Stratas Advisors is a Hart Energy company.

Despite a 58% decline in the rig count from its 2014 high of 198, Bakken oil production remains resilient. According to the North Dakota Department of Mineral Resources, crude production averaged 1.17 MMboe/d in April of this year. This places production in line with a recently seen plateau rate of 1.2 MMboe/d.

While some have been quick to point to a rapidly falling rig count as an ominous sign of the Bakken’s future, that metric alone has proven to be insufficient in estimating production levels. Accounting for the lag period between when a rig is idled and when its effects on production are noticed, the relationship between rig count and production is no longer as simple as it may have been in the past. Several key factors have changed when considering production attributable to each rig: the number of wells drilled per rig, the production improvements per well, and the areas being actively drilled out.

The beauty, or frustration, in unconventional resources lies in the heterogeneity of the reservoir, as all wells are not created equal. Operators have spent many years drilling and delineating their acreage portfolios. As a result, they have not only found their most geologically favorable areas, but also have realized how to efficiently produce them.

Improved results from enhanced completions are providing greater production rates per well. In the graphic, the inset figure, plotted along the left axis, displays the anticipated estimated ultimate recovery (EUR) of three potential wells coming on production within a given year. The figure shows that the anticipated EUR for each well variation improves sequentially year-over-year.

For each year, the new wells coming on production were divided into three groups based on their initial production (IP) rate, and a representative type curve for each group was developed. The low, middle and high case refer to their respective IP rate grouping. In the current depressed crude oil market, operators are high-grading their acreage and retreating to these core, proven economic areas. Moving forward in 2015, we can expect an even greater improvement in anticipated EURs per well, as more activity is concentrated in core acreage and is developed using improved technology and pad drilling.

In addition to improved well results, the number of wells that may be drilled annually has also improved. The inset figure, plotted along the right axis, displays the average number of wells drilled per rig within a given year. As drilling times have been trending downward, coupled with an even greater shift to pad drilling, Stratas Advisors anticipates drilling times will decline even further to help rigs realize an even greater utilization. The true degree of drilling improvements, however, has been masked by the presence of extended lateral lengths.

Using the 14 wells drilled per rig annually from the figure, and assuming the average May 2015 rig count of 83 persists through the remainder of 2015, 46 additional wells may be drilled playwide if spud-to-spud times are decreased by one day. If spud-to-spud times are decreased by two days, assuming an average of 83 active rigs in 2015, an additional 95 wells may be drilled playwide.

The idea of a breakeven cost per boe is a floating point that is dictated by a series of variables. Service costs have declined by 20% to 30%, helping to drive that breakeven price per boe lower. Recent changes to Bakken crude pricing differentials have made additional areas competitive once again. Wells with improved production are being drilled at an increasing rate. In addition to improved efficiencies and decreased costs, wells waiting on completion will help to dampen a precipitous decline in production, because they provide an inventory of quickly and easily accessible oil to produce.

Despite a dramatic drop in rig count, and the prevailing depressed state of the crude oil market, production in the Bakken has remained steadfast. With improved efficiencies, lower service costs and more favorable pricing differentials, operators are positioned to manage production and to resume growth in a more profitable market environment.