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Bakken Crude: Profitable at Less Than $30 per Barrel
 Some analysts are forecasting U.S. crude might drop below $30 per barrel. Before you panic, this drop is not a problem for some of North Dakota's Bakken producers. And it can mean big profits for investors.
With lower drilling costs and longer well laterals, some producers aren't worried about oil prices - as evidenced by the Bakken field output continuing to rise.
Over the last year, production has risen 12% to 1.15 million barrels per day (bpd).
The number of producing wells in the Bakken has jumped even more.
Is the Bull Market Over?
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In June 2014, there were 7,868 producing wells. By the end of June 2015, there were 9,912.
That's a 26% increase. And this increase has happened even though oil prices have fallen over 50% and are now at March 2009 levels.
Bakken producers aren't selling oil at current WTI prices, either. Because of the field's remote location, producers are selling at prices just above $30 per barrel.
Breakeven prices vary widely within the Bakken. Oil-soaked shale (or not) and fast drillers can make a big difference in how much oil costs in any given well.
For example, take McKenzie County. It's smack in the Bakken fairway. It's an area where breakeven prices are about $29 per barrel.
McKenzie County wells are profitable simply because the shale contains lots of oil.
It's no wonder that there are 26 rigs drilling horizontal wells there. There are more rigs there than anywhere else in North Dakota.
But how is all that oil getting from wellhead to refinery customers? It turns out, even with WTI crude around $45 per barrel, it's still cheaper to ship from the Bakken via rail than by pipeline.
Why? There are 1.36 million bpd of rail volume. However, there's only 750,000 bpd of pipeline volume.
It's simply a matter of economics. It costs just $600,000 per 1,000 bpd to put in a rail terminal.
However, the upfront cost for a pipeline can be as high as $15 million per 1,000 bpd. That's a huge difference and shows up in the transportation cost.
Construction time is also vastly different between the two. Pipelines can take several years to obtain permits for and to build. A new rail terminal can go online in less than a year.
About 10 unit trains (all crude) leave the Bakken every day. Each carries about 70,000 barrels of crude to East and West Coast refineries.
Three years ago, rail accounted for less than 30% of Bakken crude shipments. As of January 2015, that figure was over 60%.
Why the big increase? Unlike pipelines, rail allows customers to switch crude sources on very short notice. Most pipeline companies require long-term contracts to get the best pricing.
With the prospect of oil prices remaining low for some time, Bakken-focused producers (and those who invest in them) are poised to continue making money. So are the rail lines that serve them.
Good investing,
Dave
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