Bakken Shale Oil 2015

The answer to "How are things in the Bakken?" is complicated. Many people are asking this question, but the real underlying issue is Is there still opportunity for a return on an investment? or "Is there money to be made?". The short answer is "Yes".

The long answer is always as it has been, with good management and attention to expenses, there is plenty of opportunity for a return on an investment in energy production. I believe and I had cautioned my constituents and clients for a long while to expect a correction based on my previous experience in North Dakota's Energy Production in the early '80's. Because of inadequate infrastructure due to the State of North Dakota's process of returning oil production revenues, "The Bakken" desperately needed the 2014 third quarter market correction.

From our client’s perspective. cost for services was out of line based on high demand for and the unavailability of housing, which translates to the amount of Per diem rates oil production companies had to pay to effectively recruit quality employees.

From a local residents perspective, pricing was out of line for goods associated with essential daily living needs such as housing, groceries and fuel.

I have been asked the question “How’s things going?” many times over the last six months and I believe everyone is trying to figure out what will happen next.

While the oil industry hasn’t turned off the lights yet, I am hearing plenty of rumors about layoffs but no one will go “on record” to report the real effects of what is happening on the ground. I suspect that oil producers will view this event as similar to 2008 and bet on oil prices recovering soon and will be slow to respond to the recent drop. That could be very good or very, very bad. I don’t think there will be much in between. But over all my view is cautiously optimistic. I think this could be demonstrate poor performance for investors for the next eighteen or so months.

Dakota Public Relations has been educating clients that several thing influence oil price;

1. Local Politics - Cities, townships & counties
2. State Politics
3. National Politics
4. International Politics

The price of oil is as equally based on demand as it is political factors and how our elected officials make decisions.

I have observed that there is hesitance on the part of investors and company owners to truly express the impact they have seen so far or the what they are expecting in first quarter 2015. Admitting to a "bust" would be tantamount to yelling “fire” in the theater and we do not believe that anyone wants to see a minor exodus away from the energy sector, turn into a stampede to get out of the Bakken and trample everyone as they exit through Fargo. :D Every well and rig still needs investors participation to get to production and an alarmist call could scare away potential investors still interested in the high yield bonds that finance most of the drilling rigs.

We project that we will really not know what has happened in 4Q in the Bakken until they start counting the bodies, 3-6 months from now. While rigs are dropping from the total rig count in the ND Bakken, this downturn will be a slow burn and market observers are inclined to trust in their new $100/bbl normalcy bias. Locally, “Everything is awesome” is still the mantra in the Bakken.

In our experience at Dakota PR we believed the local economy desperately needed a market correction because.

A market correction;

1. Gives local leaders opportunity and time to build or rebuild critical infrastructure
2. Provides industry with the opportunity to correct wages, expenses and per diems
3. Decreases demand for labor and will flush marginal employees out of the workforce
4. Exposes the profiteering mentality of some investors, builders & contractors
5. Gives consumers a negotiating position for goods services including housing
6. Relieves local residents, consumers, including ag producers, of high costs including fuel, housing and groceries and associated costs of living in the "Boom"

So this would be a good time for everyone to catch their breath and examine what has happened and plenty of "winter down time" to speculate where it will go next.

Locally, the drilling seems to be centralizing on Mountrail, Williams and McKenzie county where wells are still hitting big in the sweet spot, "kitchen" and have great
initial production so as of yet Stanley, ND has not really experienced a slowdown. We believe the periphery of the Bakken will feel the impact first and hardest, like counties in the northwest part of the state.

It seems to me that investors have a short term amnesia on how investments perform and it if oil prices do not recover soon it will take some time for investors to swing back around to seeing the value in energy production. Experienced market analysis are predicting a settling of oil price around 80per barrel toward the end of the year. Of course Russia could change everything in 60 seconds by Russia responding to Saudi Arabia's provocative move of increasing oil production effectively flooding the market. So really its anyone guess what will happen next.

However, the price of oil should always be viewed from a wider perspective and this move could be considered economic warfare against Russia (and Iran). This economic battle is most likely being fought to weaken Russia's ability to oppose NATO's proposed eastward expansion and NATO’s goal of placing U.S. ballistic missile defenses in Ukraine. On 23 December 2014, the Ukrainian parliament renounced Ukraine's non-aligned status. Deploying more U.S. missile defense assets in Europe would enhance U.S. and European security and, directly challenge Russian authority. I would not expect the price of oil to increase until these European goals are closer to being achieved if this is an economic play against Russia/Iran but one thing to watch will be fracing giant Schlumberger (NYSE: SLB ) release its quarterly report on Friday Jan. 16, 2015. Next week their competitors Baker Hughes (NYSE: BHI ) and Halliburton (NYSE: HAL ) will release their fourth quarter report. Keep watch.