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North Dakota Oil Production Soars to Record High in July
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As per North Dakota’s oil regulator, the state’s daily crude output rose 3.4% in July after edging down 1.6% in the previous month. The North Dakota Department of Mineral Resources’ (‘DMR’) latest data said that oil production in July averaged a record 1,269,366 barrels a day, up 42,046 barrels a day from June. To put this in perspective, oil supplies from the state of North Dakota is now at par with the struggling OPEC producer Venezuela.
Like crude, natural gas output also hit its highest level ever. The state churned out 2,400,174 thousand cubic feet per day in July, up from June’s 2,301,354 thousand cubic feet per day. Meanwhile, North Dakota’s total number of producing wells tallied 14,972 at the end of July, the highest on record.
The newest numbers, which showed that daily crude output remained above one million barrels for the 18th month, further confirms the status of North Dakota (centered on the Bakken formation) as one of the hottest shale plays in the United States.
Along with production and wells, North Dakota also achieved an unwanted record – that of natural gas flaring. The daily volume of the natural gas flared reached a historical high of around 436 million cubic feet in July, or 18% of the Bakken production. In percentage terms, this was above the state’s strict gas flaring norms for the third month in a row. North Dakota requires companies to flare not more than 15% of the natural gas they churn out. However, operators in the region are experiencing some growing pains as natural gas production outpaces gathering and processing capacity, leading to increased flaring.
Rig Count Inches Up
Some 66 drilling rigs were active in the state in July, up three from the June average. The all-time low of 27 was set in May 2016, while a year ago, North Dakota had 58 rigs operating.
A closely watched yardstick of North Dakota oil industry's strength, the improvement in the number of units searching for oil and gas in the region indicates rebounding drilling activities and production.
Though the current rig count is still down considerably from the peak of May 2012 when North Dakota had 218 units drilling, one must note that sophisticated drilling rigs have enabled producers to get more oil out of each well. In other words, modern rigs have helped boost the per-unit output.
Crude Prices, Production Should Remain Strong
In July, the U.S. West Texas Intermediate benchmark reached a three-and-half-year high of around $75 per barrel. The gains could primarily be attributed to consistently bullish EIA crude inventory numbers and worries about tightening global supplies. With stronger oil prices increasing producer profits, oil volumes in the United States is expected to keep climbing. As it is, output in the country have increased sharply on higher production from shale formations to hover around 11 million barrels a day – the most since the EIA started maintaining weekly data in 1983.
While commodity prices have essentially remained in the $65-$70 a barrel range over the past several weeks on escalating trade conflict between the world’s biggest oil consumers - the United States and China – market remain largely tight amid reduced supply from Iran and Venezuela. Industry watchers are confident that improving fundamentals have probably put a floor under crude prices for the time being.
In this context, the steady uptick in North Dakota’s production bode well for the region. With oil prices likely to head higher, the monthly output in the second-largest oil producing state after Texas is expected to stay above the psychologically important one million barrel a day mark in the short-to-medium term.
Dakota Access Pipeline: A Trump Card for North Dakota
While Bakken in North Dakota has significant accumulations of profitable oil reserves, production in the area fell sharply during the oil slump. However, with rebounding crude prices, Bakken has been regaining strength, with output in the month of July going past the levels that was achieved in the boom years of 2014.
Apart from the robustness in oil prices, there is another factor that is set to speed up Bakken output growth – the 1,170-mile-long Dakota Access Pipeline. Energy Transfer Partners L.P.’s mega project recently marked its one-year anniversary. The conduit has carried around 200 million barrels of oil since inception, proving to be quite a game changer for the producers in the Bakken shale play.
The pipeline, with a capacity to carry about 520,000 barrels of oil per day (or more than 50% of North Dakota’s output) has successfully bridged the gap between Bakken players and producers in other U.S. oil-producing areas like the Williston and Permian basins.
The geographically constrained Bakken Shale's crude has now better access to Gulf and East Coast refineries and also reaches international markets. As expected, the pipeline, where energy majors like Phillips 66 (PSX - Free Report) , Enbridge Inc. (ENB - Free Report) and Marathon Petroleum Corporation (MPC - Free Report) have invested, has helped to improve the region’s drilling economics by lowering transportation costs for operators and benefit the state financially.
Moreover, the pipeline’s service has bolstered the revival of Bakken output, with large operators like Oasis Petroleum Inc. counting on the Dakota Access Pipeline to send a major portion of their products to market.
While there are apprehensions that growing North Dakota production could outpace the pipeline capacity again sometime next year leading to widening discount for the regional crude, current prices continue to exceed breakeven costs comfortably.
But there is definitely a case to build more infrastructure for the ever-increasing natural gas volumes. Recently, North Dakota Public Service Commission green lighted Tulsa-based ONEOK Inc.’s suspended Demicks Lake processing plant. The 200 million-cubic-feet-per-day facility, costing around $400 million, is likely to be completed by the fourth quarter of next year. The conduit will enhance processing capacity in North Dakota's Williston Basin, where wells churn out the maximum gas.
Overall, rebounding oil prices, together with the start of the Dakota Access Pipeline, are expected to support sustainable increase in Bakken output by providing the companies a chance to move their produce outward at a lower cost.
In fact, a conducive oil pricing environment is likely to push the state’s output to another record this year.
Two Stocks in Focus
Though a number of companies have built sizeable acreage positions in North Dakota, we have shortlisted two of them, Whiting Petroleum Corporation and Continental Resources, Inc. that might warrant attention. Both our picks carry Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Whiting Petroleum is a top-tier operator in North Dakota's Williston Basin. The company has 410,000 net acres in the region, giving it drilling inventory of more than 20 years. The 2018 Zacks Consensus Estimate for this Denver, CO-based company is $2.90, representing some 321.4% earnings per share growth over 2017. Next year’s average forecast is $4.10, pointing to another 41.7% growth.
Continental Resources also holds a premium position in the prolific Bakken Shale formation. The company has a working interest in 1,576 net oil producing wells in the region, which comprises almost 48% of the energy explorer’s proved reserves. The 2018 Zacks Consensus Estimate for this Oklahoma City, OK-based company is $3.14, representing some 515.7% earnings per share growth over 2017. Next year’s average forecast is $3.77, pointing to another 20% growth.
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And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
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North Dakota Oil Production Soars to Record High in July
As per North Dakota’s oil regulator, the state’s daily crude output rose 3.4% in July after edging down 1.6% in the previous month. The North Dakota Department of Mineral Resources’ (‘DMR’) latest data said that oil production in July averaged a record 1,269,366 barrels a day, up 42,046 barrels a day from June. To put this in perspective, oil supplies from the state of North Dakota is now at par with the struggling OPEC producer Venezuela.
Like crude, natural gas output also hit its highest level ever. The state churned out 2,400,174 thousand cubic feet per day in July, up from June’s 2,301,354 thousand cubic feet per day. Meanwhile, North Dakota’s total number of producing wells tallied 14,972 at the end of July, the highest on record.
The newest numbers, which showed that daily crude output remained above one million barrels for the 18th month, further confirms the status of North Dakota (centered on the Bakken formation) as one of the hottest shale plays in the United States.
Along with production and wells, North Dakota also achieved an unwanted record – that of natural gas flaring. The daily volume of the natural gas flared reached a historical high of around 436 million cubic feet in July, or 18% of the Bakken production. In percentage terms, this was above the state’s strict gas flaring norms for the third month in a row. North Dakota requires companies to flare not more than 15% of the natural gas they churn out. However, operators in the region are experiencing some growing pains as natural gas production outpaces gathering and processing capacity, leading to increased flaring.
Rig Count Inches Up
Some 66 drilling rigs were active in the state in July, up three from the June average. The all-time low of 27 was set in May 2016, while a year ago, North Dakota had 58 rigs operating.
A closely watched yardstick of North Dakota oil industry's strength, the improvement in the number of units searching for oil and gas in the region indicates rebounding drilling activities and production.
Though the current rig count is still down considerably from the peak of May 2012 when North Dakota had 218 units drilling, one must note that sophisticated drilling rigs have enabled producers to get more oil out of each well. In other words, modern rigs have helped boost the per-unit output.
Crude Prices, Production Should Remain Strong
In July, the U.S. West Texas Intermediate benchmark reached a three-and-half-year high of around $75 per barrel. The gains could primarily be attributed to consistently bullish EIA crude inventory numbers and worries about tightening global supplies. With stronger oil prices increasing producer profits, oil volumes in the United States is expected to keep climbing. As it is, output in the country have increased sharply on higher production from shale formations to hover around 11 million barrels a day – the most since the EIA started maintaining weekly data in 1983.
While commodity prices have essentially remained in the $65-$70 a barrel range over the past several weeks on escalating trade conflict between the world’s biggest oil consumers - the United States and China – market remain largely tight amid reduced supply from Iran and Venezuela. Industry watchers are confident that improving fundamentals have probably put a floor under crude prices for the time being.
In this context, the steady uptick in North Dakota’s production bode well for the region. With oil prices likely to head higher, the monthly output in the second-largest oil producing state after Texas is expected to stay above the psychologically important one million barrel a day mark in the short-to-medium term.
Dakota Access Pipeline: A Trump Card for North Dakota
While Bakken in North Dakota has significant accumulations of profitable oil reserves, production in the area fell sharply during the oil slump. However, with rebounding crude prices, Bakken has been regaining strength, with output in the month of July going past the levels that was achieved in the boom years of 2014.
Apart from the robustness in oil prices, there is another factor that is set to speed up Bakken output growth – the 1,170-mile-long Dakota Access Pipeline. Energy Transfer Partners L.P.’s mega project recently marked its one-year anniversary. The conduit has carried around 200 million barrels of oil since inception, proving to be quite a game changer for the producers in the Bakken shale play.
The pipeline, with a capacity to carry about 520,000 barrels of oil per day (or more than 50% of North Dakota’s output) has successfully bridged the gap between Bakken players and producers in other U.S. oil-producing areas like the Williston and Permian basins.
The geographically constrained Bakken Shale's crude has now better access to Gulf and East Coast refineries and also reaches international markets. As expected, the pipeline, where energy majors like Phillips 66 (PSX - Free Report) , Enbridge Inc. (ENB - Free Report) and Marathon Petroleum Corporation (MPC - Free Report) have invested, has helped to improve the region’s drilling economics by lowering transportation costs for operators and benefit the state financially.
Moreover, the pipeline’s service has bolstered the revival of Bakken output, with large operators like Oasis Petroleum Inc. counting on the Dakota Access Pipeline to send a major portion of their products to market.
While there are apprehensions that growing North Dakota production could outpace the pipeline capacity again sometime next year leading to widening discount for the regional crude, current prices continue to exceed breakeven costs comfortably.
But there is definitely a case to build more infrastructure for the ever-increasing natural gas volumes. Recently, North Dakota Public Service Commission green lighted Tulsa-based ONEOK Inc.’s suspended Demicks Lake processing plant. The 200 million-cubic-feet-per-day facility, costing around $400 million, is likely to be completed by the fourth quarter of next year. The conduit will enhance processing capacity in North Dakota's Williston Basin, where wells churn out the maximum gas.
Overall, rebounding oil prices, together with the start of the Dakota Access Pipeline, are expected to support sustainable increase in Bakken output by providing the companies a chance to move their produce outward at a lower cost.
In fact, a conducive oil pricing environment is likely to push the state’s output to another record this year.
Two Stocks in Focus
Though a number of companies have built sizeable acreage positions in North Dakota, we have shortlisted two of them, Whiting Petroleum Corporation and Continental Resources, Inc. that might warrant attention. Both our picks carry Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Whiting Petroleum is a top-tier operator in North Dakota's Williston Basin. The company has 410,000 net acres in the region, giving it drilling inventory of more than 20 years. The 2018 Zacks Consensus Estimate for this Denver, CO-based company is $2.90, representing some 321.4% earnings per share growth over 2017. Next year’s average forecast is $4.10, pointing to another 41.7% growth.
Continental Resources also holds a premium position in the prolific Bakken Shale formation. The company has a working interest in 1,576 net oil producing wells in the region, which comprises almost 48% of the energy explorer’s proved reserves. The 2018 Zacks Consensus Estimate for this Oklahoma City, OK-based company is $3.14, representing some 515.7% earnings per share growth over 2017. Next year’s average forecast is $3.77, pointing to another 20% growth.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>