Please note this report is based on land rig data as of 2/26/2010.
As far as land rig additions, North Dakota has been one of the hottest states in the Lower 48 since the bottom last year, more than doubling its rig count since mid-2009. Driving the North Dakota rig count higher has been a sharp rebound in activity in the Bakken Shale, a Devonian/Mississippian resource play considered one of the largest oil formations in the U.S. The Bakken shale, which may contain over 4 Bbbls of recoverable oil, covers western North Dakota and eastern Montana and extends up into Southern Canada. With activity heating up, North Dakota's rig count appears poised to break out above 2009's record level.
Lease Sales Underscore Oil Boom
North Dakota's recent oil and gas lease sales have been off the charts. The sale held in November 2009 fetched record high proceeds of $71.6 MM, and the February 2010 sale fetched $47.4 MM. To put this in perspective, these two lease sales alone generated proceeds that exceed the sum of the 55 prior lease sales in North Dakota going back to 1995. The hottest counties are commanding big premiums. In November, Mountrail leases averaged around $3,600 in bonus/acre, and McKenzie county acreage led the state in February 2010 with an average near $2,160 bonus/acre - both well above historical averages. While acreage uptake has been impressive, much of the record proceeds have been due to the ramp in bonus/acre - an indication of increased operator interest and competition for land.
With lease terms of 5-years for tracts in North Dakota, operators have been wasting no time in putting rigs to work on their acreage portfolios in the ongoing recovery. In fact, at just under 85 rigs, North Dakota's rig count is almost back to the record level of 90 rigs set in 2008, and the state is adding land rigs more quickly than the rest of the Lower 48 in the recovery period (see chart below). Given the "oily" nature of the U.S. rig count recovery and well-documented Bakken exploration successes, North Dakota is one of the few states where the rig count has already recovered to track near post-downturn levels.
Production and Well Counts Tracking Higher
Today, there are over 4,300 producing wells in the state of North Dakota and monthly oil production has been tracking well above historical levels. In fact, oil is currently being produced at a rate more than twice what the state was producing just three years ago. The production ramp-up has been primarily due to exploration successes in the Bakken formation, which have been enabled by drilling technology advances.
Rig Fleet Details
Examining the active rigs in the specific counties that comprise the U.S. portion of the Bakken shale reveals some interesting insights on drilling activity targeting this unconventional resource. With over 90% of the rigs in the Bakken drilling horizontally, the units deployed are generally higher spec rigs. In fact, over 60% of the rigs in the region are rated for drilling depths of at least 15,000 ft. Although high end AC and SCR rigs are preferred in the region, there are indications that some mechanical rigs have recently gone back to work in the area.
The top three counties by rig count account for roughly 2/3rds of the rigs active in the Bakken region today and include Mountrail, Dunn and McKenzie counties. Mountrail county boasts the most activity with over 30 active rigs, and discoveries in the county continue to make headlines with high production rates. Most recently, a Slawson Exploration operated Mountrail well targeting the middle Bakken formation was completed with an initial production rate of 2,735 boepd.
Looking at rig counts by operator, the most active E&P companies drilling in the Bakken today are EOG Resources, Whiting Oil and Gas and Continental Resources (about ten rigs each). Most of the 33 operators with rigs in the Bakken today are smaller companies with less than five rigs employed in the region.
As far as drilling contractors go, Nabors is by far the most active of the 14 contractors with rigs under contract in the region. Nabors has just over 30 rigs working in the Bakken today, and recently executed contracts to construct four more rigs for five-year contracts in the region. Precision Drilling has 11 and H&P and Ensign follow with ten and nine each, respectively. Other notable public contractors working in the Bakken include Patterson-UTI and Pioneer with five rigs each.
On the heels of record setting lease sale results, inquiries for rigs in the region are on the rise, and the momentum the rig count has built over the last few months is likely to carry forward through 2010. With new wells estimated to be profitable even at $50 crude, look for the rig count in the Bakken Shale and North Dakota to break through last year's record highs in the months ahead.
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