Shale Oil Production in Bakken, Eagle Ford Little Changed in March: Platts Analytics
Output from These Two Prolific Shale Plays Fell More Than 13% from March 2015
Prices for Eagle Ford and Bakken Crude Oil Fell 20-25% During that Period
DENVER, May 2, 2016 /PRNewswire/ -- Oil production from key shale formations in North Dakota and Texas dropped slightly in March versus February, according to Platts Analytics, (formed by Bentek Energy® and other analytics and forecasting units of Platts), a forecasting and analytics unit of S&P Global Platts.
Oil production from the Eagle Ford shale basin in Texas declined slightly in March, dipping about 35,000 barrels per day (b/d) or 3% versus the previous month and marking the eighth month of decline since July 2015. Similarly, crude oil production in the North Dakota section of the Bakken* shale formation of the Williston Basin dropped 2% month over month in March, or about 17,000 b/d, continuing the marginal decline that also began last summer.
The average oil production from the South Texas, Eagle Ford basin in March was 1.3 million barrels per day, which is down approximately 21% or 336,000 b/d from March 2015, according to Taylor Cavey, energy analyst with Platts Analytics. The average crude oil production from the North Dakota section of the Bakken in March was 1.1 million b/d, down 8% from a year ago.
"In 2015, producers in both the Eagle Ford and Bakken realized tremendous efficiency gains through cost reductions, quicker drill times and higher initial production rates," said Cavey. "However, given the lower-for-longer commodity price environment, the extent to which further efficiencies can be reached is questionable. Drill times in both the Eagle Ford and Bakken are below ten days and capital budgets have been reduced on average an additional 40% from last year. Producers can only stretch themselves so far until they are forced to fold."
Despite the recent rally in West Texas Intermediate (WTI) prices, producers in both basins need prices to stabilize at $40 per barrel (/b) just to break even, according to Platts Analytics. If prices continue to rise, companies will have the opportunity to hedge the forward curve above the breakeven threshold, enabling them to sustain production levels, barring another price collapse.
Producers such as Continental Resources suggested if prices were to stabilize at or above $45/b they would resume completions on previously drilled wells, explained Cavey. According to Platts Analytics analysis of internal rates of returns (IRRs), accounting for regional spreads, WTI prices at $40/b will generate returns of 9% in the Bakken and 8% in the Eagle Ford.
"Obviously, there is incentive for producers to hold off on completions until prices recover, but in many cases, they find it necessary to complete wells just to maintain cash flow," Cavey said. "Additionally, if producers deploy completion crews at the aforementioned $45/b psychological threshold, they absorb the opportunity cost of higher prices down the road and/or investing capital in other areas of their businesses."
In terms of the U.S. physical spot markets, prices recovered from the February lows buoyed by a weaker dollar as the U.S. Federal Reserve kept interest rates unchanged and also projected only two interest rate hikes to occur this year, according to Luciano Battistini, Platts managing editor of Americas crude. This is down from four and it's important to note that economic and financial developments still pose risks, he emphasized.
"However, the upside price movements were limited as oversupply still posed a risk in trader's minds," Battistini said.
Platts launched four new shale assessments on February 8, 2016:
Platts Eagle Ford Crude Houston
Platts Eagle Ford Condensate Houston
Platts Eagle Ford Crude Corpus Christi
Platts Eagle Ford Condensate Corpus Christi
These new assessments reflect the value of Eagle Ford shale cargoes being exported from terminals in Houston and Corpus Christi, Texas. Platts Eagle Ford Crude Houston has risen 14% since February with an average price of $40.96/b, according to Platts data. The assessment has ranged between $32.37/b and $43.62/b since the launch. Platts Eagle Ford Condensate Houston has risen 17% since February with an average price of $38.55/b, the Platts data shows. The assessment has ranged between $29.37/b and $41.42/b since its launch.
The Platts Eagle Ford Marker, a daily price assessment launched in October 2012 and reflecting the value of oil out of the Eagle Ford Shale formation in South Texas, rose 22% between January and March, with a March average price of $40.42/b. The marker has ranged between $27.78/b and $42.91/b since the beginning of this year.
The price of oil out of the Bakken formation at Williston, North Dakota, rose 24% between January and March, with an average price of $35.15/b, according to the Platts Bakken assessment. But when compared to the same month a year ago, the Platts Bakken price is down 20%. The near-the-wellhead assessment has ranged between $28.37/b and $35.15/b since the beginning of January.
The Platts Bakken, introduced April 22, 2014, is a daily assessment of price for oil closest to the wellhead prior to determination of transportation by rail or pipe. The assessment reflects a sulfur content of 0.2% or less and an American Petroleum Institute (API)** gravity of 42 or less, similar to the nature of North Dakota Light Sweet crude. The Platts Eagle Ford Marker reflects the value of a median 47-API Eagle Ford crude barrel, based on the crude's product yields and Platts product price assessments, adjusted for U.S. Gulf Coast logistics.
Platts introduced the world's first independent daily price reference valuing crude oil produced from a shale formation in May 2010 when it began assessing Bakken Blend shale oil injected into pipelines at Clearbrook, Minnesota, and Guernsey, Wyoming. Platts also introduced the world's first U.S. crude cargo assessments, shortly after the four-decade restrictions on crude oil exports were lifted.
For more information on Platts price assessments methodology visit these links: Details of Platts Bakken and Platts Eagle Ford Marker. Platts Analytics shale oil production figures are derived from proprietary data models using publicly available data.
Platts will publish monthly updates via press release on Bakken and Eagle Ford shale oil production and price data.
* The Bakken formation spans North and South Dakota, Montana, Saskatchewan, Manitoba and Alberta.
** API gravity is a measure of how heavy or light a grade of crude oil is compared to water.
Global, Americas: Kathleen Tanzy, + 1 917 331 4607, firstname.lastname@example.org
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