According to some executives and analysts, North Dakota oil producers are now facing new pressures to prolong the recovery of their Bakken shale output as a US court ruling in July puts the pipeline transporting most of the region oil at risk.
The court ruled that the Dakota Access Pipeline (DAPL), the region’s main pipeline, has to go through a new environmental review, which could stop its operation for a year.
Although an appeals court has enabled the pipeline to still operate now, for oil producers in Bakken, the threat of closure makes reversing cutbacks and drilling new wells too risky.
The region’s producers cut oil output in May by around 500,000 bpd as in March the US prices tumbled due to the impact of the coronavirus lockdown around the world. According to North Dakota state, only a fifth of 510,000 bpd cut were back online in June.
DAPL transports around 40% of the volumes transported from the Bakken shale basin to customers in the Midwest and Gulf of Mexico. Some oil producers in North Dakota are assessing the impact of a DAPL shutdown on their spending plans for new wells and acquisitions
Nicholas O’Grady, CEO of Northern Oil and Gas Inc. (NOG) commented, “Producers will not be willing to commit to restarting closed wells or drilling news ones unless they know more on the pipeline’s future.”
If the pipeline is to close, rail transportation will likely expand even if it is about USD3-6/barrel more expensive to utilize in oil transfers. The possibility of the increasing transfer cost weighed down the investors’ mood in the region.
According to Rystad Energy, this year in the Bakken shale basin, publicly-traded oil firms plan to invest around USD3.1 billion in 2020. The number was less than half of 2019’s investments of USD7.5 billion.
