It Begins? Oil Company Scales Down North Dakota Operations Due To Oil Prices

“In the next few months, everyone in the oil market will be intently watching the volume of new drilling activity in the shale plays of the United States for any signs of a slowdown in response to the fall in oil prices,” Reuters columnist John Kemp wrote a couple of days ago.

We may well have a sign.

Oasis Petroleum has announced in a press release today that they’re reducing the number of rigs they have operating in the Williston Basin (basically the Bakken region) from 16 to 6. They’re also focusing their remaining activity in the Indian Hills area (near Watford City) which has some of the strongest economics (low cost, high production) in the North Dakota oil fields.

Finally, they’re delaying some of their well completions until later in 2015, no doubt hoping that the impending summer driving season amid low gas prices will spike demand thus driving oil prices back up.

In other words, Oasis is responding rationally to lower oil prices by cutting back on expenses and focusing their efforts in the most profitable areas.

One would expect other companies to follow suit.

This is something Governor Jack Dalrymple, who has based on aggressive spending budget for the next biennium on the assumption that oil prices will maintain strong development activity in the state. “The Bakken is so productive that the four major oil producing counties have the lowest cost of production per barrel in North America, third lowest in the world,” Dalrymple told the Williston Herald recently. “In a situation where people start shutting down drilling, we will be among the very last.”

That’s a little hard to swallow given this decision by Oasis.

I don’t think we should be overly pessimistic about the Bakken. There’s no need to panic. But I think it might behoove Governor Dalrymple to be a bit less cavalier about future oil prices.