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I have been reading over the course of the last few months many different views on the where the oil boom is headed in North Dakota. I thought I’d offer my perspective on this and welcome other people’s thoughts.
I would first like to present this chart:
It may seem confusing, so let me explain what I’m trying to show here. The horizontal axis shows the year. Through the last quarter of 2012, we have data (or very close estimates). Past 2012, the dotted lines show my projections.
The primary vertical axis (left side), is used for the number of active rigs (quarterly average) and the % infill drilling and % economical leases drilled. The number of active rigs is straightforward. This number is published monthly by the NDIC.
The % infill drilling is the percent of active rigs that are drilling on leases that are already held by production. This is an important number. As this number increases, it means that oil companies are developing producing areas rather than searching for new reserves. This number is directly related to the next value, which is the percent of economical leases drilled. This is a somewhat arbitrary number, as it can be difficult to ascertain whether a lease is economical to drill or not. I would like to define an uneconomical lease as a lease that the oil company would rather let expire than develop, given no logistical constraints (rig shortage, etc).
On the secondary vertical axis, I have the number of producing wells, which is published monthly by the NDIC. I also have predictions on oilfield employment. Please note: unlike most of the other numbers, the oilfield employment numbers are not actual numbers. I just picked some arbitrary values. What I’m trying to show are the trends and how production relates to drilling.
As the rig count drops, the employment in drilling and completion related operations decreases as well. The change in employment will typically lag the change in rig count by weeks or months depending on the service.
The production related employment will continue to rise as long as more wells are being completed than being abandoned. Obviously, a producing well employs far fewer people than a well being drilled. However, these jobs are typically more stable.
What I’m trying to show is how I believe that jobs directly involved in the oilfield are nearing a plateau. Certainly, people are being hired, but a similar number are being let go or transferred. I see only modest increases in direct oilfield employment over the next several years.
What I don’t show is Williston Basin employment that is not directly involved in the oilfield. This, I believe will still be growing rapidly for several more years. However, this too will eventually catch up. If developers are not cautious, they may overbuild.
With the price of oil under $100 per barrel, hasn't that really slowed down new hires? Also, not long ago, we were told there were 210 rigs at the beginning of 2012 and in October, there was only 204 rigs. The chart doesn't reflect that. Or were we fed bad data?
Well, at the beginning of the year, this website showed 210 drilling rigs. It currently shows 189 drilling rigs. That's a pretty significant reduction in drilling rigs. https://www.dmr.nd.gov/oilgas/riglist.asp
According to Lynn Helms, North Dakota created 35,000 jobs in 2011 and are due to add another 10,000 this year. The trend won't peak until 2020 with over 65,000 jobs created. I imagine graph wise, it would show a plateau with slower growth over the next decade or so yes?
I think that's direct jobs. I wonder how many indirect jobs are being created? As crazy as it is up here, the numbers have got to be higher. There's more than 20,000 people who have moved to ND if we only count population growth for Minot and Williston.
Well, at the beginning of the year, this website showed 210 drilling rigs. It currently shows 189 drilling rigs. That's a pretty significant reduction in drilling rigs. https://www.dmr.nd.gov/oilgas/riglist.asp
Me too. The newsman said 8000....I must have missed something too. The only explanation I have is some are drilling...some are producing. Hopefully someone will be able to clarify.
It's a drop in rig count, but aren't they trying to transition to multi pad drilling rigs now? Lowers rig count, but keeps up with efficiency or some such?
According to Lynn Helms, North Dakota created 35,000 jobs in 2011 and are due to add another 10,000 this year. The trend won't peak until 2020 with over 65,000 jobs created. I imagine graph wise, it would show a plateau with slower growth over the next decade or so yes?
I think that's direct jobs. I wonder how many indirect jobs are being created? As crazy as it is up here, the numbers have got to be higher. There's more than 20,000 people who have moved to ND if we only count population growth for Minot and Williston.
For sure, more indirect jobs will be created in this boom than direct oilfield jobs. These jobs will continue to boom for quite some time. However, they too will plateau if there isn't a substantial increase in rig count. If you look at the number of jobs created: 35k in 2011 and 10k forcasted for this year. I see that number steadily declining, with the vast majority of those jobs not being directly oilfield related.
Quote:
It's a drop in rig count, but aren't they trying to transition to multi pad drilling rigs now? Lowers rig count, but keeps up with efficiency or some such?
Rigs have generally become more efficient as time goes on in the Bakken (less time to complete a well). And with pad wells and walking rigs, it is certainly possible to complete holes faster. However, a single rig drilling 2X as many holes per year will employ far less people than 2 rigs working at 1/2 the pace.
I think Lynn Helms is overly bullish about the forcast in the area. 6-16 wells per additional spacing unit? In the real prime areas, yes. However, I don't see that happening over much of the Bakken. Operating companies will begin seriously looking at secondary and tertiary recovery programs before such a well density becomes the norm.
You have to remember how much money it takes to drill a Bakken well. If a Bakken well doesn't cumulate 100,000 barrels in the first 2 years, most likely it will never pay out. Many companies are drilling wells on leases that will never pay out. They are only drilling them to tie up the leases, with the hope that future improvements in drilling and completions will render the area profitable. These companies are NOT going to continue to infill these areas with more wells unless they become economical to drill.
I think Lynn Helms is overly bullish about the forcast in the area. 6-16 wells per additional spacing unit? In the real prime areas, yes. However, I don't see that happening over much of the Bakken. Operating companies will begin seriously looking at secondary and tertiary recovery programs before such a well density becomes the norm.
You have to remember how much money it takes to drill a Bakken well. If a Bakken well doesn't cumulate 100,000 barrels in the first 2 years, most likely it will never pay out. Many companies are drilling wells on leases that will never pay out. They are only drilling them to tie up the leases, with the hope that future improvements in drilling and completions will render the area profitable. These companies are NOT going to continue to infill these areas with more wells unless they become economical to drill.
+1
It takes about 10 million dollars to complete and frac a well. If you can't recoup the money in less than 2 years, depreciation of the asset and inflation in the economy will ensure you lose money on the deal. Given the geology boundaries of the formations really aren't locked down (they have a good idea though), I think the rigs will hold steady. Also, technology is always improving and you can do more now with fewer employees than in the 1980s and 1990s. That just tells me the numbers just aren't there for large numbers of energy workers like in the past.
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