Bakken Oil Threatened by Oil Price Decline

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--State regulators in North Dakota said crude oil production remains above its revenue forecast, but a downturn is expected amid a lower-for-longer price cycle.

Moody's on Friday downgraded the U.S. sovereign credit rating amid concerns a tax bill circulating through Congress would only add to the nation's debt. Worries about the impact of U.S. President Donald Trump's trade policies were already mounting before the Moody's announcement, dragging on commodities and stock indices alike.

West Texas Intermediate (WTI), the U.S. benchmark for the price of oil, was trading lower in early Monday trading to move in the $61-per-barrel range.

Nathan Anderson, the director of the North Dakota Department of Mineral Resources, said in a monthly report on state oil and gas activity that drillers need oil priced at between $55 and $60 per barrel to break even, but the upstream sector may be preparing to cut back. He said there have been roughly four or five different operators that have indicated that lower oil prices may be limiting future activity.

"A little bit of softening in both the rig count and the frac crew count, which will ultimately impact production several months down the road," he said.

Regulators said total crude oil production in March, the last full month for which the state government published data, averaged 1.19 barrels per day (BBL/d), a 2.5% increase from February levels.

Anderson, however, said inclement weather during the later stages of winter in North America curbed production in February, so the rebound in March was expected.

In terms of upstream activity, North Dakota lost a rig from earlier this year, running 31 in the Bakken formation, one of the largest inland crude oil producers in the United States.

On Friday, upstream services firm Baker Hughes Company (Houston, Texas) reported 576 total rigs working in the United States, down 28 from the same period last year. Operators are becoming more efficient by drilling longer laterals and multi-bore wells, diminishing the impact of rig counts, though a low-price environment may be putting pressure on upstream activity.

Anderson said last month that should prices stay lower, operators in the Bakken may need to ask service providers such as Baker Hughes for a cost reduction. Crude oil production levels are nevertheless above the revenue forecast set by the state.

Elsewhere, state regulators said the gas-to-oil ratio in the Bakken formation is changing as the basin matures. That ratio increases as pressure declines in the reservoir due to production. As the pressure drops, heavier hydrocarbons get trapped in subsurface pores, allowing room for lighter products such as natural gas to move into the production well.

Federal estimates are pointing to a decline in crude oil production from the Bakken. The Energy Information Administration (EIA), the data arm of the U.S. Energy Department, expects Bakken oil production to average 1.21 million BBL/d next year and fall to 1.17 million BBL/d by next year.

Operators in the Permian, the largest inland oil producer, have expressed similar concern about field maturation. Combined with a lower outlook for crude oil prices, which the EIA expects to drop below $60 next year, companies such as Occidental Petroleum Corporation (Houston) and Diamondback Energy Incorporated (Midland, Texas) warned that Permian production may plateau before the end of the decade.

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