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North Dakota Oil Boom Drives Stock Interest

Yahoo Finance

As per North Dakota’s oil regulator, the state’s daily crude output rose 1.7% in August after increasing 3.4% in the previous month. The North Dakota Department of Mineral Resources’ (‘DMR’) latest data said that oil production in August averaged a record 1,291,496 barrels a day, up 22,206 barrels a day from July.

Like crude, natural gas output also hit its highest level ever. The state churned out 2,437,760 thousand cubic feet per day in August, up from July’s 2,393,757 thousand cubic feet per day. Meanwhile, North Dakota’s total number of producing wells tallied 15,103 at the end of August, the highest on record.

The newest numbers, which showed that daily crude output remained above one million barrels for the 19th month, further confirms the status of North Dakota (centered on the Bakken formation) as one of the hottest shale plays in the United States.

Rig Count Inches Up

Some 67 drilling rigs are active in the state now, up two from the September average and six more than August. 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.

Crude Prices, Production Should Remain Strong

West Texas Intermediate (or WTI) — a benchmark for oil prices in the United States — recently hit four year high after the commodity popped above $76 a barrel. EIA’s October Short-Term Energy Outlook forecasts WTI to average $73.05 during the fourth quarter, not far from the commodity’s recent highs. Supply-side shocks out of Iran, Venezuela and Libya in the face of growing global consumption levels — especially in emerging markets such as China and India — have put the oil market in a fundamentally tight spot. This robust backdrop, which is expected to strengthen over the course of this year, has breathed life back into the sector.

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 more than 11 million barrels a day – the most since the EIA started maintaining weekly data in 1983. In this context, the steady uptick in North Dakota’s production bode well for the region.

Dakota Access Pipeline: A Boon for North Dakota Operators

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 ETP mega project has a capacity to carry about 520,000 barrels of oil per day (or more than 50% of North Dakota’s output). The conduit 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. The pipeline, where energy majors like Phillips 66 PSX, Enbridge Inc. ENB and Marathon Petroleum MPC have invested, has helped to improve the region’s drilling economics by lowering transportation costs for operators.
Moreover, the pipeline’s service has bolstered the revival of Bakken output, with large operators like Oasis Petroleum Inc. OAS counting on the Dakota Access Pipeline to send a major portion of their products to market.

Two Stocks to Focus

Though a number of companies have built sizeable acreage positions in North Dakota, we have shortlisted two of them, Whiting Petroleum Corporation WLL and Continental Resources, Inc. CLR that might warrant attention. 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. 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.

 

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