Marathon Oil Corp on Wednesday said it would reduce the number of rigs drilling in three shale oil prospects - the Bakken in North Dakota, the Anadarko Woodford in Oklahoma and the Eagle Ford in south Texas - due to lower energy prices and high production costs.I guess the boom is over.
Marathon joins other major oil producers in the Bakken, including Continental Resources Inc and Occidental Petroleum Corp, that have reduced their rig count due to high costs or the introduction of new, more efficient rigs.
The decline in the number of oil-focused rigs in the Bakken has created concerns that growth in North Dakota's oil output will slow.
Wednesday, August 1, 2012
Marathon To Reduce Rigs in North Dakota
From Reuters:
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Marathon had a well scheduled on my acreage in Sheidan County, MT and drilling was to begin in October. Talked with their office last week and learned that the well has been taken off the schedule but stated that plans were to eventually drill the well. They further stated that they are re-arranging the allocation of some of their resources. The problem this will create for Marathon as well as other operators is that the clock is ticking and these leases will be nearing expiration dates. The majority of these leases were negotiated several years ago at "cheap" prices compared to todays rates. If they have to negotiate new leases, this will be very expensive and the possibility of top leases occurring which could result in complete loss of the leases.
ReplyDeleteI think you are correct on an anecdotal basis, but in the aggregate my hunch is the oil companies (particularly in North Dakota) have this under control. I can't talk much about Montana because I don't follow it. There's just too much to follow.
DeleteWell. it appears that 90$ crude is the "top of the floor" for economic operation. Hard to know at what crude price level a significant slowdown would happen . Some companies throw out numbers such as profitable at 70$. 60$, etc. I don't put much faith in such pronouncements as they are difficult if not impossible to calculate from financial info presented and the companies do not provide a breakdown or in any way back up these assertions. Seems obvious that further softness in crude will cause shale e & p to slow down.
ReplyDeleteThey will continue to drill well below "$90" oil.
DeleteAnd yet I noticed on the Aug Docket that Slawson is moving back into the Big Bend Field after concentrating on McKenzie County lately. FBIR is Slawson country and after locking in leases they seem ready to expand wells on already proven sites. Wouldn't quite call for the "demise of the Bakken" just yet.
ReplyDeleteBoom over? I imagine a lot of locals are hoping for time to breathe...and the ability to go to town without getting killed. However, I still see a lot of drilling by smaller companies to get leases held by production. Brigham/Statoil and Continental appear to be moving ahead with spacing unit development... putting holes in the ground as fast as they can. A lack of workover rigs is a curiosity. Last time I counted, Brigham had 8 wells on DRL status in Banks oil field while 7 drilling rigs continue in operation. A few days ago they picked up four more permits for Banks. I'm wondering if it's a question of operational efficiency while restraining supply in a soft market.
ReplyDeleteI would agree.
DeleteI just shared your blog to a friend of mine who's part of a nice sized company I won't name. After 30min on his laptop he comes up looking like he just learned a giant secret.
DeleteAnyway, as people earning a nice living in the Bakken, we want to be positive without self delusion. Even though I'm hoping for things to go well here, I want to say why I'm scared:
1) The spread between WTI and Brent keeps growing past previously unprecedented levels.
2) Refinery activity is going to slow as their peak "season" comes to an end.
3) Despite a pipeline reversing flow towards the gulf, the surplus oil at Cushing hits record high after record high.
4) Bakken oil production keeps increasing.
5) Cheaper shale oil wells are being drilled in areas that also do not have ND winters and weight restrictions(like TX).
6) Local business tell a story too. A well respected casing company has over a dozen "houses" just sitting in their yard. Haven't seen a single one sit long term in years. Rental houses are also accumulating levels of unrented inventory like I've never seen.
Also heard election years can be bad but I see no evidence for that besides 2008.
Come on, Bruce, assuage our painful doubting with your good insight.
I have a very long time horizon.
DeleteThe purpose of the blog is spelled out in the "Welcome" and the "Disclaimer" and I've repeated the purpose of the blog on many occasions.
"Assuaging" is not one of the purposes of the blog.
With regard to the WTI spread, on May 16, 2012, the spread was $18. On August 1/2 (it's about midnight on the East Coast, so I'm not sure if I'm looking at August 1 or August 2 data), the spread is $17.
I can't resist. Two more data points. First data point: there are comments that the Eagle Ford is not as "hunky dory" as folks make it out to be, and that was before the drought. Second data point: water will be an issue in Texas with regard to fracking; water will never be a "real" issue in North Dakota with regard to fracking.
DeleteI can't resist: I want things to go well in the Bakken, but I'm not scared. I remain inappropriately enthusiastic.
DeleteIf you are an investor and scared, there are many alternatives to investing in the Bakken. If you are not invested in the Bakken (directly or indirectly) there is nothing to be worried about.
Hi Bruce, Well I wonder even if oxy pulls out a few rigs would that really mean anything they can drill a well in lets say 45 days and they have x amount of rigs, however those rigs will be adding to already existing pads that will handle 4-6-8 wells on one site so it seems not moving rigs far away they should then be able to use fewer rigs and get pretty close of what they were doing with all the rigs they have had out there scattered around an moving them to pads. I follow oxy and I don't think they had as many riggs as say Contentintal during the hay day I'll say last two years. I say it should not be to bad. I quess time will tell. I vented I feel good now. Thxs Bruce
ReplyDeleteThe rig count will take awhile to stabilize. Today, "we" are at 208, a very, very high number considering that some rigs have moved to Montana (setting new permit record); more effective rigs; rigs reaching total depth more quickly; pad drilling, etc., etc. I have no idea where I would be concerned but something tells me "we" could get to 180 rigs and still be as productive as 220 rigs two years ago.
Delete