Hess Corp still plans to bring roughly 80 North Dakota oil wells online this year despite volatility in crude prices, confident its approach is the best long-term use of capital and staff.
The strategy, which differs from peers in the No. 2 U.S. oil producing state, highlights the myriad ways companies are deploying technology, cash and workers to try to survive the more than 60 percent drop in crude prices since 2014.
Hess first announced plans in January to operate two drilling rigs in North Dakota this year, a drop from 2015 but still more than some peers.
For Hess, the decision was born of its use of a manufacturing process developed by automaker Toyota Motor Corp to cut costs and boost production. As part of that process, Hess has kept hiring oilfield service contractors, confident that by maintaining relationships in a time of low prices it can reap benefits if or when prices rise.
“A key risk we see now is maintaining the capability we have now to complete new wells, and we don’t want to lose that,” Gerbert Schoonman, head of North Dakota operations for Hess, said in an interview on the sidelines of the DUG Rockies conference in Denver on Thursday.
The strategy is in contrast to Whiting Petroleum Corp and other North Dakota oil producers that have stopped fracking new wells to save cash.
“You have to believe in a very steep increase in oil prices to delay these completions, and we don’t,” Schoonman said.
Hess operates globally in shale and traditional oil deposits, unlike most of its North Dakota peers that operate only in the United States. The geographic diversity helps boost margins.
Whiting, for instance, generates most of its profit in North Dakota, which crimps profit. Whiting Chief Executive Jim Volker said on Thursday that he expects banks to trim his company’s credit line by more than $1 billion in early May.
While Hess did cut North Dakota spending for 2016 and boosted deepwater allotments, Schoonman said that was a reflection of his unit’s ability to ramp up production should prices rise. Hess completed 219 wells in North Dakota last year for instance, planning on 64 percent fewer this year.
(Reuters)
