Declining Bakken Shale Production and the Long-Term Profitability Risks for Midstream Infrastructure Operators

The Bakken Shale, once a symbol of U.S. energy independence, now faces a critical inflection point. Declining oil production, constrained drilling activity, and rising Canadian oil output are reshaping the midstream landscape, creating both risks and opportunities for pipeline operators and energy equity investors. While recent infrastructure projects aim to address bottlenecks, the long-term profitability of midstream assets remains under pressure from structural shifts in supply and demand.

The Bakken's Production Plateau and Midstream Strain

Bakken oil production has stagnated since its 2019 peak, with utilization rates for key pipelines like the Dakota Access Pipeline (DAPL) declining as a result. According to a report by East Daley Analytics, crude oil takeaway capacity is expected to reach 90% utilization by 2026, leaving little room for growth without new infrastructure. This constraint is compounded by the region's shifting production mix: natural gas output has surged by 186% since 2014, while oil production has grown by just 14%. The rising gas-to-oil ratio (GOR) to 2.9 Mcf/b in 2024 has redirected focus to gas processing and takeaway infrastructure, with projects like WBI Energy's Bakken East Pipeline and Intensity Infrastructure Partners' 1.5 Bcf/d pipeline aiming to connect gas to eastern markets.

However, these developments mask a deeper issue: the Bakken's top-tier drilling inventory is depleting. Operators are increasingly relying on enhanced recovery techniques and improved gas capture to sustain production, but these strategies require higher capital expenditures and lower returns compared to new drilling. For midstream operators, this means reduced throughput for oil pipelines and a greater reliance on gas infrastructure, which carries its own challenges, including ethane rejection and limited export options.

Canadian Production and the Shadow of Competition

Rising Canadian oil production adds another layer of complexity. While Canadian crude has traditionally competed with Bakken oil in U.S. markets, the two regions are now indirectly competing for midstream capacity. Canadian producers are expanding access to U.S. refineries and export terminals, potentially reducing the Bakken's share of takeaway pipelines. For example, Enbridge's Line 3—a critical corridor for Bakken crude—faces increasing pressure from Canadian shipments, forcing Bakken shippers to rely on higher-cost alternatives like Enbridge's “last resort” pipelines.

This competition threatens to erode midstream valuations, particularly for assets tied to crude oil. Investors must assess whether pipeline operators can offset declining oil volumes with growth in gas infrastructure or power generation. North Dakota's push for gas-fired power plants, such as Basin Electric's Bison Generation Station, offers a partial solution, but the scale of demand remains uncertain.

Hedging Strategies for a Volatile Sector

For operators and investors, the Bakken's evolving dynamics highlight the need for diversified risk management. Traditional midstream assets are increasingly exposed to production volatility, regulatory shifts, and energy transition pressures. Underappreciated hedging strategies include:

1. Commodity Diversification: Gold and marine equities have historically served as effective hedges during geopolitical or economic crises. For example, gold's inverse correlation with oil prices makes it a valuable portfolio stabilizer during downturns. Similarly, marine shipping equities offer resilience during health-related crises, though their effectiveness wanes in periods of geopolitical conflict.

2. Energy Transition Assets: Commodities like copper, lithium, and rare earth metals are gaining traction as long-term hedges against energy transition risks. These assets align with decarbonization trends and infrastructure spending, offering dual exposure to inflation and structural growth.

3. Tuck-In Acquisitions and Operational Efficiency: Smaller operators, such as Saturn Oil & Gas, are leveraging tuck-in acquisitions and advanced analytics to boost production while reducing capital intensity. This approach not only enhances cash flow but also improves M&A appeal in a tightening market.

4. Gas Infrastructure Focus: Midstream companies that prioritize gas processing and takeaway capacity—such as those expanding ethane recovery or connecting to data center demand—are better positioned to navigate the Bakken's oil production plateau.

Conclusion: Navigating the New Normal

The Bakken's decline is not a sudden collapse but a gradual shift toward a gas-centric, capital-intensive model. For pipeline operators, the challenge lies in balancing near-term cash flow with long-term infrastructure needs. Energy equity investors must weigh the risks of underutilized oil pipelines against the potential of gas-driven growth and energy transition opportunities. In this environment, diversification—both in asset classes and geographic exposure—will be key to preserving value.

Source:
[1] Growing Local Power Demand Leads Push for Bakken Infrastructure [https://eastdaley.com/the-burner-tip/growing-local-power-demand-leads-push-for-bakken-infrastructure]
[2] Gas Constraints Could Limit Bakken Oil Growth [https://eastdaley.com/media-and-news/gas-constraints-could-limit-bakken-oil-growth]
[3] US Midstream—Bakken (McDonough) [https://read.nxtbook.com/gulf_energy_information/pipeline_and_gas_journal/may_2025/us_midstream_bakken_mcdonough.html]
[4] Enbridge Pipe is a Last Resort for Bakken Shippers [https://eastdaley.com/crude-oil-edge/enbridge-pipe-is-a-last-resort-for-bakken-shippers]
[7] Saturn Oil & Gas Announces Corporate Update [https://saturnoil.com/news-release/saturn-oil-gas-announces-corporate-update-highlighted-by-increased-2025-forecast-production-reduced-capital-expenditures-strategic-tuck-in-activity-and-appointment-of-independent-board-member/]
[8] Exploring connectedness and portfolio strategies among crude oil, gold, global traditional (DJGI) and sustainable (DJSI) indices [https://www.sciencedirect.com/science/article/pii/S0301420724006482]
[9] The Comeback of Commodities: Why Investors Must Reconsider Commodities for Diversification, Inflation Hedging & Strategic Asset Allocation [https://resonanzcapital.com/insights/the-case-for-commodities-a-strategic-allocation-for-long-term-investors]
[10] Navigating 2025 M&A: Strategies for Small Oil Operators [https://www.enverus.com/blog/navigating-the-ma-landscape-in-2025-insights-for-small-to-mid-sized-upstream-operators/]