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May 14, 2020

Bakken shale wells shut amid weak oil price climate

By GlobalData Energy

GlobalData forecasts Bakken production to fall through 2020. However, it is expected to remain above one million barrels of oil equivalent per day (mmboed) by the end of 2020.

The rig count has declined steeply since early 2020 and was further aggravated by the economic slowdown due to Covid-19 but is forecast to remain at an average of 13 counts in the second half of 2020 as the West Texas Intermediate (WTI) price starts to improve. The main driver that triggered the production drop of 30% from a relative high in March 2020 is that producers are forced to shut in wells and stop their drilling operations as they struggle to remain economical in current oil price climate.

Figure 1 – Bakken 2020 production and rig count forecast

Continental Resources is one of the producers forced to shut in approximately 1,700 wells because the company does not have any hedged production to mitigate the risks of oil price volatility. According to the GlobalData analysis from a sample of Continental Resources’ Bakken wells that were in production before shutting in, the production from some wells was upward 2,700 barrels of oil equivalent per day (boed), but only 25% of the wells had production higher than 110 boed.

Consequently, Continental Resources will be abandoning the company’s lowest producing wells, once the storage capacity is depleted, while temporarily shutting in its most prolific wells. It is not uncommon for producers to cut back on their new, more productive wells first, which, in turn, act as a storage for oil until prices recover. However, a long-term shutdown might lead to a risk of oil migration away from the well.

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A sample of 17 operators, representing 75% of total Bakken production, will have a combined rig count of approximately 22 averaged through 2020. The average percentage reduction of capital expenditure (Capex) in Bakken is 43% for 2020 with Continental Resources having the most drastic readjustment of 65%.

According to the GlobalData estimates, the average position remaining breakeven oil price of top operators in the Bakken is US$25.18 per barrel. We will see a significant increase in production once oil price starts to recover in the longer term when wells are being turned back online and activity ramps up.

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