Two very nasty things are taking place in the U.S. Shale Oil patch…
With North Dakota Bakken oil production down more than 30%, the death of the mighty shale region has begun. There is no way for the companies producing shale oil in the Bakken to recover from this global contagion overnight collapse. Yes, it virtually happened overnight. Since March 1st, the Bakken has seen at least 400,000 barrels per day of production shut-in.
What took three long years for the companies in the Bakken to increase production from the lows in 2016, vaporized in just the past two months. Unfortunately, shutting in horizontal fracked wells is the worst thing a company can do. Why? When a horizontal well is prematurely shut-in, it causes a lot of problems that are expensive to remedy when restarting the well. So, many of these wells may be shut-in for good.
According to the Reuters article, ‘Like watching a train wreck’: The coronavirus effect on North Dakota shale oilfields:
Output has dropped by at least 400,000 bpd since March 1, nearly a third of the state’s around 1.4 million bpd output before the crisis. State officials expect the volume shut in to rise further.
“This is truly unprecedented,” said Lynn Helms, director of North Dakota’s Department of Mineral Resources, the state regulator overseeing oil production. In the days following the price collapse, oil companies sent teams out to shut wells.
Field inspectors, who work with the state’s 20 largest operators, had dire news for Helms, the worst of it from Continental Resources (CLR.N), the state’s largest operator. By April 21, about 95 percent of Continental’s production in the state had shut down.
Continental on average produced about 188,000 boepd in North Dakota Bakken during fourth quarter 2019, with about 1,540 net producing wells as of year end, according to company data. Other large producers in the state were also shutting down. Oasis Petroleum (OAS.O) was halting all drilling in the Bakken, where it pumped about 80,000 boepd at the end of 2019.
The reason Continental Resources curtailed (not shut-in) most of its production was due to its failure to hedge its oil supply. As I mentioned in a previous article, Harold Hamm decided not to hedge any of the company’s Bakken production. So, with the North Dakota Light Sweet Crude now trading at a NEGATIVE $0.98 a barrel, Continental Resources would have to PAY to get rid of its oil.
Two very nasty things are taking place in the U.S. Shale Oil patch.
- Extremely low oil prices are destroying the value of Shale Oil Companies.
- Curtailing of production, on top of super-low oil prices, is killing the entire U.S. Shale Industry.
We must remember, the value of shale oil companies is based upon oil production growth and profitable oil prices. With both of these heading in the wrong direction, it’s only a matter of time before a large portion of the shale industry is destroyed… forever.
Lastly, we U.S. oil demand down 20-25%; the value of Americans’ financial wealth is now in serious trouble. The only thing propping up U.S. financial assets has been shale oil production growth. The collapse in shale oil supply will destroy the value of most Americans’ financial assets.
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