Monday, May 14, 2012

N. Dakota Oil Sets Another Record in March; Will Probably Surpass Alaska This Summer for No. 2 Spot

North Dakota Hockey Stick: Oil production has increased almost 6 times in the last 6 years.
The "Economic Miracle State" of North Dakota pumped another record amount of oil during the month of March at a rate of 575,490 barrels per day, which was an increase of 3% compared to February, and 60% above the output level from a year ago (see top chart above). The new record-setting production in recent months has moved the Peace Garden state ahead of California to become the nation’s No. 3 oil-producing state, behind only Texas and Alaska. If North Dakota continues to increase monthly output at the current rate, it will pass Alaska this year to become America's No. 2 oil-producing state, possibly as early as June or July. 

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 four-year low of 3.0% in March, and more than five percentage points below the national average of 8.1%. There were 10 North Dakota counties with jobless rates at or below 2.5% for March, and Williams County, which is at the center of the Bakken oil boom, boasts the lowest county jobless rate in the country at just 0.9%.  The exponential growth in North Dakota oil production has fueled exponential growth in the state's "Natural Resources and Mining" employment, which has tripled in less than three years, and reached 21,000 in March.  

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, a labor shortage, increasing tax revenues, the lowest foreclosure rate in the country, a strong real estate market, and jobless rates in many counties of the Bakken region below 2.5%.

23 Comments:

At 5/14/2012 6:55 PM, Blogger james said...

Because the population of some of the western states is so small. It does not take very much to get a big boost to their GDP a few major oil and gas development projects can raise their GDP by 25 percent in five years.

 
At 5/14/2012 7:02 PM, Blogger Mark J. Perry said...

Thanks, no matter how large the "economic silver lining," I can always count on one of my many loyal "nattering nabobs of negativism" to find the tiniest "economic cloud."

 
At 5/14/2012 7:04 PM, Blogger Jon Murphy said...

On a related topic:

Now is the time to get into sand

 
At 5/14/2012 7:32 PM, Blogger juandos said...

So as one of your loyal, "nattering nabobs of negativism" Professor Mark have you by chance come across anything that might indicate that the Bakken area will last as long as Alaska in its outout oil and or gas?

 
At 5/14/2012 7:57 PM, Blogger Larry G said...

piling on here.... WHEN will North Dakota EXCEED the PEAK of the Alaska oil?

looks like Alaska is now down to about a 1/3 of it's peak.

when will ND exceed that peak or will it ever?

 
At 5/14/2012 8:06 PM, Blogger Mark J. Perry said...

I completely understand, it's been documented that "pessimism porn" can be just as addictive as regular hard-core pornography.

 
At 5/14/2012 8:23 PM, Blogger Bruce Hall said...

You might get a chuckle out of reading this "expert" analysis of shale oil's "preposterous" promise:

http://www.energybulletin.net/node/11707

 
At 5/14/2012 9:28 PM, Blogger Benjamin said...

Good ol' Spiro Agnew and the "nattering nabobs of negativism!"

Look for California to completely smash ND in oil output in another five to 10 years. 65 percent of oil shale is in CA's Central Valley.

Oxy is drilling with great success. It is a commercial deposit.

If you want to get rich, open up a strip-joint honky-tonk bar in CA's Central Valley soon.

 
At 5/14/2012 9:34 PM, Blogger Unknown said...

@Bruce Hall: That is completely the WRONG kind of shale. The stuff coming out of the ground in ND is regular light sweet crude, encased in tight rock called shale. Your link describes thermally immature kerogen deposits that would need to be heated significantly in order to turn it into regular oil.

The stuff in Colorado, Utah and Wyoming would have been like the stuff in ND had it been buried at least a few thousand feet beneath the ground for some tens or hundreds of millions of years. But because it's found close to the surface, it never got "cooked" into petroleum.

You would not believe how many times I've had to explain this to people.

 
At 5/14/2012 10:45 PM, Blogger juandos said...

bruce haall regarding the Energy Bulletin bunch, well you should remember that they're a small collection of 'tree hugging, root kissing, bunny squeezers' who's only claim to fame is.... well its nothing at all as a matter of fact...

 
At 5/15/2012 2:05 AM, OpenID Alicechen53 said...

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At 5/15/2012 10:33 AM, Blogger Bruce Oksol - oksol@yahoo.com said...

The folks in Bismarck state that North Dakota production surpassed that of Alaska in March, and is apparently confirmed by officials in Alaska.

The March production figures were posted yesterday.

 
At 5/15/2012 11:06 PM, Blogger VangelV said...

Sad news. Alaska used to produce 2 million barrels per day in the late 1980s. It is now down to 500,000 barrels per day, low enough that a state with wells that produce an average of less than 100 bpd can surpass it. ND can never reach the level that Alaska managed during the 1980s and Alaskan oil production will continue down its path until it is no longer relevant. Of course, by the time it is down to 200K it should be even with ND once again but that is a subject for another posting.

 
At 5/16/2012 11:57 AM, Blogger SDG said...

Why is everyone a cynic? You are only seeing one formation for the most part being worked as of now - Bakken, and to some point, Three Forks. There are many other formations below the Bakken that have yet to be worked. An example would be the Tyler formation which by some accounts encompasses 1/3 of the state. If oil prices remain at a profitable level, you aint seen nothin' yet from ND.

 
At 5/16/2012 12:09 PM, Blogger Larry G said...

not cynical but put it in some kind of a real world context.

How "big" is ND compared to how big Alaska was at it's PEAK?

Are we looking at another Alaska-sized event or is this much smaller potatoes?

 
At 5/16/2012 12:36 PM, Blogger SDG said...

It's hard to say. "Experts" put max output at 1.0 - 1.2 mpd when it reaches it's peak. However, since those estimates were made, recoverable oil estimates have jumped 4-6 fold depending on who you talk to. And again.....they are not including non-conventional plays like the Tyler formation, Red River and more recently, they believe the Bakken has 3 different layers (payzones.) North Dakota is HUGE. REALLY HUGE. The only thing that will kill the development, is oil prices. There is so much to be discovered there yet. You are without exaggeration seeing the tip of the iceberg. I agree with you though, other states may catch up, because of the technology being developed in ND. However, the rock in ND is like no other in the world. Unknown was very right in his response to Bruce Hall.

 
At 5/16/2012 12:45 PM, Blogger VangelV said...

Why is everyone a cynic? You are only seeing one formation for the most part being worked as of now - Bakken, and to some point, Three Forks. There are many other formations below the Bakken that have yet to be worked. An example would be the Tyler formation which by some accounts encompasses 1/3 of the state. If oil prices remain at a profitable level, you aint seen nothin' yet from ND.

When operations depend on more and more borrowing and cannot generate positive cash flows it is easy to be a cynic. And it does make sense to see what happens to these formations after the easy oil is extracted.

 
At 5/16/2012 12:50 PM, Blogger VangelV said...

It's hard to say. "Experts" put max output at 1.0 - 1.2 mpd when it reaches it's peak. However, since those estimates were made, recoverable oil estimates have jumped 4-6 fold depending on who you talk to.

There are huge differences between Alaska and ND. The oil companies in Alaska were able to make huge profits and could finance their future drilling and development out of their cash flows. That has not happened in ND and the other tight oil areas. In those areas profits are limited to small operations in the best areas of the best formations. The average company has to keep adding debt to stay alive. That is not a prescription for long term success.

 
At 5/16/2012 1:07 PM, Blogger SDG said...

VangelV....I would disagree with you. Chesapeake is in trouble. Keep in mind they were a gas company trying to drill oil.....with poor success in ND. Many of these wells have IP's of 1,000-4,000 bopd. Do the math. It's huge. Many of these wells are paying themselves off within years. The problem lies in the leasing. The companies have to get ONE well down in their spacing units to retain the lease. Otherwise, when the lease term expires, usually 3-5 years, another company can come in and snatch the lease. Many Bakken wells are producing in one year what past legacy (vertical) wells produced in 40-60 years. It really is a different animal. And trust me, there are MANY companies making record profit. The inexperienced ones are doing poorly. Log on to NDIC's site and look at some of the cumulative production of these wells. Even with wells costing 7-9 million, look at the IP's and tell me how they aren't making a profit?? Also remember, these wells are predicted to produce for 30 years. Do you get 100% return on your investments immediately? No, it takes time.

 
At 5/16/2012 3:10 PM, Blogger VangelV said...

Chesapeake is in trouble. Keep in mind they were a gas company trying to drill oil.....with poor success in ND.

It was spun as a great success by Mark and many others who kept pointing to the production but ignored the capital destruction and debt problems. There is no evidence that the companies being hyped today are any better and I have never been big on faith based projections.

Many of these wells have IP's of 1,000-4,000 bopd. Do the math. It's huge.

I do believe that the numbers tell us a different story. I read somewhere that only around 20 Bakken wells produced more than 900 bpd and the average that Mark was showing not that long ago came out to be less than 100 bpd. The IP is quite meaningless because you are looking at less than half that level in a few days and a very small fraction within a month. I suggest that you dig out Mark's previous links to the EIA. For some reason he stopped reproducing them after it was shown just how little the wells were producing. My back of the envelope calculation shows less than 90 bpd from 6,636 wells that produced 576,000 bpd last month.

Many of these wells are paying themselves off within years.

Not many are. That is the problem. The only wells that do very well are those in the core areas of the best formation.

The problem lies in the leasing. The companies have to get ONE well down in their spacing units to retain the lease. Otherwise, when the lease term expires, usually 3-5 years, another company can come in and snatch the lease.

Yes, that is a huge problem. That is one of my points.

Many Bakken wells are producing in one year what past legacy (vertical) wells produced in 40-60 years.

I don't know about that. First of all, when you talk about legacy wells you are talking about shallow wells that were cheap to drill and easy to justify economically. Because they were drilled in the core areas the well payoff was quick. After a while the wells produced a few barrels per day of product that was mostly pure profit. The new wells cost millions to drill and wind up producing less than 100 bpd within a year or two. Most of them cannot generate enough revenues to justify the cost of drilling.

 
At 5/16/2012 3:10 PM, Blogger VangelV said...

It really is a different animal. And trust me, there are MANY companies making record profit.

It is easy to show an accounting profit if you use the wrong depreciation schedule and assume much greater recoveries than the production data is implying. What matters are cash flows. And when you look you find that most of the companies cannot finance their development from existing operations. That sets off the alarm bells for most prudent investors.

The inexperienced ones are doing poorly. Log on to NDIC's site and look at some of the cumulative production of these wells. Even with wells costing 7-9 million, look at the IP's and tell me how they aren't making a profit?? Also remember, these wells are predicted to produce for 30 years. Do you get 100% return on your investments immediately? No, it takes time.

Let us focus on the big picture please. We read, "North Dakota produced an average of 575,490 barrels of crude oil every day in March, another record, according to Lynn Helms, director of the state’s Department of Mineral Resources. The crude is coming from a record 6,636 wells. In February, the state produced 558,255 barrels and had 6,450 wells." As I said, the back of the envelope calculations show less than 100 bpd. Now you can argue that the number is low because of the older legacy wells but there are very few of those.

It is clear that the data is not great and that we are not always looking at the same month end. But that does not matter all that much because the bigger picture is pretty clear. And it is not showing what you think it does. If you want to do your own calculations see Mark's previous posting from a week or two ago when he showed the amount of new drilling and what that meant to the cumulative production rate. The numbers looked quite bad for the optimists because even new high IP wells could not get the average number to go very high.

 
At 5/17/2012 10:46 AM, Blogger SDG said...

VanglV...enjoy the banter. We will meet again. I love a conversation that isn't fanatical. I will research your points and come back with my tail between my legs or more info. Regards!

 
At 5/17/2012 4:36 PM, Blogger VangelV said...


VanglV...enjoy the banter. We will meet again. I love a conversation that isn't fanatical. I will research your points and come back with my tail between my legs or more info. Regards!


I look forward to a discussion. Jut make sure that you do your own thinking and your own calculations. It is one thing to hear about production rates being at one level or another. It is another to get the actual data, look at the incremental increase in wells and the incremental increase in production, and calculate the average production for these wells for yourself. Keep in mind that there are many factors that change the numbers a bit but if you pay attention to the bigger picture it is easy to avoid being fooled by the noise or the narrative.

 

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