Oklahoma’s oil fields face some of the highest costs in the U.S. shale industry, making the state a likely first victim of the crash that has seen crude fall to its lowest price in 18 years.
Oil companies in Oklahoma were laying off workers and slowing activity even before the spread of the coronavirus and the price war between Saudi Arabia and Russia. Now, with oil prices at $25 per barrel, many may be forced to shut completely.
It costs about $48.19 a barrel to produce oil in Oklahoma’s SCOOP and STACK shale plays, the highest in the United States, according to a Deutsche Bank analysis. That compares with about $46.54 in North Dakota’s Bakken and about $40 in the Permian.
Continental Resources, which bet big in Oklahoma, on March 20 cut this year’s spending plan by 55% to $1.2 billion and announced it would cut active drilling rigs to four from about 10 in the state. The company anticipates its U.S. production will fall by roughly 5% this year.
The Oklahoma City-based producer is also reducing hydraulic fracturing work, two sources familiar with the matter said. A spokesperson for Continental declined comment.
“As for Oklahoma being hit first with the price collapse, that has a lot to do with relative breakevens and financial decisions of Oklahoma operators,” said Bernadette Johnson, vice president of market intelligence for Enverus.
The number of producers completing wells in Oklahoma fell to less than 30 this year, versus roughly 130 last year, according to consultancy Primary Vision. Active pressure pumpers there have fallen from as many as 15 last year to six through March of this year.
Other producers in Oklahoma like Devon Energy and Cimarex Energy have slashed spending.
“Almost everything is unsustainable” at current prices, said Mike Cantrell, former president of the Oklahoma Energy Producers Alliance. “I’m surprised they [big producers] have survived this long.”
If producers quit drilling and completing wells, Oklahoma’s production could drop more quickly than other states. The production decline rate for Oklahoma’s oil wells is about 41%, versus 35% for the United States, according to Enverus.
Oil service firms are being hit. Tulsa-based CDH Inc, an industrial maintenance and construction firm, laid off 57 people this week, according to the Oklahoma Office of Workforce Development.
Advantage Oilfield Services, an oilfield firm from Lindsay, Oklahoma, is liquidating its equipment next week, according to a notice from Superior Energy Auctioneers, an industry auctioneer.
Oilfield services firm Halliburton on April 6 was cutting about 350 employees in Oklahoma, according to a filing with the state, amid a deepening oil bust.
Although the industry learned a lot during the last downcycle, oil and gas companies won’t have the same access to capital in the latest slump and will likely only be able to invest the cash they generate.
The U.S. shale market will carry the biggest burden of budget cuts in the oilfield service market, says a Rystad Energy analyst.