Why the Bakken shale boom transformed US energy markets

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U.S. shale boom transformed U.S. energy markets

According to the U.S. Energy Information Administration (or EIA), the top seven unconventional oil plays accounted for 95% of domestic oil production growth. They also accounted for all domestic natural gas production growth during 2011–2013.

Shale Crude oil Production

In Market Realist’s series on shale oil and gas production, we discussed the Permian Basin production. Check out the article on Why the Permian shale boom transformed US energy markets.

In this series, we’ll discuss the Bakken shale oil production.

Shale Natural gas production

Bakken/Williston shale crude oil

According to the EIA, the Bakken region in North Dakota and Montana was the third largest crude oil shale in the U.S. at the end of September 2014. The Permian Basin leads the count, followed by the Eagle Ford shale.

Bakken Oil Production

Bakken holds a special place in U.S. crude oil growth

Crude oil production from the Bakken/Williston shale increased from 132,000 barrels per day (or bbl/d) in January 2007 to 960,000 barrels per day in December 2013. In other words, oil production here increased more than seven times.

The EIA estimates that the Bakken shale produced more than 1.1 million barrels per day (or MMbbl/d) of crude oil in September 2014. This accounts for ~10% of total U.S. oil production.

The horizontal drilling and hydraulic fracturing application, higher crude oil prices, and the formation’s large size and number of wells have unlocked huge oil reserves in the Bakken. The most productive formations are the Williston Basin’s Bakken and Three Forks.

The number of rigs in the Bakken increased from an average of ~49 in 2007 to ~194 in September 2014, up by ~300%. Most of these rigs are directional in trajectory, or type. Check out our articles on horizontal and vertical rigs.

What are the reasons for this growth?

A couple of other factors contributed to the strong Bakken oil production growth.

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  • Infrastructure development through more active participation of the midstream companies by constructing new pipelines and/or enhancing capacities.
  • Drilling efficiency gains, which the EIA defines as “average number of wells a rig can drill over a period of time.” As noted in the graph above, rig efficiency in the Bakken has started to accelerate in the past couple of years.

However, the high rate of production is leading to oil price decline. If oil price loses its competitiveness, oil producers will have less incentive to increase production and production may fall. Falling oil prices will hurt producers in the Bakken shale like Continental Resources (CLR), Whiting Oil and Gas Corporation (WLL), EOG Resources (EOG), and Hess Corporation (HES). Most of these companies are a part of the Energy Select Sector SPDR Fund (XLE).

In the next part of the series, we’ll discuss two key U.S. natural gas shales.

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