Bakken well costs likely peaked for the next two years

Depressed natural gas prices continue to plague oil and gas companies, but those operating in the Bakken Shale continue to reap the benefits of the unconventional oil revolution.

North Dakota has recently pulled in front of Alaska (onshore production) as the second largest oil-producing state on a daily basis. Texas, home of another prolific oily play–the Eagle Ford Shale– is the only state producing more, noted Global Hunter Securities analysts in a June 15 note to investors.

The analysts note that under an $80.00+ per barrel scenario, exploration and production companies “should continue to increase the rig count.” Drilling rigs in the Williston Basin, including both Montana and North Dakota, currently stand at roughly 225 and the number is expected to grow to 230-235 by the end of the year.

Rig counts in the Bakken grew significantly in 2011, as well, with the ten largest operators in the play accounting for 90% of its growth for the year.

“Given the soft natural gas prices, operators are witnessing a plateau of service costs. Coupled with PAD drilling, the plateauing costs create significant economies of scale. Well costs in the Bakken have more than likely peaked for the next 12-24 months, in our view,” the analysts noted.

The Bakken, primarily an oil play, straddles the US border with Canada and runs through two states – North Dakota and Montana – and two Canadian provinces – Saskatchewan and Manitoba, and is estimated by the US Geological Survey to contain roughly 3.65 billion barrels of recoverable crude oil.

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