Is the Bakken Beginning to Wither Away?


North Dakota's Bakken Shale is slowly marching toward a million barrels of oil production per day. That's an incredible rise and has been the fuel for America's energy bonanza. That said, production from legacy wells is declining almost as fast as production from new wells come online. That begs the question, is the Bakken beginning to wither away?

Take a look at the following chart from the Energy Information Agency, which shows the predicted production change from October to November:

Source: EIA

Note that drillers are expected to add more than 86,000 barrels of daily oil production this month. But at the same time legacy oil production from the wells these companies drilled in the past are expected to decline by about 60,000 barrels of oil. While the net change is a gain of 26,000 barrels of oil, what is happening here is that oil companies are, in essence, taking four steps forward and then three steps back.

This has prompted some concern about future oil production from the Bakken Shale. In fact, the EIA recently voiced its concern by saying:

In the Bakken region, where the total rig count has declined from a peak level last year, the improvements in rig and well productivity have barely offset the growing declines from currently producing wells. As a result EIA has significantly downgraded the production growth in the Bakken play, and unless there is a significant increase in well productivity, drilling speed, or a higher rig count, there will not be a return to production growth rates experienced over the past several years.

The good news right now at least is that drilling speed and well productivity have been on the rise, even as rig counts have declined. In fact, at last count the rig count was at a two-year low and 25% off the peak, while at the same time rigs are drilling wells 30% faster than before. Meanwhile, producers are increasing well productivity.

A great example of this is EOG Resources . The company's average 30-day oil initial production rate is up 50% over the past year. Not only that but EOG's average cumulative oil production through the first 100 days has improved by 58% over the same time. Further, the overall trend toward capital efficiency is enabling producers to drill more wells with less capital which is helping to keep production growing. For example, Continental Resources has shaved $1.2 million off its well costs over the past year and sees another half million coming off next year. This enabled the Bakken Shale giant to grow its production by 7% last quarter without having to overspend.

Further, Continental CEO Harold Hamm has gone on the record to say that he sees a lot more potential in the Bakken Shale than many give the play credit. Specifically, he sees improvements in technology that could one day boost the recovery factory of the play so that producers could even get more oil out of each well drilled. That's why he remains very bullish on the Bakken Shale's long-term potential.

Still, we are seeing Continental shift its strategy so that it's not putting all of its eggs in the Bakken Shale basket. Next year the company will spend a quarter of its capital to develop the SCOOP play. It's really taking a page out of EOG Resources playbook by investing in more than one key play. That diversification could turn out to be important if the technology doesn't develop to unlock more of the Bakken's oil.

This is an area that Kodiak Oil & Gas investors should monitor closely. The company is completely focused on investing in the Bakken Shale which has yielded triple digit production growth over the past few years, including a 54% pop in sales volumes last quarter. But if the Bakken does slow down, it would really hurt Kodiak because it currently doesn't have anywhere else to go.

Focus can be a really good thing for a company, but diversification does help make things a lot less volatile. That's why I like Continental's move to focus more attention on the SCOOP and think that EOG Resources is really well positioned in its three core basins. It will help both companies continue to profit from America's energy boom if oil production coming from the Bakken Shale does begin to whither away.

What's the best way to invest in America's energy boom?
The Bakken has helped to fuel record oil production that is revolutionizing the United States' energy position. It's anyone's guess how long that boom will last. That is why you need to make sure you are diversified outside of the Bakken. To help you get there, the Motley Fool identified three companies uniquely positioned to profit from this boom. To get those same, check out our special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free.

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Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of EOG Resources. 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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