Increased pressure on North Dakota crude oil producers is “finally” putting the brakes on Bakken crude production, writes RBN Energy LLC analyst Sandy Fielden in Is It All Over Now? Producers Lose Their Appetite For Bakken Crude Output.
“For the past, year many shale oil producers have defied the expectations of many and kept output at or near to record levels in the face of falling oil prices and much tougher economics,” writes Fielden. “Improvements in productivity, cost cutting and a concentration on ‘sweet spot’ wells that generate high initial production (IP) rates have all helped cash strapped producers survive. But with oil prices so far in 2016 stuck in the $35/Bbl and lower range and with the worldwide crude storage glut still weighing on the market, producers are finally pulling back.”
A few highlights:
• A number of signs point to the decline in production continuing during the rest of 2016 unless there is an extended oil price recovery. For a start, the number of new permits to drill wells in North Dakota is at a seven-year low, indicating a low appetite for drilling. Second, there were 1,183 inactive wells in the state in December, about 30% above normal for this time of year. The operators have essentially abandoned these inactive wells, usually because they are losing money. Many of these inactive wells are older and had very low production rates, less than 35 b/d. Such older wells are known as “stripper” wells and their costs are long ago written off, so operators usually keep them running unless transport and maintenance costs exceed the value of the crude (i.e. prices get too low). A third indicator of declining producer interest in the Bakken is the large number of producing wells in North Dakota currently being transferred (sold) by one operator to another—697 wells as of Feb. 17, 2016.
• The strongest indicators of a slowdown in Bakken production come in the reduction in drilling rigs operating in North Dakota and a parallel decline in the number of well completions.
• The expectation that oil prices might remain low for a long time is rapidly sinking in for U.S. shale producers. Many smaller operators have already fallen victim to bankruptcy but now even those with a strong balance sheet are recognizing that continued drilling and production no longer make financial sense. As a result all expectations are that U.S. shale production will tumble this year (despite the suggestion in the title it is not quite “all over” yet). The situation on the ground in North Dakota indicates that the slowdown is gaining momentum. The extent of any decline in production is still hard to forecast accurately, clouded as it is by the unknown impact of an increase in DUC (drilled but uncompleted) wells.
Access the full report by clicking HERE.
