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Bakken Crude Oil Production Drops in July: Who’s Losing?

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Bakken crude oil production and rigs

On August 10, 2015, the EIA (U.S. Energy Information Administration) released its Drilling Productivity Report. It estimates that in July 2015, the Bakken Shale produced 1.20 MMbpd (million barrels per day) of crude oil. This is 1.6% less than June 2015’s production levels. However, it is 4.7% greater than the production level a year ago. In July, the Bakken Shale’s month-over-month crude oil production dipped for the fourth time in a row.

The number of rigs working at the Bakken decreased to 69 in July, down from 75 in June. A year ago, there were 179 drilling rigs in the region. Most of these rigs are horizontal in trajectory or type.

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Shale oil production at the Bakken increased from ~138 Mbpd (thousand barrels per day) in July 2007 to ~1.20 MMbpd in July 2015. This represents a 771% increase in eight years. The EIA calculates that the average Bakken rig added production of 663 bpd (barrels per day) in July 2015, a 51% gain since July 2014.

Increasing US production has led to a fall in crude oil prices. As oil prices remain suppressed, oil producers will have less incentive to increase production. Crude oil production may even fall, as we’re now seeing with Bakken production.

What this means for energy companies

The recent fall in production can hurt Bakken Shale producers that may be behind this drop. Some Bakken-based producers include Denbury Resources (DNR), Continental Resources (CLR), SM Energy (SM), Marathon Oil Corporation (MRO), and EOG Resources (EOG). SM Energy and Marathon Oil Corporation together account for 2.95% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

Lower Bakken production is also negative for OFS (oilfield service) companies like Schlumberger (SLB), Baker Hughes (BHI), and Nabors Industries (NBR). OFS companies, which manufacture rigs and equipment and provide drilling services, could also lose if drilling activity decreases.

Williston Basin has highest tight oil reserves

The Williston Basin’s large size, as well as its number of wells, unlocked huge oil reserves in the region. The most productive formations for horizontal drilling and hydraulic fracturing are in the Williston Basin’s Bakken and Three Forks formations.

According to the EIA, the Bakken Three Forks play, which covers portions of North Dakota, Montana, and South Dakota, has the largest tight oil proved reserves in the United States.

In the next part of this series, we’ll look at crude oil and natural gas production at the Niobrara shale.

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