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DENVER—One of the big questions in the investment community, according to Tim Rezvan, senior research analyst, Sterne Agee, is whether the Bakken is dead, and whether the D-J Basin and other domestic shale plays will suffer a similar decline in activity due to the drop in oil prices.
After all, the Bakken play has seen a dramatic 51% plunge in rig count (down to 97 as of March 27), while operators are slashing capex and focusing on their core assets.
Though production is still growing, it won’t last forever. Curtailment could be felt as early as this summer.
Assuming Bakken rig count stays flat, production could roll over as early as July, with a 5% production decline from current volumes by the end of 2016, Gibson Scott, director, Energy Research at ITG Inc., told attendees at Hart Energy’s DUG Bakken conference on April 1.
But, to paraphrase one of Monty Python’s most famous sketches, the Bakken’s not dead; it’s just resting. Despite the dismal prices (WTI was at $49.95 at press time), there is reason to be optimistic. The futures strip predicts $60 per barrel (bbl) WTI by the middle of 2016, and $70/bbl WTI by mid-2018.
“I think the important number to look at is the $70 threshold,” said Rezvan, who spoke on the same panel as Scott and Stratas Advisors upstream analyst Gabriel Martinez.
“Conversations with operators suggest that will be a hurdle rate at which they would start hedging production, which is an important precursor to activity,” he said.
In addition, operators have been negotiating with well services companies on costs, and Rezvan said some already have 10% to 20% in price reductions in hand, with possible additional savings if the price of oil stays low.
Companies are also lowering costs by refinancing their debt, he added. These methods could lead to a $5 to $10 reduction per barrel in breakeven costs this year.
The panelists pointed to the “coring up” trend currently happening in the play.
“As we transition to 2015, to a period of reduced spending, activity is really going to be focused on the companies’ best rock, and also on where companies have infrastructure in place to improve well-level economics, so we do expect breakevens to come down sharply in 2015,” Rezvan said.
Simply put, the Bakken core offers the highest recoveries and the lowest breakeven costs in the Williston Basin, Scott said.
“Along with mature regions like Elm Coulee and the Billings Nose, the extensional areas rank lowest in terms of per well productivity,” he said.
He added that the average well drilled in the extensional areas between 2012 and 2014 required a $70/bbl price to break even.
Martinez pointed to the rig count. Of the 97 rigs still active in the basin, only six are running outside the four core counties (McKenzie, Williams, Dunn and Mountrail), he said.
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