Cheap Oil Is Devastating North Dakota’s Shale Industry

11.17.2015 | Surge Wire |

North Dakota’s shale industry will post its first year to year decline in production in over a decade as the global decline of oil prices forces companies to cut back operations.

Output in the Bakken oil fields dropped in September, producing less than in the previous year for the first time since 2004. Cheap oil prices along with a global decline in demand is devastating the region, reports Bloomberg. Companies have had to cancel drilling operations and put future projects on hold, as well as cut investments for exploration.

Geography is making problems worse for the state as most of their oil had to be transported by expensive truck or rail routes. Hemorrhaging profits in the Bakken region have so far forced shale companies to close 67 percent of rigs that were in operation in 2014. The number of active rigs in North Dakota has dropped to a six year low, reports UPI.

“The production drop was inevitable with the rig decline and the low price environment,” said Carl Larry, head of oil and gas for Frost & Sullivan LP. “The cost of rail and trucking hasn’t gone down enough to keep production profitable, so it’s a precarious area to keep production steady or growing.”

The Bakken oil field lost one of its major producers in October when Occidental Petroleum announced it was selling their property in the region for $600 million. With the prolonged slump in oil prices North Dakota’s once booming shale industry is becoming too expensive for companies to maintain or expand operations, reports The Wall Street Journal.

“With this $600 million we could run four to five rigs in the Permian for a year and generate more production than we would get out of the Bakken,” said Steve Chazen, Occidental’s CEO. “We just don’t see how it competes for capital inside the company in any reasonable price scenario.”

Crude oil’s global decline has hit North Dakota harder than other U.S. shale regions because of its lack of available pipeline infrastructure. The state’s geography makes building pipelines in the region tricky, which forces producers into more expensive alternatives, reports Bloomberg. Unlike its North Dakota competition, shale production is thriving in the resource rich Permian Basin of west Texas, which is defying the current energy slump with the region’s stable and low cost production.

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