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North Dakota Crude Production Reaches Another Milestone

Nilanjan Choudhury

Per North Dakota’s oil regulator, the state’s daily crude output rose 1.2% to a fresh monthly record in July, edging past the record set in June.

Records Galore in July

The North Dakota Department of Mineral Resources’ (‘DMR’) latest data said that oil production in July averaged a record 1,442,459 barrels a day, up 17,229 barrels a day from June.

The newest numbers showed that daily crude output remained above one million barrels for the 30th month, further confirming the status of North Dakota (centered on the Bakken formation) as one of the hottest shale plays in the United States.

Like crude, natural gas output also hit its highest level ever. The state churned out 2,947,892 thousand cubic feet per day in July, up from June’s 2,885,293 thousand cubic feet per day. Meanwhile, North Dakota’s total number of producing wells tallied 15,943 at the end of July, the highest on record.

Structural Challenges Remain

North Dakota oil producers are experiencing some growing pains as natural gas output – a largely unwanted derivative that emerges alongside oil production in the region – outpaces gathering and processing capacity, leading to increased flaring.

Companies vented about 23% of gas extracted in North Dakota in July (roughly 671,036 thousand cubic feet per day) almost twice the statewide limit of 12%. In the absence of adequate pipelines and storage capacity to take care of the natural gas churned out, the only other option for shale drillers to limit flaring is to reduce oil production.

Explosive Production Growth Requires Additional Infrastructure

One of the major factors for the revival of Bakken activity is the construction of 1,170-mile-long Dakota Access Pipeline. Energy Transfer L.P.’s (ET) mega project came online in June 2017 and is currently equipped to carry about 570,000 barrels of oil per day (or more than 40% of North Dakota’s output). The pipeline, with investments from energy majors like Phillips 66 PSX, Enbridge Inc. ENB and Marathon Petroleum MPC, has helped to improve the region’s drilling economics by lowering transportation costs for operators. In fact, large operators like Oasis Petroleum Inc. OAS utilize the Dakota Access Pipeline to send a major portion of their products to market.

Amid high demand, there is a need for infrastructure that can allow for the movement of more oil. The proposed Liberty Pipeline, which will provide opportunity to shippers to secure transportation service from the Bakken production areas to Corpus Christi, TX, and almost doubling the capacity of the Dakota Access Pipeline to 1.1 million barrels per day, are touted as solutions.

While the $1.6 billion Liberty pipeline will have an initial throughput capacity of 350,000 barrels per day and is expected to start operations in another two years, Energy Transfer has launched an open season to test volume commitments for the Dakota Access Pipeline expansion.

What Lies Ahead?

While the abovementioned issues could stall North Dakota oil growth engine for the time being, production is nevertheless expected to remain robust on steady oil prices. Though a number of companies have built sizeable acreage positions in North Dakota, we have shortlisted three of them – Hess Corporation HES, Oasis Petroleum and Marathon Oil Corporation MRO – that might warrant attention. Each carrying Zacks Rank #3, the companies own significant positions at the core of the Bakken shale play of North Dakota.

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Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report
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