North Dakota refuses to flinch as OPEC keeps output high
WILLISTON, N.D., June 5 (Reuters) - Oil executives in North Dakota, a center of the U.S. shale revolution, say OPEC made a questionable bet when it decided on Friday to stick with a policy that aims to push higher cost American producers out of the market by keeping output high.
Here, in the top U.S. oil state after Texas, oil companies have slashed costs over the last seven months to reach fighting weight - one that will allow them to profit despite the more-than 40 percent drop in prices over the past year and solidify the new American role as the world's swing supplier.
The policy OPEC first adopted in November has brought stress, but not catastrophe. Oil companies say they have recalibrated their operations to survive even if prices stay lower for a long while.
"High commodity prices hide a lot of inefficiencies in the system," said Tommy Nusz, chief executive of Oasis Petroleum Inc , which pumps about 58,000 barrels per day in North Dakota.
"Most companies will come out of this cycle stronger."
Indeed, while the number of North Dakota drilling rigs has plunged sharply so far this year - the count sat at 81 on Friday, down from 146 in early February - the state's oil production has proven resilient.
Output fell slightly in January and February, but jumped in March, highlighting the potential of shale wells to ramp up or down quickly, regardless of the cartel's actions.
"OPEC still is our main competition," Lynn Helms, head of North Dakota's Department of Mineral Resources and the state oil industry's main regulator and promoter, said in an interview.
"But what you're seeing now is the Bakken becoming the swing producer, something that has happened relatively quickly because of efficiencies in drilling and completion technology."
Saudi Arabia, Venezuela and the 10 other OPEC members have, for their part, seen their strategy of the past half year as successful. Saudi Arabian oil minister Ali al-Naimi and others described Friday's meeting as "amicable," and showed little sign of wanting to change an approach that has dampened the U.S. shale boom.
WPX Energy Inc, which pumps about 37,000 barrels per day from North Dakota, said oil prices around $40 per barrel are too low, though $100 prices could be too high and that OPEC's moves, among other market factors, will help set a "happy medium."
"This is the new reality, and it's driven positive change at WPX and made us more efficient," said WPX Energy spokesman Kelly Swan.
Whiting Petroleum Corp, the state's largest oil producer, and EOG Resources Inc declined to comment on OPEC's decision.
Continental Resources Inc and Hess Corp did not respond to requests for comment.
Helms, the state oil regulator, said North Dakota producers are reacting to a "new normal" reality where they are the new global oil swing producers, constantly needing to react to the "Bakken call."
With about 1.2 million barrels of oil produced each day in the state, North Dakota output may actually be exceeding what the world needs, Helm said, pegging the demand from the state at roughly 1.1 million barrels per day.
"I think that's reflected in the price weakness and the amount of oil that's in storage," Helms said.
North Dakota and other U.S. oil-producing regions likely won't see production slip moving forward, but rather see the rate of growth ebb, said Ann-Louise Hittle, lead oil market analyst at Wood Mackenzie.
"From OPEC's perspective, the strategy is working," Hittle said. "But they can also act as a price-supportive player, which in the long run can only help North Dakota."