Some parts of North Dakota’s Bakken shale play are profitable at less than $30 a barrel as companies tap bigger wells and benefit from lower drilling costs, according to a Bloomberg Intelligence analysis. That’s less than half the level of some estimates when the oil rout began last year.
The lower bar for profitability is one reason why U.S. oil production has remained near a 40-year high even as crude prices fell more than 50 percent over the past year to the lowest level since March 2009.
West Texas Intermediate crude for September delivery fell to $42.23 a barrel Thursday, the lowest settlement since March 2009. In North Dakota, where producers have to offer discounts to account for extra transportation costs, the price of Bakken oil reached $30.80 Wednesday, according to Royal Dutch Shell PLC.
In McKenzie County, North Dakota, one of the core areas of the Bakken, the median breakeven price is a little more than $29 a barrel, Foiles said. That’s about a third less than in nearby Williams County, and it’s less than half the average breakeven price for the Bakken that banks and research firms estimated last fall.
McKenzie County wells have shown the best returns amid the price drop. Drillers had 26 horizontal wells seeking oil in that county last week, the most in the state, according to Baker Hughes Inc.
Bakken oil production in North Dakota has fallen less than 2 percent from its peak in December, while the number of oil rigs in the state has fallen by 60 percent.
EOG Resources Inc., the largest shale driller, says it can make a 30 percent after-tax return on $50 oil in its best plays. Whiting Petroleum Corp., the largest Bakken producer, said it’s preparing to be able to grow production at $40 to $50 prices.
At a realized oil price of $29.42, half of Bakken wells will generate returns exceeding 10%.
SOURCE - Bloomberg Business