Pipeline Doubts Put Bakken Shale Reboot on Hold

Pipeline Doubts Put Bakken Shale Reboot on Hold

North Dakota oil producers face new pressures to delay bringing back more of their recently curbed output after a U.S. court ruling this month put in jeopardy the pipeline that transports most of the region’s oil, executives and analysts said.

Oil producers in the Bakken, the second largest U.S. shale field, cut May output by about 500,000 barrels per day (bpd) after U.S. prices tumbled in March on the heels of global coronavirus shutdowns. They were slowly restarting some wells when the court ruled the region’s main pipeline must face a new environmental review that could halt its operation for a year.

An appeals court has allowed Energy Transfer LP’s Dakota Access Pipeline (DAPL) to continue operating for now, but the threat of closure makes reversing cutbacks and drilling new wells too risky, executives and analysts say.

DAPL links Bakken producers to Midwest and Gulf of Mexico customers, accounting for about 40% of volumes transported. Rail transport, which is $3 to $6 a barrel more expensive, is expected to expand if the pipeline closes.

Hess Corp, which has about 55,000 bpd of transportation on DAPL, said on Wednesday it can move all its Bakken output if the pipeline was shut, but that it would cost a few more dollars per barrel. WPX said it was monitoring the availability of DAPL and that it was looking to lock in prices to manage fluctuations in Bakken crude. Continental Resources Inc, a top Bakken producer, did not respond to a request for comment, while rival Marathon Oil Corp declined to comment.

Producers will not be willing to commit to restarting closed wells or drilling news ones “unless they know more” on the pipeline’s future, said Nicholas O’Grady, chief executive officer at Northern Oil and Gas Inc, which has invested in about 7,000 wells in North Dakota’s Williston Basin.

Nationally, U.S. shale producers have revived as much as half of the production they cut in May. In the Bakken, only a fifth of 510,000 barrels per day cut were back on line last month, according to North Dakota state figures.