Drilling Down the Bakken Learning Curve

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Drilling Down the Bakken Learning Curve

Drilling Down the Bakken Learning Curve
Michael Redlinger

Improvements in horizontal drilling have helped spark the “tight oil revolution” that has unleashed U.S. shale plays and reversed the decades-long decline in domestic onshore oil production. The current oil price environment now threatens to turn the shale boom into a bust. Whether drilling activity can survive depends in part on whether companies can reduce the cost of drilling wells. 

In this paper, I investigate how learning-by-doing has reduced the cost of drilling horizontal wells in the Bakken Shale Play. I use data on oil wells drilled in North Dakota from 2005 to 2014 to measure how firms reduce drilling times as they acquire experience. The results show that as firms gain experience in the Bakken, they drill wells faster. A doubling of a drilling rig's experience leads to a 5% reduction in the time to drill a well, which translates into a cost savings of about $31,000 per well. Given that on average a rig drills eight wells per year in the Bakken, a rig is expected to reduce the time it takes to drill a well by 11% over its first year.

Furthermore, I find evidence of “organizational forgetting”, increases in drilling times, by rigs resulting from breaks in between drilling wells. This suggests drilling productivity will be negatively impacted by the current decline in rig activity. Lastly, I find no evidence of learning spillovers across firms, which implies firms internalize the knowledge gained that is relevant for reducing drilling times in subsequent wells but that this information does not spread through the industry.

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