Why Chevron’s Acquisition of Hess Might Not Bring Bakken Oil Output to Pre-Pandemic Levels

Chevron’s Deal to Buy Hess

Chevron’s recent announcement of its acquisition of Hess, one of the major players in the Bakken shale play in North Dakota, is expected to result in only a marginal increase in oil output. While new drilling technologies during the Bakken Boom turned North Dakota into a leading crude oil-producing state, the COVID-19 pandemic severely impacted oil demand and drilling activity, causing a decline in production. Despite Chevron’s entry into the Bakken region, analysts do not anticipate a return to the peak boom days witnessed before the pandemic.

The Challenges of the Bakken Region

The Bakken formation, situated along the Canadian border, faces challenges due to its distance from export terminals and refineries. This geographical disadvantage leads to higher transport fees and typically smaller profits compared to competitors in the Texan and New Mexican shale areas, which are closer to the main refining and export hubs on the Gulf Coast. As a result, production in the higher-cost Bakken region has fallen to around 1.27 million barrels per day (bpd), nearly 18% below its late 2019 peak.

Chevron’s Acquisition and Future Plans

With its acquisition of Hess, Chevron gains access to 465,000 net acres in the Bakken region and the production of 190,000 barrels of oil equivalent per day (boepd). Chevron is expected to align with Hess’s plans to grow net production to about 200,000 boepd in 2025. By maintaining the same number of rigs used by Hess, Chevron can secure around 15 years of inventory in the region. Chevron CEO Mike Wirth expressed optimism about the acquisition, highlighting the potential for sustained plateau production and strong cash flow for many years to come. Chevron also aims to leverage new technologies pioneered in other shale regions to maximize production in the Bakken in the future.

Outlook for the Bakken Region

While Chevron’s entry into the Bakken region brings new expertise, the future of the area remains uncertain. Analysts suggest that, compared to smaller shale producers, larger integrated companies like Chevron have more flexibility in increasing production targets. However, the Bakken region is more consolidated and mature, with limited potential for additional activity. Break-even prices in the Bakken have been higher than other shale regions since 2019, which poses further challenges. Despite the potential for Chevron to increase Bakken production beyond Hess’s target levels, experts anticipate that Bakken output will remain below its pre-pandemic peak, with production potentially declining from 2026 onwards due to inventory exhaustion.

In conclusion, while Chevron’s acquisition of Hess provides an opportunity to increase oil output in the Bakken region, the challenges of the area, including higher costs and limited potential for growth, suggest that a return to pre-pandemic boom levels is unlikely. Nevertheless, the expertise and resources Chevron brings to the region are welcomed by industry professionals in North Dakota.