Dropping Oil Prices: Will it End the Boom in North Dakota’s Oil Patch?

Josh Wood and Jonathan Fahey of the Associated Press recently wrote an article explaining how low oil prices may slow down oil production in North Dakota’s Bakken. Below is a summary of their thoughts on this current topic.

Oil has averaged $96 a barrel over the past four years, triggering more drilling, more hiring, and more opportunities in the North Dakota oil patch. Oil prices are dropping from $107 per barrel in June to $78.65 WTI price per barrel as of 11-10-2014, with many believing the lower oil prices will be staying for a while. The drop in oil prices is a threat to North Dakota’s oil production and drilling communities that depend on oil money.

U.S. oil production has gone up by 70 percent since 2008. The high oil prices fueled the North Dakota boom, providing oil companies the profits and investor cash to buy land, pay for drilling rigs and develop new technology. However, with the lower oil prices, investors are less willing to take on risk leaving oil companies with less money to go and drill the next well.

Drilling in fields that are less profitable will stop, in Burke county North Dakota; it takes $81 per barrel to break even, while the price is $28 per barrel in McKenzie County, North Dakota. Communities like Williston are still going strong; however, when drillers start cutting costs drilling communities will eventually feel it.

Economics in the shale oil regions are robust with oil prices between $80 and $75 per barrel and that should not change anytime soon, unless long-term oil prices fall to $65 to $70 per barrel. However, there could be an upside with a slowdown; giving local governments in drilling communities time to catch up with infrastructure and population increases.

Source: iGrow