Bakken Boom Slows on Crude Pride Slump

One of Cost and Capital Partners’ conclusions was that when crude oil prices dip below $50/barrel, drilling companies that fund operations “through credit revolvers” could be at risk of “violating covenants.” There is even a worst-case risk that some producers could default on financial obligations, the report said.

There are a few things about the Bakken that make it more expensive to produce in than, say, the Eagle Ford formation in South Texas, Tom Bokowy, senior partner at Cost and Capital Partners, told Rigzone.

Not only does North Dakota lack the density of oil and gas infrastructure required to easily handle production, but there are also the political realities associated with getting product to refineries or to end users elsewhere.

“It’s not that difficult moving crude oil across energy-friendly states like Texas or North Dakota,” he said. “However, it can be another thing, politically, to move it across some of the states that lay between the two, and in addition, it is much farther from Gulf Coast refineries and end-use markets.”

Thinner Margins Mean Fewer Rigs

Rapidly eroding profit margins for drillers are likely to lead to a drop in rig count, and that is occurring now in the Bakken. In one week, the Bakken lost more rigs than during any other one-week period since 2008, according to a Jan. 23 Bloomberg story, and data from the Baker Hughes rig count showed that the rig count in the Bakken formation was at its lowest since February 2011, and possibly earlier than that.

Although there are about 154 rigs still operating in the Bakken, that is significantly less than the number in operation last summer and fall, and the number continues to shrink. Still to come are possible rig cuts by Hess Corp., an oil and gas producer that is a major operator in the Bakken, after Hess said in a Jan. 26 press release that it planned to cut spending by 16 percent from the amount it spent in 2014.  


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