Of the core counties in the Bakken, Dunn County boasts the lowest break-even costs for oil production, reports the Forum News Service (FNS).
According to figures from the North Dakota Department of Mineral Resources, producers operating in Dunn County are able to begin collecting revenue after the $24 per barrel mark. In comparison, to the northwest in McKenzie County, the break-even price came in at $27 per barrel. To the north of McKenzie in Williams County, the cut-off is $38 per barrel, and due south of Dunn in Stark County, the price is $41 per barrel.
The counties with the highest break-even costs were listed at $85 per barrel in Bowman and Slope Counties, located in the southwest corner of North Dakota, and Bottineau and Renville Counties in the north-central region bordering Canada.
As reported by FNS, Department of Mineral Resources Director Lynn Helms calculated the costs and said that in Dunn County, the Bakken formation is shallower than other areas, making it a more cost-effective area in which to operate. Also, compared to other counties, Dunn has had the highest initial production rates. Helms said, “Really good returns with really low spending equals lower break-even costs.”
Dunn County Commissioner Daryl Dukart, who also works with the oil and gas industry in the area, told FNS there are different aspects of an area’s geology that come into play when determining break-even costs for oil and gas production. A main factor, Dukart said, is the amount of produced water that is associated with the produced oil. Less water means less needs to be separated from the oil, and “the formula just becomes cheaper to separate it.” Dunn County is one such area that doesn’t produce much water, making the process of hydraulic fracturing easier. Dunn County also features shale that is denser than other areas, creating conditions which are more conducive for oil production.
Spokeswoman for the DMR, Alison Ritter, said that break-even costs are developed by collecting and tracking economic data from operators at the department’s monthly hearings. The information collected includes well operating costs, annual drilling costs and initial production rates for the previous 12 months. From this data, the DMR is able to map average well production for each county. Ritter said, “Based on those figures, we were able to develop the break-even oil prices at a 10 percent rate of return. These prices are considered to be the price at the wellhead.”
In regards to the future of oil prices, Helms developed different price scenarios which illustrate what each area has to gain over the next couple years. Dunn County, he said, because of its low break-even cost, will likely have the most stable production levels during that timeframe. Helms said, “This means additional stability in what to expect for rigs and frac crews which makes it easier for community leaders to plan and budget.”