Bright side to falling oil prices?

Dan Eberhart, CEO, Canary LLC has said that falling oil prices may have caused a slowdown in activity in and around North Dakota’s Bakken shale play, but there are surprising benefits from the downturn.

As the global economy weakened last year and the oil market moved to the supply side, oil prices began the drop. Today, a barrel of WTI has lost more than half of its value compared to a year ago. As a result of the price drop, the US oil rig count fell for 29 weeks in a row, bottoming out in late June at 628, the lowest count since August 2010. Recently, data from the North Dakota Department of Mineral Resources reported 75 drilling rigs in the Bakken, or 112 fewer than a year ago. However, the national count has rebounded slightly since recovery is uncertain as oil prices are still soft.

Good news?

The above seems to make positive news hard to come by, but Eberhart, in comments made at the Bakken Conference & Expo, Grand Forks said that during a recent visit to North Dakota he saw how energy companies and state leaders are shaking off the bust mentality and putting the lull to good use. He also said that even before prices started to fall, established producers were optimising their wells to increase productivity. “By innovating, producers lowered their break even points, which allowed many wells to remain viable in the low price environment. This is one reason we’re seeing crude inventories continuing to build despite the rig count falling.”

Infrastructure

Also, North Dakota is taking advantage of the breather to work on infrastructure upgrades, including improvements that will help energy companies lower their operating costs, particularly those related to transport. Since the shale boom began at the Bakken in 2007, the state has struggled to keep up with infrastructure demands. Workers streaming into the western part of the state overtaxed housing, schools and other resources. Trucks hauling heavy equipment clogged rural two lane roads never engineered to carry the kind of traffic associated with oil operations.

Back in February, Governor Jack Dalrymple signed a US$1.1 billion budget to improve those roads, along with sewers, schools, water treatment and other facilities. Much of the money to fund the upgrades has come from oil extraction taxes paid by energy companies. According to Eberhart, these infrastructure improvements will help oil companies lower well development and operating costs even further. Eberhart explained, “one of the issues energy companies have faced in the Bakken is how high the cost of operating has been compared to the rest of US oilfields. If the downturn enables the state to make improvements that will push the Bakken closer to other operating basin cost structures, the benefits will be enormous and more meaningful than they would be in other basins.”

Edited from press release by Claira Lloyd

Published on 03/08/2015


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