North Dakota oil producers face new pressures to delay bringing back more of their recently curbed output after a U.S. court ruling this month put in jeopardy the pipeline that transports most of the region’s oil, executives and analysts said.
Oil producers in the Bakken, the second-largest U.S. shale field, cut May output by about 500,000 barrels per day (bbl/d) after U.S. prices tumbled in March on the heels of global coronavirus shutdowns.
They were slowly restarting some wells when the court ruled the region’s main pipeline must face a new environmental review that could halt its operation for a year.
An appeals court has allowed Energy Transfer LP’s Dakota Access Pipeline (DAPL) to continue operating for now, but the threat of closure makes reversing cutbacks and drilling new wells too risky, executives and analysts say.
DAPL links Bakken producers to Midwest and Gulf of Mexico customers, accounting for about 40% of volumes transported to those regions. Rail transport, which is $3 to $6 a barrel more expensive, is expected to expand if the pipeline closes.
Producers will not be willing to commit to reopening closed wells or drilling news ones “unless they know more” on the pipeline’s future, said Nicholas O’Grady, CEO at Northern Oil and Gas Inc., which has invested in about 7,000 wells in North Dakota’s Williston Basin.
Northern Oil and Gas has already factored the impact of a DAPL shutdown into its plans for spending on new wells and acquisitions in the region, he said.
Among the top Bakken crude oil producers, Continental Resources Inc. did not respond to a request for comment, while Marathon Oil Corp. and Hess Corp. declined to comment.
Nationally, U.S. shale producers have revived as much as half of the production they cut in May. In the Bakken, only a fifth of 510,000 bbl/d cut were back on line last month, according to North Dakota state figures.
The current per barrel price of $40.14 is below the $46.54 that Deutsche Bank analysts estimate Bakken producers need to break even on new wells even before the additional rail costs are factored in.
There were about 882 drilled but uncompleted wells in Bakken in June, according to the U.S. Energy Information Agency, and about 405,000 bbl/d of output was shut-in as of June 26.
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