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The last several years in North Dakota’s Bakken Formation have been tumultuous to say the least. From an explosive growth in shale oil drilling that quickly turned the area into the United States’ 2nd largest oil producer, to a market collapse in 2014 that saw dozens of producers go bankrupt and oilfield jobs plummet by 50%, oil and gas workers in North Dakota have seen it all. With the market stabilization and recovery that took place in 2017 bringing crude storage back to historical averages, the next year looks bright in the Bakken Formation.
Large Operators Show Optimism, Promise Production Restraint
As earnings season rolls around for most of the major North Dakota oilfield operators, analysts and market watchers are eagerly parsing their quarterly results for signs of where the oilfield is headed. The consensus – 2018 could be a year of record profitability. Continental Resources, for example, recently reported an earnings beat and an increase in year over year revenues of 38%. In addition, they raised their yearly guidance, pointing to continuing optimism at the state of the oil markets in 2018.
However, one of the largest unresolved issues as oil prices have recovered is whether shale producers will rapidly expand production again. Many skeptics fear that shale drillers will follow the same boom and bust cycle as years past, pushing the market back into a major glut and ultimately causing prices to crash. Shale drillers, for their part, have spent the last several years promising restraint as the market has slowly recovered. Additionally, guidance from these companies shows cautious spending plans, a break from years past when oil prices were spiking. Whether these spending plans are altered in the future remains to be seen.
Improving Economy Tightens Job Market
Although the oil market recovery has led to a resurgence of oilfield jobs, the improvement in the larger economy has caused a tightening in the job market overall. As a result, people who may have previously traveled from out of state to seek a lucrative job in North Dakota’s oilfields are now finding good paying jobs closer to home. This should result in skilled oilfield workers commanding a premium in the market, while positions are slowly filled.
Bakken Formation Production Near Record Levels
At the peak of the last oil boom cycle, oil production in North Dakota reached over 1.2 million barrels a day. The recovery in the oil markets has allowed production to approach those levels again, reaching 1.195 million barrels a day in November 2017. If oil production continues this trajectory, even with a more modest investment schedule from shale drillers, production should surpass the peak of the last boom cycle, providing ample opportunities to grow sustainably.
Though questions remain around OPEC compliance, the fallout from political turmoil in various countries, and global economic health contributing to demand, there are very good reasons to be optimistic about the state of the oilfield in North Dakota in 2018.
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