Massive July Jump in Bakken Oil Production


Photo credit: ConocoPhillips

Oil production in North Dakota exploded higher in July. This is according to new data from the state's Industrial Commission's Oil and Gas Division. Overall, production jumped by 55,000 barrels per day to a total just below 875,000. To put those numbers into perspective, total U.S. oil production in July was just 7.5 million, meaning North Dakota now represents almost 12% of that total.

The large monthly production jump is really related to two factors. First, weather has been holding back the completion of wells all year. Now that the weather has cleared, these wells are now finally just coming online. In addition to this, producers are getting better at finding the best formula to unlock more oil from the wells that are being drilled.

Behind July's gusher
July's jump shouldn't come as a surprise. Oil producers from Oasis Petroleum to ConocoPhillips all noted that terrible spring weather left several wells waiting to be completed. In Oasis' case, it thought it would complete nearly as many wells this current quarter as it had completed in the first half of the year. Meanwhile, Conoco blamed the wet weather for its meager 3% quarter-over-quarter production jump. Conoco certainly expects more out of the play given that it is projecting an 18% compound annual production growth rate from the play through 2017. Overall, wet weather left nearly 500 wells drilled, but not completed.

Now that the weather has cleared, frack crews were able to get wells completed. However, there are still 460 wells that are waiting to be completed. This is because more than 200 were drilled in July, which means there is still a lot of pent up production just waiting to be unleashed. This should also keep oil-field service companies very busy this summer, while providing booming production numbers for producers as the year goes on.

In addition to this, oil companies are now more focused on drilling the best spots in the play, while also using better completion techniques to unlock more oil. For example, Kodiak Oil and Gas has been focusing its efforts on oil rich Dunn and Williams Counties, while also using ceramic proppants as the focus of its completion techniques. This is leading to excellent initial production rates, as evidenced by the fact that the company recently drilled three of the Bakken's most recent top ten wells as measured by the initial production rate. As companies continue to discover what works in the play, it will keep production growth flowing.

Obstacles still to overcome
That being said, there is still one major issue holding the Bakken back and that's infrastructure. For example, while North Dakota produced a record 9.7 billion cubic feet of natural gas per day in July, nearly a quarter of that was flared. Part of the problem was that Oneok ran into some mechanical problems at one of its natural gas processing plants. However, the overarching issue is that there still isn't enough processing capacity or pipelines to get the gas to market.

It's not just the gas either. Nearly 67% of the oil produced in July was shipped by rail. While that has been a boom for railway companies like Warren Buffett's Berkshire Hathaway , it has the potential to become a big future problem. It was Bakken oil that was to blame for the tragic disaster in Canada's Lac Megantic. The problem that regulators are finding is that the railway cars carrying Bakken crude are not always properly labeled, which was the case in the oil carried by the runaway train in Canada. If another disaster of that magnitude were to occur it could put the brakes on the crude-by-rail phenomenon, which could also put a halt on production growth as there just aren't enough pipelines yet built to carry all the crude oil.

Final Foolish thoughts
Those issues aside, the Bakken continues to deliver game-changing oil production. It's the leader of the oil boom that no one saw coming. It's also a boom that's showing no signs of slowing down.

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Fool contributor Matt DiLallo owns shares of ConocoPhillips. Matt DiLallo has the following options: long January 2014 $70 calls on Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway and ONEOK Partners, L.P.. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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