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Only 1 Percent Of Bakken Shale Is Profitable At These Prices

Tyler Durden's picture




 

Submitted by Arthur Berman via OilPrice.com,

Only 1 percent of the Bakken Play area is commercial at current oil prices based on my analysis that follows.

Only 4 percent of horizontal wells drilled since 2000 meet the EUR (estimated ultimate recovery) threshold needed to break even at current oil prices, drilling and completion, and operating costs.

The leading producing companies evaluated in this study are losing $11 to $38 on each barrel of oil that they produce, the very definition of waste.

Although NYMEX prices are about $46 per barrel, realized wellhead prices in the Bakken are only $30 per barrel according to the North Dakota Department of Mineral Resources. At that price, approximately 125,000 acres of the drilled play area of 10,500,000 acres is commercial (green areas in Figure 1).

Figure 1. Bakken Shale Play commercial area map at $30 per barrel wellhead price. Contours are in barrels of oil estimated ultimate recovery. Contour interval = 200,000 barrels of oil. Source: Drilling Info, North Dakota Department of Natural Resources & Labyrinth Consulting Services, Inc.

(click image to enlarge)

The break-even per-well EUR is 700,000 barrels at a $30 oil price. The underlying economic assumptions are shown in Table 1.

Table 1. Economic assumptions and outcomes used to determine the Bakken $30 per barrel commercial area shown in Figure 1. Source: Company presentations and Labyrinth Consulting Services, Inc.

(click image to enlarge)

There has been much debate about the break-even price for tight oil plays in the U.S. This discussion is largely meaningless because there is no single break-even price for any play.

 

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Fri, 11/06/2015 - 10:56 | 6757792 cordial savage
cordial savage's picture

The blue hanging thing is unimpressive at best.

Fri, 11/06/2015 - 11:06 | 6757815 junction
junction's picture

The Bakken Shale investments represent the ultimate in "carpe diem" economics.  These oil wells are not only money losers now.  Just like the 19th century gold mines that are Superfund sites today, these wells will cost a fortune to decontaminate and seal off long after the original investors go bust.   

Fri, 11/06/2015 - 11:08 | 6757824 troubledasset
troubledasset's picture

I dunno about that Junction. When the media says XYZ is "economic" they always 100% of the time are talking about single well economics. And, oh, by the way, what strip price was associated with these "economics"? Do they factor in G&A, G&G, Leasing, Regulatory, I think not. How many uneconomic wells did company A have to drill to find the 1% that is economic?

Fri, 11/06/2015 - 11:14 | 6757856 philipat
philipat's picture

Quite apart from the "sagging blue bit - lol" why is it that the shale story has survived so long now? The economics don't add up, even with 0% interest rates. So presumably the anti-Russian support from "Certain Parties" must remain strong? Otherwise, none of this makes any sense?

Fri, 11/06/2015 - 11:44 | 6758007 Augustus
Augustus's picture

Interest rates have little effect on well economics when the payback is less than one year.  The problem now is entirely related to price of crude.  Run those economics at $70 for Bakken oil and it works.  Pointing out that Bakken economics for development is unattractive at current prices should not be a great revelation.  Very few projects anywhere in the world are attractive investments with that oil price - not just Bakken.  It really just makes a pretty compelling case that oil prices will increase in 12 months or so.  It just takes longer for the State Owned operators to get the message - and those are the ones in real control of world production.

Fri, 11/06/2015 - 11:45 | 6758013 localsavage
localsavage's picture

@philipat....My guess is that some of this is due to adjustments in costs.  When this thing went crazy, we had some work in the area.  You couldn't even get a hotel to stay.  Everything was 2x what it should have cost at best.  My guess is that part of the reason that they are hanging on is due to lower operating costs then what these master economists are calculating.  I don't blieve the one percent number but 25 doesn't seem unrealistic....

Fri, 11/06/2015 - 10:59 | 6757799 Philo Beddoe
Philo Beddoe's picture

We still got swtichgrass? We do don't we? 

I used to love it when Shrub would babble on about that shit. 

Fri, 11/06/2015 - 12:12 | 6758130 Kirk2NCC1701
Kirk2NCC1701's picture

Switch to Grass?  Like, cool, man.

;-)

Fri, 11/06/2015 - 11:02 | 6757807 LetThemEatRand
LetThemEatRand's picture

Drill baby drill.

Fri, 11/06/2015 - 11:05 | 6757816 nickels
nickels's picture

Sure, you lose money on every sale but you make it up in volumne...

 

Fri, 11/06/2015 - 11:08 | 6757828 LetThemEatRand
LetThemEatRand's picture

And all that matters to TBTB is that they made a shit ton of money already securitizing the debt that funded these operations.  The losers -- as usual -- will be the investors who bought the securities, and the workers who thought the high wages were going to last forever and therefore bought cars and houses that they will lose once the music stops.

Fri, 11/06/2015 - 11:47 | 6758020 Augustus
Augustus's picture

Whether the high incomes lasted forever or not, the workers did enjoy a pretty long period of $75K - $150K for truck drivers and rig workers.  Sure was better than most other work available.  Maybe when the opportunity strikes again the workers will handle their good fortune differently.

Fri, 11/06/2015 - 11:51 | 6758032 MopWater
MopWater's picture

Friend of a friend works up in ND for a few weeks at a crack. I meant to ask him how things were up there...operates a crane...I have to think things have slowed considerably.

Fri, 11/06/2015 - 11:09 | 6757829 adr
adr's picture

So even though the US is importing less crude, NYMEX is $46 a barrel, we have so much of the stuff it is causing shale oil to sell for $30?

And for some reason oil is still trading at $46 and gasoline is still over $2.25 a gallon.

Demand craters above $30 a barrel and $2 gas. Been true for the past ten years. The global economy died when oil and the rest of the commodity complex went on its Wall Street fueled speculative binge.

Production of goods became unprofitable, shipping goods became an exercise in insanity, you could no longer forecast anything because you had no idea what anything was going to cost you a year out, and worst of all housing became nothing but a tulip bulb greater fool con game.

Thanks Wall Street.

Fri, 11/06/2015 - 11:15 | 6757869 Hohum
Hohum's picture

adr,

If you look at the Wednesday weekly report from EIA, imports (4 week averages) are down very little YOY--around 2%.  I suspect you don't look at that, though.

As for the Bakken, everyone look at the table and figure out how a drop in barrels per day per well means "efficiency" is increasing:

https://www.dmr.nd.gov/oilgas/stats/historicalbakkenoilstats.pdf

Fri, 11/06/2015 - 11:51 | 6758035 Augustus
Augustus's picture

Pretty silly to comment that energy demand has "cratered"  It has never really cratered since the internal combustion engine powered by oil became available.

Fri, 11/06/2015 - 12:51 | 6758297 cigarEngineer
cigarEngineer's picture

The $15 discount is because it takes a lot of money to truck and rail the oil to Cushing, OK or the coastal refineries. 

Fri, 11/06/2015 - 19:32 | 6760062 SixIsNinE
SixIsNinE's picture

back in 2002-2004 when crude was $25-30/barrel, gas was low $2s ... by 2005 when the bb price started going into the 40s & higher, we began to see a breakdown between pump & barrel price.

If we hadn't been subsidized through the circa 2007-2013 era, pump prices would have logically gone $6 to $10 and more per gallon .... and clearly our economy could not handle that, so our new improved command economy run by the Big Club dictated lower pump prices. 

Gotta give 'em credit for that.  And the no-brainer BTFD post mid 2009 as all the rigging was put in place, all rules broken - all one had to do was listen to the Peace Prize winner tell us to not fight the Fed....  it IS a casino folks, and big thanks to all the Zeros & Tylers who's made this long strange Trip much the merrier !

Fri, 11/06/2015 - 11:13 | 6757851 BlackVoid
BlackVoid's picture

It does not matter, there is infinite credit at zero rates.

Fri, 11/06/2015 - 11:22 | 6757904 El Vaquero
El Vaquero's picture

In nominal terms.  How much is that credit going to be worth in a year?  In 5 years?  Bankers want something for nothing, and they'll use their fiat to get it.  Until their fiat breaks, that is.  Same goes for the federal government, which is in on the ponzi scheme. 

Fri, 11/06/2015 - 11:20 | 6757893 ghostzapper
ghostzapper's picture

0% with Crude below $30 (coming within six months).  Can only imagine the bullshit shenanigans taking place to try and hide the implosion of these "Shale Oil Miracle" bonds.  

Fri, 11/06/2015 - 11:26 | 6757921 Niall Of The Ni...
Niall Of The Nine Hostages's picture

They would be perfectly profitable at a fair price for oil. Once we see the back of the House of Saud, the Bakken will be more than profitable again. 

The plan B, if the House of Saud can't be saved from their own folly, is to see to it that the right people are able to buy the Bakken at a fraction of fair value today and make a killing when the Russian flag is raised over Riyadh.

Pretty much the same game is being played in Alberta. The new Liberal government has a mandate from Bay Street to hurry along the process of ruining Alberta, and help Bay Street foreclose on her and walk off with her oil.

Fri, 11/06/2015 - 11:29 | 6757933 El Vaquero
El Vaquero's picture

We'd be forced to use less oil at a fair price.  It would fuck up the dollar ponzi, and the government and the bankers cannot have that.  The sad thing is, that is what they're going to get, and in the mean time, their revolving door, regulate small business out of business MO is leaving everybody unprepared for that.  All so some cronies can turn a fast buck this quarter.  Cunts, the lot of them.

Fri, 11/06/2015 - 19:36 | 6760075 SixIsNinE
SixIsNinE's picture

how about the new Canadian PM Trudeau's 2013 interview in which he fawned over the nimbleness of the dictatorship communist party in China.  Then we learn that his former PM father Trudeau was head of the Canadian Commie Party back in the 1950s.

but what's important, is Justin Trudeau has a trendy tattoo, and long hair, everything is awesome

 

Fri, 11/06/2015 - 11:32 | 6757947 laomei
laomei's picture

For new wells, sure it's an issue.  For wells already in production, the break even is around $10/b to keep producing.  If anything, it creates an incentive to further drive down cost, there's room yet for innovation and this whole thing is absolutely crushing our enemies.  A hydrocarbon hungry China will snap up long term contracts with a desperate Russia. Once a major player folds, the prices will once again rise and China and Russia will have a wedge issue... one addicted to cheap hydrocarbons, the other demanding more money at a time when growth has flatlined.

 

 

Fri, 11/06/2015 - 11:39 | 6757982 Byte Me
Byte Me's picture

All hail "commercia"

Fri, 11/06/2015 - 11:45 | 6758014 my_nym
my_nym's picture

Good.  Keep it all in the ground longer. 

Fri, 11/06/2015 - 11:59 | 6758072 swmnguy
swmnguy's picture

It's the same thing here as with everything else.  There's too much fictional, notional money stampeding around, into one sector and then out, and into the next one and then out.  When the primary activity of an economy is buying and selling its own money, the timer is ticking and it's going to all go "BOOM!"  Inevitably.  Can't be stopped.  It can be delayed, which accumulates still more fuel for the ultimate explosion.

The residential real estate market did this.  People didn't triple their incomes over 1998-2007, so there was no "real" reason for the price of starter homes to have tripled.  That was caused by all the finance sloshing into that market, and then sloshing out.

It's easy, if you have a few billion dollars to play with.  Find something everybody needs.  A house, oil, medical care, a college education.  If you can't find a need that already exists that you can get in on, invent one, like iPhones, or what has happened to a 4-year college degree (from a luxury for the top 5% in 1940, to a necessity for the lowliest receptionist job today); create a problem that only you can solve.  Pump money into it, stampede everyone else's money into it; reimburse yourself for your initial investment; and then, playing with House money (actually, everyone else's money), let that sucker rip.  Multiply your initial investment.  The second the momentum sags, sell everything, pocket the money, and start looking  for that next need you can arrange so only you can meet it.

The price of oil is only affecting the petroleum industry now because the hot money already got out.  It was always all about the financing. 

Fri, 11/06/2015 - 12:19 | 6758165 Kirk2NCC1701
Kirk2NCC1701's picture

All those Blue Zones...

 

"I see bankrupt people" - Banksters

"I see opportunity to do God's work" - Lord Bankfine @ GS

"We see Blue Light Specials" -Saudis and Chinese

"You won't drill that.  Try Green Tech" -POTUS

"We see a US Green* Revolution" -US workers

   *Not the kind that BHO talks about.  The MENA kind.

Fri, 11/06/2015 - 13:12 | 6758381 Jim in MN
Jim in MN's picture

"Hole.  Beer.  Hole.  Beer. Hole.  Be--NO MONEY!  Greyhound back to wherever"  --Driller

 

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