Bakken expected to recover faster from price collapse than in 2015 bust

Bakken, NGL, Tallgrass, North Dakota

Williston HeraldA University of North Dakota economist anticipates that it won’t take as long for the Bakken to recover from the recent oil price collapse as it did following the 2015 slowdown.

“The industry has gone through one boom-bust cycle,” said David Flynn, who chairs the economics and finance department at the Nistler College of Business & Public Administration. “I think they better understand their own industry dynamics, specific to the state and specific to their labor force.”

North Dakota’s oil industry has “greater maturity” today than it did when prices fell from the sky-high levels seen in 2014, he said on a call with reporters Monday. He added that back then, more “marginal players” operated in the Bakken who could swing a profit only when prices were higher than $70 per barrel.

With prices below $70 for the most part in the years since, drillers ushered in efficiencies and technological improvements that allowed them to continue making profits.

But today with oil worth only $20 to $30 per barrel, drilling is not profitable. The price collapse is twofold: Demand for oil is down as the coronavirus pandemic halts travel, and Russia and Saudi Arabia launched a price war when their alliance to curb production fell apart last month.

Those factors have caused drillers to pull back, significantly, in a short period of time. The number of rigs drilling for wells in North Dakota sat at 39 Monday after falling from 56 just three weeks ago, according to data from the state Oil and Gas Division.

As activity in the oil patch slows, workers are losing their jobs. One key difference from 2015 is that today’s workers are more permanent to the Bakken.

Several years ago, many who worked here left as oil prices fell and returned to their home states, “having made a fortune,” Flynn said.

He pointed to both pros and cons of a more permanent Bakken workforce during a time with low prices and layoffs.

“It’s good in the sense that you have the opportunity, once oil recovers, to get your workforce back faster,” he said. “It’s bad in the sense that you create more unemployment in the state.”

This week, all eyes of those in the oil industry are on Russia and OPEC leader Saudi Arabia, who plan to meet Thursday to hash out a deal on future production cuts.

They had worked together for several years to prop up prices by holding back production until last month, when they went their separate ways and indicated they would up their oil outputs.

Flynn said it’s “absolutely vital” for oil prices that the two countries reach an agreement to curtail production.

North Dakota’s congressional delegation is keeping close tabs on the situation with Russia and OPEC. Sens. Kevin Cramer and John Hoeven, R-N.D., have taken a number of steps in recent days to urge action, including on calls with the Saudi ambassador and with the White House.

Cramer, for one, is eager for the countries to make progress Thursday.

“Let’s hope that goes well and that we see some supply cuts,” he said Monday in an appearance on Fox Business.

OPEC and Russia have indicated they want the United States to participate in any new production cuts. Flynn said he’s not convinced the country should enter into such an agreement.

“My knee-jerk reaction is to say we’re not a part of OPEC, we should do whatever we want,” he said.

OPEC countries tend to cheat by producing more oil than they say they will to bring in more revenue, he said.

If Thursday’s talks are successful with supply cuts assured, the world still faces a significant drop in demand for oil as flights are grounded and people drive less often. That situation, however, won’t last forever, Flynn said.

“That will be something that will come back,” he said. “It’s a matter of waiting through it.”

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