Continental Resource's Harold Hamm on Falling Oil Prices - Videos

October 28, 2014 Kirk Eggleston

Continental Resources, the Bakken's second largest producer, will not change its course on new drilling immediately due to falling oil prices, according to its CEO Harold Hamm. In a Platt's Energy Week interview on Sunday, Hamm said prices would have to fall another 20% before Continental would significantly cut back its operations. Hamm has been making the rounds on TV, also appearing on CNBC, talking about what he believes are some of the reasons behind the drop in oil prices. Hamm points the finger sharply at OPEC, accusing the Saudi's of using rhetoric to dictate price.

Since June of this year, oil prices have been falling, and the reasons why have to do with supply v. demand. The shale oil boom, for instance, has increased the supply of oil worldwide, and demand has gone down in China, the world's second largest oil consumer. But the main reason oil prices have dropped can be traced back to OPEC, which has for all intents and purposes allowed the price of oil to drop, by actively engaging in talks of opposing cuts to production to curb supply.

Hamm doesn't believe the Saudi's have the power to set oil prices, but the fact remains OPEC controls 81% of the world's crude oil reserves. According to the Wall Street Journal (WSJ), which cited sources familiar with the matter, OPEC will oppose any cuts to it's oil production ceiling., in its late November meeting in Vienna.

See Harold Hamm interview:

Platt's Energy Week Interview - 10/26/14

Bakken Study Analyzes Impact of Oil Prices on Development

October 23, 2014 Kirk Eggleston

Bismarck, ND-based KLJ Engineering recently completed a study commissioned by the North Dakota legislature to provide decision makers with data about the Bakken's potential economic impact on the state through 2019.

The full KLJ report, released in September of 2014, focused on 19 oil & gas producing counties in North Dakota, and incorporated three approaches to forecast the sustainability of oil and gas production:

Economic analysis of the Bakken and Three Forks formation
Projections of population, employment and housing needs
Potential for CO2 enhanced oil recovery (EOR)

Of particular interest to industry is the impact of falling oil prices on future development. Earlier this month, Lynn Helms, the Dir. of North Dakota's Department of Mineral Resources (DMR), said two things could hurt production: low oil prices and new flaring regulations.

The KLJ study provided some interesting insight into how oil prices would impact production based on (IP) rates. In the core areas for development (McKenzie, Williams, Mountrail and Dunn Counties) most wells are well above 1,000 b/d, but on the fringes of these core areas, IP rates tend to be lower.

“According to the study, at the $70 per barrel price, a well IP of 500 b/d would never recover its costs. In order to recover well costs within 5 years, a 500 b/d IP well would need oil prices to exceed $100 per barrel. In stark contrast, modeling sensitivity scenarios such as large drops in prices down to $35 per barrel with high IP wells, which are common in parts of the Bakken/Three Forks, still have positive economic returns. Based on modeling outputs, IPs of 500 b/d or less will not be attractive to companies if well costs equal $7.5 million, and oil prices are in the vicinity of the 2014 average price of $85 per barrel. Conversely wells in the 500 to 750 bpd IP range are attractive, but susceptible to oil price fluctuations. Wells having at least 1,000 bpd IPs are attractive at current or higher oil prices, and for the most part, will still be attractive even with a reduction in oil prices. In discussions with industry representatives, companies generally expect to recover costs in three years or less, and a five-year payback time frame would be acceptable only in very unusual circumstances. ”

BakkenShale.com will provide additional details and commentary centered around the KLJ study in future posts.

Bakken Shale Expected to Hit 1.19-Million b/d in Nov. 2014

October 16, 2014 Kirk Eggleston

The Bakken Shale is expected to produce 1.193-million b/d of oil in November, up 22% from the same time last year, according to the Energy Information Administration's (EIA) Drilling Productivity Report. October's total production from the play is expected to be 1.164-million b/d.

Despite lower crude prices, EIA data shows gains in production across all major U.S. shale fields. According to the International Energy Agency (IEA), only 4% of U.S. shale production needs prices above $80 for drillers to break even. In April of 2014, consultancy Wood Mackenzie issued a report that estimated break-even costs in the Bakken based on sub-plays. Break-even rates in the Sanish basin, one of the better areas for development in the Bakken, are estimated to average $58/bbl, according to the Wood Mackenzie report. Break-even costs were higher in other areas of the play.

Bakken operators continue the trend to be more efficient. EIA data for October shows new-well oil production per drilling rig is at 530. This is expected to increase to 537 by November.

Gains in Texas

In the Eagle Ford Shale in South Texas, and the Permian Basin in West Texas, gains were similar to the Bakken on a month-to-month basis.

The EIA estimates the Eagle Ford will produce 1.614-million b/d of oil November, up 29% from the same time last year. That's also a ~2% increase from October's expected production of 1.579-million b/d.

The Permian's October production is expected to be 7.765-million b/d, and increase ~2% to 1,807-million b/d in November.

Bakken Drillers Could Be Forced to Scale Back 2015 Efforts

October 14, 2014 Kirk Eggleston

Bakken Shale oil producers are under pressure to scale back 2015 drilling plans due to falling oil prices, according to Bloomberg. On October 13th, Houston-based Plains Marketing L.P. listed Williston Basin sweet crude at $67.69, which is a ~$4 drop from last week's price.

Crude oil prices have been on the decline worldwide. Surging production from U.S. shale plays are one of the reasons behind the worldwide oil price drop. Other factors include a weakening global demand for oil and an increase in Libyan oil drilling over the summer, according to the Energy Information Administration (EIA).

North Dakota’s Department of Mineral Resources (DMR) Director Lynn Helms updated lawmakers on the status of oil & gas development in the state last week. Helms said two factors could negatively impact oil production – lower oil prices and new flaring regulations.

Lower prices doesn't mean production growth will stop in North Dakota for the immediate future. In April of 2014, consultancy Wood Mackenzie, predicted the play will hit 1.7-million b/d by 2020. Currently, oil production in North Dakota is ~1.1-million b/d.

Growth in the Bakken region has been marked by a sharp up tick in infill drilling and pad drilling to increase efficiencies and the recovery of hydrocarbons. In January of 2010, just a few years after the boom began, there were about 4,600 producing wells in North Dakota. Now, there are more than 11,000 producing wells in the state.

If oil prices remain low or stay flat, operators will scale back drilling across the Bakken. Look for operators to focus mostly on the sweet spots in core areas located in McKenzie, Williams, Mountrail and Dunn Counties.

Bakken Development Threats on the Horizon?

October 9, 2014 Kirk Eggleston

The Bakken is one of the most lucrative plays in the country, but there are some looming concerns for development. The good news is production growth is expected to continue.

New York City, NY-based financial information services company Fitch Ratings, Inc. published its “Bakken Shale Report” this week, which found the play had the highest oil cut among U.S. shales at 85%.

Oil production has been above 1-million b/d since April of 2014, according to the Department of Mineral Resources (DMR), and officials expect production to grow to 1.3-million b/d by 2015.

“The primary challenge for upstream companies has been to balance gains from increasing production and drilling efficiencies with strained takeaway capacity,” according to Fitch Ratings.”

The Fitch report found Bakken crude averaged ~$10 per barrel below West Texas Intermediate (WTI) in 2014, and rail is estimated to provide 60% of regional takeaway capacity and costs to ship affected spread levels.

This week, the price of Bakken crude fell to ~$73, which spurred conversation online about lower oil prices and how that could impact Bakken development. On Wednesday, North Dakota's Department of Mineral Resources Director Lynn Helms updated lawmakers on the status of oil & gas development in the state. Helms said two factors could negatively impact oil production - lower oil prices and new flaring regulations.

Beginning on June 1st, the North Dakota Industrial Commission (NDIC) began implementing its first in a series of policy changes aimed at reducing flaring in the Bakken.

The NDIC’s new “gas capture plan” (GCP) rule will require E&P companies to submit a document with their application for a permit to the commission specifying how they plan to capture gas produced from their drilling operations.

According to Fitch research, a large increase in Bakken production has disrupted traditional supply and demand balance in the region, and while pipeline capacity has struggled to keep up with volumes, Fitch expects supply and demand will begin to come more into balance in 2015 and 2016 as market participants strive to find the most economic placement for their barrels.