Bakken Boom Slows on Crude Pride Slump

The Bakken formation is one of the more expensive shale formations to drill in, according to Bokowy. There is less infrastructure in North Dakota than in, say, Texas, and it is located much further from Gulf Coast refineries. That results in high rail transport costs. So, the weakening of oil prices has hit operators working in the Bakken particularly hard. However, it is only fair to mention that activity in other formations is also waning. For example, global diversified resources giant BHP Billiton Ltd. is planning to cut the number of its rigs in the United States by 40 percent, the company recently announced in a press release, and the company’s activity in two Texas plays – the Eagle Ford and the Permian Basin – will focus on the core acreage. Meanwhile, Helmerich & Payne is idling as many as 50 rigs, following an announcement that it had already idled another 11.

A Light at the End of the Tunnel

The big questions for the industry are when will prices begin to head back up, and how high will they go. While several pricing scenarios are being discussed by analysts and economists, a number of them, including two Rice University analysts, have said prices could be as high as $70/barrel by the end of the year.

The rationale is that many countries within the Organization of Petroleum Exporting Countries (OPEC) will feel the effects of lower profits from crude oil sales and push for a reduction in production by Saudi Arabia. Some analysts believe OPEC production is likely to be dialed back somewhat, resulting in a more balanced supply-and-demand scenario for crude oil, and a strengthening of prices with it.


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