Oil at $30 Is No Problem for Some Cost-Cutting Bakken Drillers

(Bloomberg) -- The lowest crude prices since 2009 might still not be enough to end the U.S. energy renaissance.

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.

“One of the explanations for why production hasn’t fallen off is that the cost has gone down so much,” David Hackett, president of Stillwater Associates LLC, an energy consulting firm in Irvine, California, said by phone. “The marginal cost to produce has shrunk pretty dramatically with the drop in prices. The efficient drillers are now able to take advantage.”

West Texas Intermediate crude futures fell $1.88 a barrel to settle at $43.08 yesterday. In North Dakota, where producers have to offer discounts to account for extra transportation costs, the price of Bakken oil dropped to $30.58 yesterday, according to Royal Dutch Shell PLC.

The breakeven price, based on production rates and drilling, completion and other costs, can vary widely within a play based on how prolific the geology is and the efficiency of the drilling company, according to Bloomberg Intelligence energy analysts William Foiles and Andrew Cosgrove.

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.


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