Leading oil services firm Baker Hughes Inc (BHI.N) warned on Friday that booming drilling in the shale oil fields of North Dakota and even south Texas could slow if U.S. prices drop below $80 a barrel.
While it has been clear for months that the pull-back in oil prices and searing costs have begun to temper the race to tap into the country’s shale oil plays, Baker Hughes CEO Martin Craighead’s comments were the bluntest yet to suggest that crude oil prices are already hovering near a key break point.
Companies tapping the vast U.S. bounty of shale and other tight oil plays may be scrutinizing some higher-cost production after West Texas Intermediate prices slumped in the second quarter, Craighead said in a conference call after second quarter earnings were released.
“I think the shoe’s dropping in south Texas, no doubt about it,” said Craighead, adding: “I’m a little bit more concerned about the Bakken than I am (about) the Permian.”
With a sustained drop below $80 a barrel, “you could start to see some rigs coming off,” he said.
After sagging under the combined weight of rising output from the United States and Canada, and slumping demand, U.S. crude prices have rebounded to over $91 a barrel.
Analysts this month began warning that unfettered growth in North Dakota’s oil output could be drawing to a halt.
“The largest drillers in the Bakken are all reducing their rig counts this month, although none acknowledge a change in drilling plans,” Barclays analyst Amrita Sen said in a note last week.
The U.S. oil-directed rig count in the latest week fell by the largest margin since February last year, with 13 fewer rigs operating, Baker Hughes data shows. The number of rigs drilling in Texas dropped by 10 while North Dakota’s fell by one.