Bakken Shale Feeling Low-Price Pressure

Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)

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Summary

Crude oil prices are not supportive of the domestic shale industry. By next year, U.S. crude oil prices should be well below the point at which many shale drillers can make a profit. North Dakota may be a case in point.

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WTI Below State Revenue Forecast

Crude oil prices are taking their toll on performance in the Bakken shale, North Dakota state regulators said in their monthly production report.

West Texas Intermediate (WTI), the U.S. benchmark for the price of oil, has averaged around $57.80 per barrel so far in December. Even with a geopolitical premium from U.S. military seizures of tankers laden with Venezuelan crude oil, the average for December should be the lowest for the year.

WTI in January averaged $72.50 per barrel. Erratic trade policies from U.S. President Donald Trump have since stifled global growth, sapping demand across various economic sectors, including energy.

Nathan Anderson, the director of the North Dakota Department of Natural Resources, said Friday in the regular monthly Director's Cut that lower crude oil prices are at "a point where there is going to be stress on the operators to consider reducing activity."

The realized price in the Bakken shale was $53.36 per barrel in October, the last full month for which the state has data. That's 5% below what's outlined in the state budget.

Nevertheless, production seemed to be holding up to October. Production averaged 1.17 million barrels per day (BBL/d), up just 0.04% from the prior month. That, however, is 1.5% above the state's revenue forecast.

North Dakota ranks third in the nation in terms of crude oil production, behind Texas and New Mexico, respectively. But like the rest of the shale patch in the Lower 48 states, production is on pace to decline. Federal data show total crude oil production in the state should average 1.2 million BBL/d for this year, but then drop to 1.16 million BBL/d.

Crude oil prices won't be supportive of upstream activity next year either. The U.S. Energy Information Administration, part of the U.S. Department of Energy, expects WTI to average $51.42 per barrel, well below the point at which many shale drillers can make a profit.

Hess Midstream, part of Chevron (Houston, Texas), said in its third quarter earnings that it expected to see subdued rig counts in North Dakota. It's one of the more active players in the state, based on upstream activity.

DAPL Cleared for Service

On Friday, meanwhile, the U.S. Army Corps of Engineers released its environmental impact statement on the Dakota Access Pipeline (DAPL). Delivering Bakken crude oil to refineries in the Great Lakes region since 2017, the network has faced stiff opposition from tribal groups and environmentalists concerned about the impact to regional waters.

A court ordered an environmental review after it was revealed the pipeline had an unlawful easement to pass underneath a reservoir for the Missouri River. The Army Corps said the pipeline can remain in service, though it has new conditions for the stretch that covers the river in North Dakota.

"After eight years of operating safely, the Dakota Access Pipeline has become an essential part of our nation's energy infrastructure," North Dakota Governor Kelly Armstrong said Friday. "Its continued operation will ensure energy security and affordability for the country while providing positive economic impact that touches every North Dakotan."

The pipeline extends nearly 1,200 miles from the Bakken shale patch. The artery can carry as much as 750,000 BBL/d of light, sweet shale crude oil.

By the Numbers

• $53.36 Bakken shale crude is 5% below budget
• 1.17 million BBL/d: average production from North Dakota shale
• 1.5% above the state's revenue forecast

Key Takeaways

• Lower crude prices are taking a toll.
• State budgets may be squeezed.
• Dakota Access Pipeline cleared by Army Corps.

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