Posted on 01/04/2015 6:09:26 AM PST by thackney
en Chorn had a good vacation in Minnesota last month, making it to a Vikings game, a hockey game in Duluth and getting engaged. But while he was gone, the price of oil hit him personally.
“While on vacation, I got a call from someone who’s covering for me and said, ‘Hey your rig’s being laid down,’” said Chorn, who does geology work on rigs for Sunburst Consulting.
He’s had a slow six weeks since then.
The oil price drop will impact fringe regions in the Bakken the most, experts said, because the oil there costs more to extract.
“I think those areas will slow down, but we’ll come back and we’ll get them again,” said Kathy Neset, a geologist with Neset Consulting in Tioga.
Chorn said the rig he was meant to work on was pulled by a smaller operator and was on the fringe of the Bakken in northern Divide County. There and in other fringe areas of the Bakken, the “break-even point,” or the wellhead price point at which new drilling stops, is higher. North Dakota Department of Mineral Resources data show the break-even point is at $73 in Divide County.
“We don’t even have enough natural gas to have a gas flare, there’s just not as much up there,” Chorn said.
The far north and east are the “first areas that start to go when prices drop,” Chorn said.
But in McKenzie County, prices can get lower and operations won’t change as much “because they can keep drilling and making money,” he said.
With the Bakken shaped like a bowl, McKenzie County is the middle with the thickest part of the formation. Oil in counties on the outside edges of the formation is harder to get, so costs are higher, and that’s where the oil price drop is hitting hardest.
“Companies have to invest more to discover oil in those areas and they will continue to work on them; they’ll just hold off on those areas for the lower prices and come back when the price returns,” Neset said.
For already active wells to slow down or stop production, oil would have to drop all the way to $15 a barrel at the wellhead, North Dakota Department of Mineral Resources spokeswoman Alison Ritter said,
Ritter noted 156 of the 172 rigs operating as of Tuesday are already in the four core oil counties – Williams, Mountrail, McKenzie and Dunn – with low break-even points, which is likely to continue to be the case. The break-even points range from $29 to $41 in the four core counties, with Dunn County at the lowest. The DMR develops its break-even prices based on economic data from operators each month.
The DMR expects a total drop of 30 to 40 rigs in the beginning of 2015 if the price of oil stays low, Ritter said.
Smaller operators with less money are more likely to pull rigs from the oilfield, but the Bakken’s biggest players are feeling the price drop, too.
Continental Resources, a leading Bakken producer, plans to decrease its rigs in the region from the originally planned 19 to 11, according to a revised capital budget announced Monday. CEO Harold Hamm said in a statement that the change “prudently aligns” spending with the lower prices of oil.
Whiting Petroleum CEO James Volker told investors Monday that the company wouldn’t release its 2015 guidance until February in an effort to wait out the unstable prices. Marathon Oil announced last week that its 2015 budget would be about 20 percent lower than this year’s.
The scale of the Bakken and Three Forks formations will insulate North Dakota somewhat from the downturn, Neset said.
“For the most part, you know, the oil companies, the operators, are trimming but they’re not pulling out,” she said. “They’re just slowing things down to make good decisions with the markets.”
And an end to the downturn may be in sight as an unexpectedly strong report on U.S. economic growth raised oil prices Tuesday by supporting expectations of a greater demand for crude, Reuters reported.
Also on Tuesday, Chorn got an email saying he’d be back at work soon.
He had started dipping into his savings, and looking for ways to cut expenses. He had saved money in the past, knowing that price fluctuation was a part of the oil industry. He added that’s the way to weather it – not by living paycheck-to-paycheck.
“You can never be certain of what the market’s gonna do,” he said, “so you have to plan on this stuff.”
I think this is being done to improve the Democrats election chances in November 2016.
This will cause the economy to improve and the dems will take credit, once the election is over the price will increase.
You think Europe and Asia slowed down their economy to help the Democrats in the US? Or the US private oil companies produced more oil to help the Democrats? Or both?
No, I think the Sauds heave kept production high to drive down the price, and my suggestion is just one of several reasons for this.
Saudi Arabia is producing less oil than last year at this time of the year.
We do have what I think of as a thin ice economy, you can be skating along doing your job then the bottom drops out.
I think the Sauds heave kept production high to drive down the price
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I agree.
Also, socialists know what capitalists will do when the steal money from them, they just create more capital.
Saudi Arabia oil production is down from last year.
In thousand barrels per day:
Sep 13
10,037
Oct 13
9,714
Nov 13
9,626
Sep 14
9,673
Oct 14
9,650
Nov 14
9,590
Can you explain what that means? Particularly in relation to the topic?
This is because global demand is weakening. It hurts the Russians, Venuezala, and Iran. The Saudis can get along just fine.
This is the return of the oil patch horror we saw in South Texas in the 1982 crash.
It was so bad that I almost lost my business. I had to lay off my employees and I was down to only 3 (me, myself, and I) but I survived and never forgot the lesson taught.
The real lesson learned is that the oil business goes in pretty predictable cycles on a 5 to 10 year basis. That is boom and bust. It can be relied upon to occur around these cycles until the end of time.
It’s a complex system, anyone who thinks they can manipulate it, may want to study up on the ‘butterfly effect’.
***That is boom and bust. It can be relied upon to occur around these cycles until the end of time.***
How true! I remember the boom in NW New Mexico back in 1955. Two years later came the bust. Then the boom in SE New Mexico.
Then the boom again in NW NM in the 1970s, then the big bust of 1984 when whole caravans of people were leaving NW NM area to find jobs.
Riiiiight. A massive conspiracy among the Saudis, Russians, Venezuala, oil companies, and who knows else. I’ll bet Hillary’s behind it. Don’t you think?
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