North Dakota Oil Production Holds Steady Near Record Highs

As per North Dakota’s oil regulator, the state’s daily crude output remained essentially flat in January after hitting the highest level on record in the previous month. The North Dakota Department of Mineral Resources’ (‘DMR’) latest data said that oil production in January averaged 1,402,402 barrels a day, down by a marginal 339 barrels a day (or a mere 0.02%) from December.

Meanwhile, natural gas output hit its highest level ever. The state churned out 2,720,006 thousand cubic feet per day in January, up from December’s 2,651,375 thousand cubic feet per day. Moreover, North Dakota’s total number of producing wells tallied 15,397 at the end of January, the highest on record.

Drilling Activity Remains Stable

The newest numbers showed that daily crude output remained above one million barrels for the 24th month, further confirming the status of North Dakota (centered on the Bakken formation) as one of the hottest shale plays in the United States.

As a proof of the region’s healthy drilling activity, some 66 rigs were exploring in the state in January, compared with the December average of 67. The all-time low of 27 was set in May 2016, while a year ago, North Dakota had 56 rigs operating.

Dakota Access Pipeline Capacity Expansion Bode Well

Apart from the robustness in oil prices, there is another factor that helped to speed up Bakken output growth – the 1,170-mile-long Dakota Access Pipeline. Energy Transfer L.P.’s (NYSE:ET) mega project came online in June 2017 with a capacity to carry about 520,000 barrels of oil per day (or nearly 40% of North Dakota’s output). The conduit has successfully bridged the gap between Bakken players and producers in other U.S. oil-producing areas like the Williston and Permian basins.

The geographically constrained Bakken Shale's crude has now better access to Gulf and East Coast refineries and also reaches international markets. The pipeline, where energy majors like Phillips 66 (NYSE:PSX) , Enbridge Inc. (NYSE:ENB) and Marathon Petroleum (NYSE:MPC) have invested, has helped to improve the region’s drilling economics by lowering transportation costs for operators.

Moreover, the pipeline’s service has bolstered the revival of Bakken output, with large operators like Oasis Petroleum Inc. (NYSE:OAS) counting on the Dakota Access Pipeline to send a major portion of their products to market.

But with the pipeline’s spare capacity vanishing rapidly amid high demand, there is a need for infrastructure that can allow for the movement of more oil. A recent expansion of the Dakota Access Pipeline and the proposed Liberty Pipeline, which will provide opportunity to shippers to secure transportation service from the Bakken production areas to Corpus Christi, TX, are touted as solutions. While the Dakota Access expansion has augmented the pipeline’s capacity by 50,000 barrels per day, the Liberty pipeline will have an initial throughput capacity of 350,000 barrels per day and is expected to start operations in another two years.

What Lies Ahead?

Oil prices have recovered some ground after plunging to a 17-month low of $42.53 a barrel on Christmas Eve but the commodity is still down more than 20% from four-year peak in October.

Oil has been pushed up by the so-called OPEC+ deal that is cutting production by around 1.2 million barrels per day until the end of June. U.S. sanctions against Venezuela and Iran continue to tighten supplies further but gains have been limited by worries about slowing global demand for crude. Soaring oil production in the United States are also putting some downward pressure on black gold.

With prices likely to stick within the range of $50 to $60 per barrel in the near term, oil volume in North Dakota is expected to experience muted growth as producer profits remain subdued. Winter weather and road restrictions in the coming months (likely to be reflected in the February data that will be out in April) will also put brakes on the region’s breakneck activity.

While the North Dakota oil growth engine could stall for the time being, production is nevertheless expected to remain robust.

Though a number of companies have built sizeable acreage positions in North Dakota, we have shortlisted two of them – Hess Corporation (NYSE:HES) and Marathon Oil Corporation (NYSE:MRO) – that might warrant attention. Both the companies own significant positions at the core of the Bakken shale play of North Dakota.

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