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Permian basin drilling rig
A Concho Resources drilling rig operates in New Mexico's Permian Basin. (Image courtesy of Concho Resources)

Exxon, Chevron move away from risky Bakken and Eagle Ford projects

A recent Houston Chronicle article confirms some of the industry’s biggest fears: most shale plays need higher oil prices to reap real profits from drilling. While activity in the Permian basin continues to stay strong, other shale plays, including the Bakken and Eagle Ford that saw huge profits just a few years ago, need $60 oil in order to really move on riskier projects. And oil just can’t seem even lurch over the $50 mark. The Chronicle reports:

…the energy industry’s recovery after the long, costly oil bust remains uneven, and narrowly focused in West Texas. Other shale plays have fallen far behind, including the Eagle Ford in South Texas and Bakken in North Dakota, two oil patches once coveted by Wall Street investors and Middle East oil ministers alike.

Drilling in the Permian is just more profitable, the Chronicle reports. Drillers there can pump crude at lower costs than most places. Exxon and Chevron both reported strong profits in the second quarter, mostly due to activity in the Permian. Almost half of the drilling activity in the U.S. currently takes place in the growing West Texas/New Mexico basin. The Baker Hughes rotary rig count for Friday July 28 showed 372 rigs actively exploring for oil and gas in the Permian basin, up 5 from last week. The Permian total represents a good chunk of the total 958 rigs exploring for oil and gas in the U.S.

The Eagle Ford rig count dropped by 2 last week to 76. The Bakken (Williston Basin) stayed even at 54, neither gaining nor losing any rigs.

While producers see dollar signs in the Permian, many analysts agree that the high level of production there may be a big contributor to the overall low oil prices plaguing the global markets. The Chronicle noted energy analyst Jim Wicklund from financial services company Credit Suisse in Dallas said that “prices have stayed low in part because of booming production in the Permian, which has slowed the process of draining the global oil glut that sent prices tumbling nearly three years ago.” If prices stay low, he said, the industry could be heading for a mild downturn that could mean new rounds of layoffs.

If oil prices go back up, many companies know that projects will resume, and riskier projects may be back on the table. This means that activity in the Bakken and Eagle Ford could see a future surge. However, in the meantime they continue to work on efficiencies that allow profits at lower prices. And, for now, the Permian projects remain the only “sure thing.”

Related: Dallas Fed: Energy indicators see continued increase

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