producers seem to know oil prices will continue to rise, and they're correct.

If the U.S. and global economy had a strong recovery, oil would be soaring towards $200 a barrel.

 
At 1/10/2012 10:39 PM, Blogger Benjamin said...

The long-term trend is for commodities to get relatively cheaper, thanks to the inventiveness and ingenuity of man.

Now we will be getting natural gas as a byproduct of Ohio oil wells, that will pay for themselves.

IBM said today they have made serious progress on a lithium air battery. Possibly 500 mile range for a battery car.

The Oil Thug nations have been threatening their customers with expensive and erratic supplies for generations now. Threatening your customers with incredible price swings or cut-offs is probably not a business model taught at Harvard.

Every oil price spike is another nail in the coffin of crude oil. I expect within 10 years there will be a lot competitive options to the gasoline ICE vehicle.

Yes, the federal government should do everything in its power to make it easy to buy CNG cars, or PHEVs (without subsidy, that is).

Yes, the federal government is run by clods. That's okay--the free market will solve the "problem" of crude oil.

 
At 1/11/2012 12:11 AM, Blogger Unknown said...

One of the predictions I read for the coming year from one of those guys that likes making predictions is that fracking will be declared illegal and natural gas prices will shoot up into the stratosphere.

In fact, everytime I hear Mark make these posts about the energy revolution going on in America, the more I wonder how long it will be until Obama shuts this down.

Do a Google search for fracking and prepare to be afraid. The EPA in "studying the issue". In my mind, it's in the early steps of banning it.

Even odds that in 5 years the method will be banned or altered so drastically that its economic viability will be destroyed.

 
At 1/11/2012 12:36 AM, Blogger kmg said...

If the U.S. and global economy had a strong recovery, oil would be soaring towards $200 a barrel.

You are not a very good trader, are you?

Even $120 will not happen other than brief episodes of just a few days in length.

Oil well *never* stay above $120 for more than 60 days at a time. Never.

 
At 1/11/2012 12:56 AM, Blogger PeakTrader said...

kmg says: "You are not a very good trader, are you?"

You may want to see my comments on oil in the 10-1-11 CARPE DIEM post "How N. Dakota Became Saudi Arabia: Interview with Harold Hamm, Discoverer of Bakken Oil."

You'll discover I was bullish on oil and cited "Oil ETF - USL (currently a little over $35 a share)," which happened to be a multi-year bottom within a day or two (it closed at $45 today).

 
At 1/11/2012 1:11 AM, Blogger PeakTrader said...

kmg says: "Oil will *never* stay above $120 for more than 60 days at a time. Never."

I bet a lot of people felt the same way once about $1,500 gold.

 
At 1/11/2012 1:48 AM, Blogger PeakTrader said...

I think, if the U.S. had a strong recovery in 2009-10, somewhat similar to 1982-83, oil would rise towards $200, which would slow the recovery.

It's estimated a $100 increase in oil prices (to $200) will reduce U.S. real GDP growth 2%.

Also, I suspect, rising oil prices would hit the E.U. and China much harder.

 
At 1/11/2012 2:04 AM, Blogger PeakTrader said...

If we got the initial strong real growth through 2010, soaring oil prices would reduce growth.

However, the output gap would be smaller and unemployment lower. Perhaps, oil would remain above $100.

 
At 1/11/2012 8:05 AM, Blogger VangelV said...

Oil producers seem to know oil prices will continue to rise, and they're correct.

If the U.S. and global economy had a strong recovery, oil would be soaring towards $200 a barrel.


I agree. But the problem still comes down to the return on the energy invested. When oil prices soar so will the cost of producing, processing, and distributing shale liquids. And you will still need to drill thousands of new wells just to keep production from falling. Given that the core areas have already been largely exploited the new drilling will have to take place in areas that are not as prolific and have lower yields. That would make shale liquids a terrible bet compared to other sources, including tar sands and heavy oil deposits in places like Venezuela.

And let us note that energy prices act as a feedback mechanism. In the absence of a contraction oil would already have been well over $200. But when it got to $150 the economy was forced to adjust and the subsequent correction took prices down to $35 or so for a few months. While the trend is still very positive it is easy to see a similar event again. Of course, the next time around the cash rich conventional producers are likely to turn down the taps much sooner and let supply fall down to the demand level. It is better to conserve reserves and keep prices higher than to sell at a price that is well below the cost of marginal production.

 
At 1/11/2012 8:06 AM, Blogger VangelV said...

Now we will be getting natural gas as a byproduct of Ohio oil wells, that will pay for themselves.

It is obvious that you have never been on a conference call or looked at the cash flows of shale oil and gas producers.

 
At 1/11/2012 8:13 AM, Blogger VangelV said...

The Oil Thug nations have been threatening their customers with expensive and erratic supplies for generations now. Threatening your customers with incredible price swings or cut-offs is probably not a business model taught at Harvard.

This is one of the dumbest things that you have ever written. You should be grateful to the oil producing nations for selling you oil at less than what you pay for the equivalent volume of mineral water or coffee. And if you have been paying attention you would know that most of the oil producing nations are on the wrong side of Hubbert's Peak. What is shocking is the fact that many producing nations have pushed their wells as hard as they have when it is obvious that the best solution would have been to reduce early reliance on enhanced recovery methods that leave so much of the oil behind.

 
At 1/11/2012 8:17 AM, Blogger VangelV said...

In fact, everytime I hear Mark make these posts about the energy revolution going on in America, the more I wonder how long it will be until Obama shuts this down.

Obama is not important but the energy return on the energy invested is. On that front shale production has been a huge loser as it has destroyed capital in order to sell product at a loss. The company insiders understand this because if you listen to conference calls you will hear management talk about funding gaps, the need to get financing, and asset sales. When you have producers who are still showing negative cash flows after five years of producing in shale formations it is time to ask if the companies will ever be self financing.

 
At 1/11/2012 8:19 AM, Blogger VangelV said...

Oil well *never* stay above $120 for more than 60 days at a time. Never.

Of course it will. The USD has lost more than 95% of its purchasing power and shows no sign of reversing that trend. It is likely that one day you will pay $120 for a cup of coffee or a candy bar.

 
At 1/11/2012 11:24 AM, Blogger Bruce Oksol said...

The "average" well in North Dakota has been paid for.

The average well in 2010 produced 58 bbls/oil per day.

At $85/bbl, that's about $5,000/day/well that is paid for and a producing well has almost no expenses. Almost pure cash flow. $5,000/day/well -- almost pure cash flow.

**********

During a boom, credit is very, very important, and what a great time for easy credit terms: 0 percent effectively and per "Ben B." no sign of that changing in the near future.

As the boom matures, more and more companies will finance their new wells with internal cash flow; some are doing that now.

************

$120/bbl for more than a 60-day stretch. Who cares. The floor is $75 and Bakken wells are robust at $40/bbl (per one of the larger operators in 2010).

*************

Yes, Obama and EPA are looking for ways to shut this boom down; re-defining "diesel" is one step, but I think the oil companies in the Williston Basin see this coming and there are two obvious fixes.

***************

For investors: I believe a couple of years ago, one could have bought KOG for 60 cents/share. It is now around $10/share. And maybe the easy money has been made. I don't know; I guess it depends on how one defines "easy money."

 
At 1/11/2012 12:15 PM, Blogger VangelV said...

The "average" well in North Dakota has been paid for.

I do not believe that to be the case. Most of the long producing older wells have been shut down. The new wells take a few years to deplete but the rate is still very high. Without new financing the production rates would fall, not rise. That means that the producers cannot generate enough in cash flows and profits to justify their activities.

The average well in 2010 produced 58 bbls/oil per day.

At $85/bbl, that's about $5,000/day/well that is paid for and a producing well has almost no expenses. Almost pure cash flow. $5,000/day/well -- almost pure cash flow.


The data indicates that there were around 700 wells drilled in 2010. (The real number depends on the number of abandoned wells but I am not willing to waste my time looking up that figure.) That activity required around $4 billion in drilling costs, which is why the shale oil producers had to borrow as much as they did and why the conference calls keep mentioning funding gaps.

 
At 1/11/2012 12:33 PM, Blogger VangelV said...

During a boom, credit is very, very important, and what a great time for easy credit terms: 0 percent effectively and per "Ben B." no sign of that changing in the near future.

As the boom matures, more and more companies will finance their new wells with internal cash flow; some are doing that now.


I don't see much evidence of that. While some companies that have conventional production can use that cash flow to finance a few wells there is little evidence that there is sufficient cash flow coming from shale operations. The industry is destroying capital as its bet on shale gas was a terrible failure. Now the same players are trying to stay in the game by convincing the latest suckers that they can make money by shifting to shale liquids.

 
At 1/11/2012 4:00 PM, Blogger juandos said...

"If you look at the data you cited you will notice that it took the drilling of at least 1,653 new wells that cost almost $10 billion"...

Hmmm, vangeIV reminds me of something...

What part of that supposed $10 billion price tag is driven by rules, regulations, and fees from the EPA, other fed regualtions, and state and local regulations?

In 2008 the SBA released the following study: The Impact of Regulatory Costs on Small Firms

The following is from the executive summary: The annual cost of federal regulations in the United States increased to more than $1.75 trillion in 2008. Had every U.S. household paid an equal share of the federal regulatory burden, each would have owed $15,586 in 2008. By comparison, the federal regulatory burden exceeds by 50 percent private spending on health care, which equaled $10,500 per household in 2008. While all citizens and businesses pay some portion of these costs, the distribution of the burden of regulations is quite uneven. The portion of regulatory costs that falls initially on businesses was $8,086 per employee in 2008. Small businesses, defined as firms employing fewer than 20 employees, bear the largest burden of federal regulations. As of 2008, small businesses face an annual regulatory cost of $10,585 per employee, which is 36 percent higher than the regulatory cost facing large firms (defined as firms with 500 or more employees).

 
At 1/11/2012 5:27 PM, Blogger VangelV said...

What part of that supposed $10 billion price tag is driven by rules, regulations, and fees from the EPA, other fed regualtions, and state and local regulations?

Actually, not all that much. It is just expensive to drill horizontal wells with long latterals. The expense is not the problem. The problem is the high depletion rate and the low UR for the average well.

 
At 1/16/2012 11:45 AM, Blogger Jon said...

Great for the Bakken region. But it's a big country. Check this visualization of unemployment for the rest.

 

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