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Bakken Monitor – June 2017 LTO at a Loss

North Dakota lost production in March whilst industry keeps losing money. With winter gone and the boost from returning shut-in wells spent, North Dakota's LTO output reverted to net decline in March. We expect the spring data to confirm broadly flat production until CAPEX increases help well completions pick up in the late summer – provided labour availability has eased by then. Earnings data show that the LTO industry gave back nearly a decade’s worth of net income in the downturn, and has still not hit profitability. This supports our long-standing sceptical view of analysis that suggests cost savings have pushed LTO into profit. Coupled with continued negative free cash flow, the industry is still a way from financial sustainability and the resilience to downturns that characterise the majors. It is also plausible that the EIA’s DPR is overstating production gains. Some support for our view comes from Rystad and companies’ own data, which both see smaller gains than the EIA. This would be a blessing in disguise for a market that has had too much oil for too long.

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