According to the latest information from RigData, there are no wells left in the North Texas Barnett Shale. Speaking to the Fort Worth Star-Telegram, RigData’s lead editor, Mary Jane Arias, said that they were so shocked by the data that they checked it three times.
“We thought there was something wrong with the system — so we checked it,” Arias said, adding that it marked the second straight week without any new wells being drilled in the Barnett. “It is just so slow right now.”
Operators active in the once-thriving formation have now moved to other, more productive, shale areas such as the still-prolific Marcellus and Utica formations.
Meanwhile, other Texas and North Dakota formations are experiencing a decline in production of oil.
According to Platts Analytics 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.
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