A good sign
One positive trend in the region is that as operators spend more time in the play, they are able to realize efficiencies and spend less capital to achieve the same amount of production.
You can see the North Dakota rig count has been flat or falling since roughly mid-2012. However, oil production has continued to grow.
One driver of this increase in production with fewer rigs running has been multi-well pad drilling, which is drilling more than one well at a prepared site (pad). For example, Continental Resources (CLR) has started to develop its Bakken assets using what it calls “mega-pads.” CLR has drilled more and more wells per site, and now the company is drilling 20 to 30 wells per “pad.” The company commented in a recent presentation, “These big pads become so efficient and give us confidence to believe that we can continue to drive down costs.”
Note that most Bakken operators have been able to drive down well costs over the past couple of years. For example, Continental’s 2012 average Bakken well cost was ~$9.2 million. This shrank to $8 million in 3Q13, and the company is targeting $7.5 million for 2014. Likewise, Oasis Petroleum (OAS) had an average well cost of $10.5 million over the first half of 2012 and $8 million in 3Q13, and it’s targeting $7.5 million for 2014. (Note that the well costs don’t include the benefit of using Oasis Well Services, the company’s in-house services operations. Using OWS, 3Q13 well costs would have been ~$7.5 million and 2014E well costs are estimated to be ~$7.3 million.) Kodiak Oil & Gas’s well costs were ~$12 million in 2012 and ~$10.3 million in 1H13, and they’re currently between $9.2 million and $9.5 million. Hess Corp. has seen perhaps the greatest improvements in well costs, starting at $13.4 million in 1Q12 and falling to ~$7.8 million in 3Q13.