Operator perspective: The low crude price environment

By The Bakken Magazine Staff | January 16, 2015

The season for announcing 2015 budget and operations plans is upon us, and although a handful of exploration and production firms linked to the Bakken have offered some form of guidance, many have said 2015 announcements will not come until the end of the first quarter. Marathon Oil and Whiting Petroleum, both major Bakken players, have said they will wait to offer 2015 guidance. Others however, have already given a snapshot of how the low crude price environment will impact operations and spending this year.

ConocoPhillips will spend $13.5 billion this year, a decrease of roughly 20 percent from 2014. The oil majors focus on unconventional resources will continue to target the Eagle Ford and Bakken, with spending reaching roughly $6.5 billion. Of the company’s total 2015 budget not set for unconventionals, $1.9 billion will be spent on base maintenance and corporate expenditures, $4.8 billion on sanctioned projects in Australia, Alaska, Europe and Malaysia, and $1.8 billion toward exploration and production appraisal programs. The decrease in spending was due, in part to the absence of investment needed for projects set for completion, along with low crude prices.

QEP Resources has said it will focus on four major shale basins in 2015, including the Williston Basin, Permian Basin, Pinedale and Uinta basins. Richard Doleshak, executive vice president and chief financial officer for QEP, told investors at the end of 2014 that the firm has a good story to tell in spite of $60 crude oil.

Continental Resources has already offered its 2015 budget plans. Despite a budget reduction revision issued at the end of the year, Continental Resources will invest roughly $1.5 billion in its Bakken operations for the year. Intially, the company intended to invest $2.5 billion for the year. Continental will also run 11 rigs in its core acreage as opposed to its original plan to run 19 rigs throughout its Williston Basin acreage. The reason for its 2015 budget decrease is also directly linked to low crude prices.

No shale player has offered a more poignant update and perspective on the low crude price environment to its 2015 plans than Oasis Petroleum CEO Thomas Nusz. During a December investor presentation, Nusz addressed several topics related to low crude prices and Bakken oil production in 2015.

This year, the Williston Basin pure play exploration and production firm will focus on its held acreage in areas with the highest estimated ultimate recovery (EUR) totals. The 2015 focus areas will receive the majority of Oasis’ attention due to the present and scalable infrastructure, along with the ability of the team to perform high-intensity completions and optimize full field development strategies.

“We are in a new environment today in comparison to what we have been in during the last 12 months,” Nusz said. The current environment has caused Oasis to reduce its budget to a range of $750 million to $850 million. The company intends to run a 10-rig program instead of its current 16-plus rig operation.

Oasis will also move to its “backyard,” a term Nusz used to describe the acreage that it understands the most. That acreage will be its Indian Hills and South Cottonwood areas. Although the company is reorganizing in a specific area, Nusz added that it could still drill and complete economic wells in nearly any part of its operations. The 2015 focus area has an eight-year inventory.

Slickwater fracking, an approach Oasis and many other Bakken operators have adopted for a vast majority of wells, will cause the company to hold off on completions requiring the practice during the early winter months. The need to heat water in the winter months makes slickwater fracks more efficient and cost-effective in the summer months, he said.

The tighter focus on Indian Hills and South Cottonwood means that Oasis, like many other operators planning to focus on specific acreage blocks, can now turn its attention to infrastructure upgrades and much-needed maintenance upgrades. The low-price environment, “gives you a great opportunity to go back and optimize all of the base infrastructure that may not have gotten as much opportunity the past few years as we ramped up,” he said.