| NEW YORK/HOUSTON
NEW YORK/HOUSTON Nov 30 In a corner of the
prolific Bakken shale play in North Dakota, oil companies can
now pump crude at a price almost as low as that enjoyed by OPEC
giants Iran and Iraq.
Until a few years ago it was unprofitable to produce oil
from shale in the United States. The steep slide in costs could
encourage more U.S. shale output if OPEC members cut supplies,
undermining the producer group's ability to boost prices. OPEC
ministers meet Wednesday to weigh output cuts to end a two-year
glut that has pressured global oil prices.
In shale fields from Texas to North Dakota, production costs
have roughly halved since 2014, when Saudi Arabia signaled an
output free-for-all in an attempt to drive higher-cost shale
producers out of the market.
Rather than killing the U.S. shale industry, the ensuing
two-year price war made shale a stronger rival, even in the
current low-price environment.
In Dunn County, North Dakota, there are around 2,000 square
miles where the cost to produce Bakken shale is $15 a barrel and
falling, according to Lynn Helms, head of the state's Department
of Mineral Resources.
"The success in Dunn County has been fantastic," said Ron
Ness, president of the North Dakota Petroleum Council.
Dunn County's cost is about the same as Iran's, and a little
higher than Iraq's. Dunn County produces about 200,000 barrels
of oil a day, about a fifth of daily production in the state.
It is North Dakota's sweet spot because it boasts the lowest
costs in the state, yet improved technology and drilling
techniques have boosted efficiency for the whole state and the
entire U.S. oil industry.
The breakeven cost per barrel, on average, to produce Bakken
shale at the wellhead has fallen to $29.44 in 2016 from $59.03
in 2014, according to consultancy Rystad Energy. It added that
in terms of wellhead prices, Bakken is the most competitive of
major U.S. shale plays.
Wood Mackenzie said technology advances should further
reduce breakeven points.
Landlocked Bakken producers still need a substantially
higher international price than their breakeven cost to make a
profit, since they pay more to transport crude to market than
producers in most other U.S. regions.
International oil prices of $45 a barrel are enough for some
Bakken producers to profit, Ness said, and $55 would encourage
Benchmark Brent prices plummeted from nearly $116 a
barrel in mid-2014 to just $27 earlier this year. Prices have
since recovered to nearly $46. That is still too low for members
of the Organization of the Petroleum Exporting Countries, whose
state budgets depend on petrodollar revenues that plummeted
during the price war.
For OPEC ministers meeting in Vienna on Wednesday, a major
concern is that an output cut would encourage a quick response
from U.S. shale producers, who have slashed costs and have been
steadily adding drilling rigs.
"Right now, OPEC understands we're in a push-and-pull
experiment with the United States," said Michael Tran, director
of energy strategy at RBC Capital Markets in New York.
"Two years ago, we thought prices hovering around $50 to $60
meant that non-OPEC production growth would end. But U.S.
production came back stronger."
In a recent earnings call, Hess Corp said it has
improved its cost performance in the Bakken, with well costs
falling and initial production rates rising, though it did not
give more details.
"Everybody is drilling wells faster and completing them
better," said Mike Breard, an energy stock analyst at Hodges
Capital Management in Dallas. "It's not just a Bakken
Breard said he prefers shale stocks in the Permian basin in
Texas, where he is expecting more big gains in production next
year. He is eyeing firms such as Parsley Energy Inc, Ring
Energy Inc and Matador Resources Co.
Oil companies are already investing big money to benefit
from shale's resurgence. Tesoro Corp recently snapped up
Western Refining Inc in a $4 billion deal to bulk up its
exposure in Texas.
Separately, trading firm Castleton Commodities International
LLC bought more than $1 billion in assets from Anadarko
Petroleum Corp to increase its stake in East Texas.
Occidental Petroleum Corp's top executive recently
said that company has enjoyed steady improvement in well
productivity and lower drilling and completion costs in the
"Simply put, we can deliver more production with fewer
wells," Vicki Hollub, the company's president and chief
executive, told analysts on a recent call.
(Additional reporting by Lewis Krauskopf in New York; editing
by Simon Webb and David Gregorio)