Oasis Deal Shows Bakken Not Dead Yet as Drilling Costs Drop

  • North Dakota drilling costs have fallen by half since 2014
  • Exit of other explorers ‘creates some opportunity,’ CEO says

Oasis Petroleum Inc.’s double-down on North Dakota’s Bakken oilfields shows the rapid drop in U.S. drilling costs can make a case for even the ugly ducklings of American shale plays.

While most explorers are running to more profitable plays like the Permian Basin in West Texas, Oasis on Tuesday said it’s been able to cut Bakken well costs by half over the past two years. That and its existing infrastructure in the region mean the Bakken still makes economic sense, even if others are leaving, Chief Executive Officer Thomas Nusz said during a conference call.

“We have talked for years about the benefits of large, contiguously operated blocks and now we have that," Nusz told analysts on the call. “What you’re seeing is some portfolio shift and that may create some opportunity for us."

Oasis, a Bakken specialist, agreed to buy drilling rights to 55,000 acres in the region from SM Energy Co. for $785 million, the two companies said on Tuesday. Houston-based Oasis paid about $5,000 an acre in the deal, a far cry from the $45,000 an acre that RSP Permian Inc. paid for rights in Texas last week. SM used proceeds from the Oasis sale to pay for its own $1.6 billion purchase in the Permian.

With oil prices slumping, the West Texas shale play has been the more popular of the two this year, with 30 acquisitions worth more than $16 billion, according to data compiled by Bloomberg. The Bakken’s seen 10 deals worth about $820 million.

Drillers across the U.S. have slashed costs since oil began its downturn in mid-2014. That’s helped the industry survive the price war driven by Saudi Arabia and other OPEC members. It’s starting to make a difference even in higher-cost shale plays like the Bakken. It now costs $5.2 million to drill a well there, compared with $10.6 million two years ago, Oasis said.

The company previously needed at least $50-a-barrel oil to grow production profitably but the threshold is now about $5 lower, Chief Financial Officer Michael Lou said on the call.

“It’s making our play more and more economic and that’s allowing us to make decisions about growth," he said. “We’ll likely increase the activity next year."

Oasis also announced the sale of $518.4 million in new shares to help finance the acquisition. The stock climbed 4 percent to $10.99 at 9:46 a.m. in New York trading. Before yesterday’s announcement, it had gained 52 percent for the year.

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