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Friday, October 31, 2014

Top Story At Yahoo!Finance Right Now: Oil Prices Dropping But Shale Revolution Rolling On -- October 31, 2014

Updates

Later, 6:12 p.m. CDT: a reader sent me this link with regard to the current slump in oil prices --
“We don’t really know where oil prices are heading, or how this will affect our chief competitors, OPEC and Texas, but we are in this together,” states Helms. “Not only is North Dakota under a lot of pressure, the OPEC counties are as well.”
Helms reports that today’s world oil price is $66.25 per barrel.
“Saudi Arabia needs $94 per barrel, and Iraq $116, to satisfy their current government budget,” states Helms. “So they are below break-even in terms of world oil prices.”
The only oil-producing country that is still faring well is Kuwait, which requires $59 per barrel.
The good news is that, as far as North Dakota and McKenzie County are concerned, McKenzie County’s break-even point is $28 per barrel, which is the lowest break-even point of all the oil-producing counties in North Dakota.
McKenzie County also has the highest number of drilling rigs at 66 out of 190. 
Original Post
The story:
$75 dollars a barrel – that’s the price crude oil would have to hit for frackers in North Dakota’s Bakken fields to feel pressure to slow new production, according to Greg Zuckerman, author of “The Frackers” and a special reporter at the Wall Street Journal.
“All these guys have hedged. They’ve got production [and] they’ve already got the acreage. They’re not gonna stop but maybe they’ll kind of slow new stuff.”
Fracking in other parts of the country, though, is likely to be much more resilient.
In Texas’s Eagle Ford and Permian basin, Zuckerman says oil prices would have to drop as low as $60 a barrel for production to be impacted.
Which is to say – don’t think the free fall in oil prices this year will jeopardize the fracking revolution.
“There’s a challenge, [frackers are] going to make less money; you’ll see a slowdown in production. But the revolution’s going to continue,” said Zucerman.
“I would argue that we’re only in sort of, maybe, the third inning even of a long, impressive revolution. And so this will slow things down but I don’t think it’s going to stop the revolution.”
My copy of The Frackers is across the room; reading slowly to enjoy it. A reader sent me a copy. Much appreciated.

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6 comments:

  1. The article and the views of zuckerman are convoluted. It alternates between production and new production and references fracking but not drilling. There are the following ways to "slow down" oil activity:
    Slow down drilling
    Slow down fracking of wells already being drilled
    Slow down (shut in) producing wells
    Some combination of the above

    Each one has its own associated costs and revenue impact and requires the operator to forecast a price in the future.

    Interesting that the analyst projects that bakken has the highest cost structure and as such would likely be the first area to feel the impact of price declines on drilling and completion operations.

    ReplyDelete
    Replies
    1. Many points raised. It doesn't matter how much something costs; it's all about return on investment. If something costs $1,000 with only a 10% return and something else costs five times that amount but promises a 100% return, which is the better investment? Obviously the ability to finance a high cost endeavor is also relevant and that's where the "high-cost" Bakken is relevant.

      I don't know the Permian or the Eagle Ford as well, but the best Bakken is 95% oil and and much of the other 5% is very, very rich NGL.

      I was also going to comment on analysts who talk about the Bakken "in general." There's a huge difference between the Bakken in Divide County and the Bakken around Watford City.

      Delete
  2. Bruce, Checkout this link to the McKenzie County Farmer. In it Mr. Helms says $28 dollars is the break even point in McKenzie County

    http://www.watfordcitynd.com/?id=10&nid=2925

    ReplyDelete
    Replies
    1. I've seen as low as $37. Some months ago I had a post already to go (it was in draft) on the break-even point -- in fact, I think I posted it but got so much push-back in comments, I pulled it off. I was afraid the discussion would cause more confusion than I wanted. The "break-even" point is a very, very complicated issue.

      But I will say this: a slump in oil prices has some very, very good aspects to it. It has hurt part of my investment portfolio but in the big scheme of things, I don't have any concerns.

      Thank you very much for taking the time to write. I will move the link up to the main body of the blog for easier access.

      For those trying to sort out the break-even point in the Bakken, the company to watch is Hess.

      Delete
    2. The companies to watch are thise with higher cost structure and less productive acreage . They will get squeezed first in a price drop. I don't know where Hess fits in this arena. The companies with the lowest costs will be the least impacted but may not escape unscathed

      Delete

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