Thursday, November 5, 2015

The Boom is Over in the Bakken

The performance of Blood & Oil, a soap opera based on the North Dakota oil boom, is not going well. The show saw its episodes trimmed by ABC amid tepid viewer interest. But the real life Bakken is also suffering from a lack of interest, a development that doesn’t bode well for the oil-producing region.
The Bakken had been a key part of the U.S. shale boom over the past half-decade. But production peaked at 1.22 million barrels per day in December 2014. Since then production has bounced around, with month-to-month fluctuations, but is slightly down from that high point reached almost a year ago.
The EIA expects the Bakken’s production to drop by 23,000 barrels in November, a decline second only to the Eagle Ford in terms of size....
But falling production is contributing to another problem for the region. Several East Coast refiners are losing interest in Bakken crude, instead preferring to import oil from abroad to use in their refineries. According to Reuters, it is now cheaper for East Coast refiners to import oil from South America, Africa, or the Middle East, than it is to buy oil from North Dakota. The transit costs of moving crude by rail from North Dakota across the country tips the balance in favor of foreign oil.
The U.S. had managed to significantly cut its dependence on imported oil over the past decade, but the share of imports has stopped declining as foreign oil is cheap again.
If that isn't bad enough, there's also this:
In addition, Occidental Petroleum, the fourth-largest U.S. oil producer, reported a third-quarter loss of $2.61 billion, after reporting a profit of $1.21 billion in the 3rd quarter of last year.  Simultaneous with their earnings statement, they announced they'd be shutting down and pulling out of their operations in the North Dakota oil patch, to concentrate their capital outlays on their core Texas shale holdings.  Meanwhile, Marathon Oil, with a large presence in the Eagle Ford, became the first major shale producer to cut their dividend, slashing it from 21 cents to a token 5 cents per share, after they reported 3rd quarter profits of $948 million, compared with $672 million in the same period a year ago, largely from the profitable results of their Speedway retail gas station chain...
Others reporting this week included Hess Corporation, who reported a third-quarter loss of $279 million, compared to earnings of nearly $1 billion a year earlier; Anadarko Petroleum, who reported a third-quarter net loss of $2.24 billion, compared to a profit of $1.09 billion a year earlier; Murphy Oil, who reported a third quarter loss of $1,595 million on revenue of $714.9 million in the period; Whiting Petroleum, the largest oil producer operating in North Dakota, who reported a net loss of $1.87 billion, compared with a net income of $158 million last year; Pennsylvania based Range Resources, who lost $301 million in the quarter vs profits of $146 million in the same period a year ago; Cabot Oil & Gas, who reported a third-quarter loss of $2.2 million, after reporting net income of $85 million in the same period a year earlier, and Pittsburgh based EQT Corp, who reported third quarter net income of $40.8 million, mostly from hedging operations, compared to third quarter 2014 earnings of $98.6 million. Excluding the profits from derivatives trading, EQT reported an adjusted net loss of $50.2 million for the quarter...
There were two companies that didn't report earnings this week.  Denver based American Eagle Energy and Tulsa based Samson Resources, both working shale plays in the Bakken of North Dakota, both filed for Chapter 11 bankruptcy, both announcing plans to sell off their North Dakota assets in an attempt to pay off some of their debts.  Samson Resources apparently hopes to reorganize and emerge as a viable operator; American Eagle "could not be reached" for comment.  Between June and September, 10 oil and gas companies working in North Dakota's Bakken oil patch have filed for bankruptcy; a total of 19 have filed in the last year.  As of Tuesday, North Dakota sweet crude was selling for about $36 a barrel, more than $7 a barrel below the US benchmark price.  With few pipelines in place, most Bakken crude must be shipped by rail, adding to its costs...
I just can't imagine what things are like out there after all the crazy development of the last few years.  Is there a bunch of half-built projects and empty apartments?  I know there was gobs of money to be made there the last few years, but personally, I'd have probably been happy to miss the boom and the bust.  I seriously doubt that all of the damage to roadways has been or ever will be repaired.  I can only imagine that environmental issues that were looked at as a small cost of the boom will look much worse during the bust.  Hopefully, things will work out for the folks of western North Dakota, but I wouldn't expect the boom to return.

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