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August 7, 2019

Oil production in US Bakken formation faces flaring constraints

While there is a lot of focus from industry and media on the Permian Basin, wells from the Bakken play have seen notable levels of oil production.

By GlobalData Energy

While there is a lot of focus from industry and specialised media on the prolific Permian Basin, wells from the Bakken play have seen notable levels of oil production according to a recent GlobalData report.

GlobalData compared 6,630 wells completed in 2018 up to 2019 in the Bakken, the Permian Basin, and the Eagle Ford. With respect to break-even price, the Bakken has the lowest at $30.50 per barrel (bbl), followed by the Permian Basin at $37.99 per bbl and the most expensive is the Eagle Ford Shale at $38.56 per bbl.

Bakken’s IP-30 production measure is over 125 barrels of oil equivalent per day (boe/d) , higher than the Permian Basin and Eagle Ford. The Bakken total production stream is over 75% oil where the other plays are around 58%.

However and in spite of strong well performance, North Dakota’s oil and gas production is somehow constrained in its growth due to flaring regulations.

The state flares the second most gas in the US behind Texas. In 2018, North Dakota averaged 361 million cubic feet per day (mmcfd) of flared gas, increasing to 510 mmcfd over the first five months of 2019.

This amount is approximately 20% of the total gas produced by the state, well above the 12% allowed by state regulations. The state’s regulation calls for at least 88% of natural gas to be captured by the operator, and this number is planned to increase to 98% by 2026.

Operators are allowed to flare up to 50 million cubic feet (mmcf) per well or for 30 days during initial well testing before royalties are enforced. Although the state regulations are flexible, once operators exceed the amount of natural gas allowed to be flared they are effectively handcuffed with the amount of new wells that can be turned online.

For a play with mainly oil production it makes sense to invest in necessary gas infrastructure that can in principle be financed by oil related revenue.

Given the support from the state with respect to tolerating higher flaring volumes than allowed, the incentive is there for operators to always produce more oil, more gas and top their flared gas within the tolerated amount.

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