TIOGA, N.D. – Ben Chorn had a good vacation in Minnesota last month, making it to a Vikings game, a hockey game in Duluth and getting engaged. But while he was gone, the price of oil hit him personally.
“While on vacation, I got a call from someone who’s covering for me and said, ‘Hey your rig’s being laid down,’” said Chorn, who does geology work on rigs for Sunburst Consulting.
He’s had a slow six weeks since then.
The oil price drop will impact fringe regions in the Bakken the most, experts said, because the oil there costs more to extract.
“I think those areas will slow down, but we’ll come back and we’ll get them again,” said Kathy Neset, a geologist with Neset Consulting in Tioga.
Chorn said the rig he was meant to work on was pulled by a smaller operator and was on the fringe of the Bakken in northern Divide County. There and in other fringe areas of the Bakken, the “break-even point,” or the wellhead price point at which new drilling stops, is higher. North Dakota Department of Mineral Resources data show the break-even point is at $73 in Divide County.
“We don’t even have enough natural gas to have a gas flare, there’s just not as much up there,” Chorn said.
The far north and east are the “first areas that start to go when prices drop,” Chorn said.
But in McKenzie County, prices can get lower and operations won’t change as much “because they can keep drilling and making money,” he said.
With the Bakken shaped like a bowl, McKenzie County is the middle with the thickest part of the formation. Oil in counties on the outside edges of the formation is harder to get, so costs are higher, and that’s where the oil price drop is hitting hardest.
“Companies have to invest more to discover oil in those areas and they will continue to work on them; they’ll just hold off on those areas for the lower prices and come back when the price returns,” Neset said.
For already active wells to slow down or stop production, oil would have to drop all the way to $15 a barrel at the wellhead, North Dakota Department of Mineral Resources spokeswoman Alison Ritter said,
Ritter noted 156 of the 172 rigs operating as of Tuesday are already in the four core oil counties – Williams, Mountrail, McKenzie and Dunn – with low break-even points, which is likely to continue to be the case. The break-even points range from $29 to $41 in the four core counties, with Dunn County at the lowest. The DMR develops its break-even prices based on economic data from operators each month.
The DMR expects a total drop of 30 to 40 rigs in the beginning of 2015 if the price of oil stays low, Ritter said.
Smaller operators with less money are more likely to pull rigs from the oilfield, but the Bakken’s biggest players are feeling the price drop, too.
Continental Resources, a leading Bakken producer, plans to decrease its rigs in the region from the originally planned 19 to 11, according to a revised capital budget announced Monday. CEO Harold Hamm said in a statement that the change “prudently aligns” spending with the lower prices of oil.
Whiting Petroleum CEO James Volker told investors Monday that the company wouldn’t release its 2015 guidance until February in an effort to wait out the unstable prices. Marathon Oil announced last week that its 2015 budget would be about 20 percent lower than this year’s.
The scale of the Bakken and Three Forks formations will insulate North Dakota somewhat from the downturn, Neset said.
“For the most part, you know, the oil companies, the operators, are trimming but they’re not pulling out,” she said. “They’re just slowing things down to make good decisions with the markets.”
And an end to the downturn may be in sight as an unexpectedly strong report on U.S. economic growth raised oil prices Tuesday by supporting expectations of a greater demand for crude, Reuters reported.
Also on Tuesday, Chorn got an email saying he’d be back at work soon.
He had started dipping into his savings, and looking for ways to cut expenses. He had saved money in the past, knowing that price fluctuation was a part of the oil industry. He added that’s the way to weather it – not by living paycheck-to-paycheck.
“You can never be certain of what the market’s gonna do,” he said, “so you have to plan on this stuff.”