Bismarck, North Dakota

Small American oil companies squeezed by last year’s collapse in crude oil prices could be forced into a series of mergers and acquisitions or face grim chances of survival.

Shares in American oil companies have been routed in the wake of last year’s oil price plummet that sent US crude from $107.26 a barrel in June to under $55 by year’s end.

And even with February’s rebound that sent US crude back above $50 a barrel, many American oil firms still face high overheads.

Ron Ness, president of the North Dakota Petroleum Council, a group that represents the interests of more than 500 companies working in the state’s oil industry, said there will be a “substantial amount of mergers” the longer prices stay low.

North Dakota, in the US Midwest, has been home to the country’s modern day gold rush that saw oil production peak in 2014 to 1.2 million barrels a day, according to the North Dakota Petroleum Council.

Less than a decade ago, in 2007, the state produced 100,000 barrels a day.

The oil industry in North Dakota has taken off because of fracking technology that is able to extract oil from hard to reach shale rocks in the western part of the state.

But the technology is expensive and the amount of oil varies across the state’s 31,000 square kilometre Bakken play, which is where the oil is.

Global oil prices sat above $100 a barrel for the best part of the five years until they started declining in the second half of 2014 in response to an oversupply. The glut was partly due to weak demand from China and also booming production in the US, which is reducing its reliance on oil imports.

Energy assets

But shale producers, such as those in North Dakota, need those high per barrel prices to manage their overheads. Last month, when prices sat under $45 a barrel, Kinder Morgan, one of the biggest US pipeline operators, announced it would acquire Hiland Partners. The $3 billion acquisition hands Kinder Morgan a new oil pipeline and other energy assets in the Bakken.

“You’re going to have companies struggling to survive the longer this goes,” said Ness at an interview in his office in Bismarck, the North Dakota capital, in January.

The number of oil rigs operating in North Dakota dropped nearly 20 per cent to 146 from mid-December to the end of January. Production remained steady at 1.2 million barrels a day last month, according oil data firm Platts. Since then, the number of oil rigs operating in the state has fallen another 13 per cent from mid-December levels. “What this is going to teach us is that we have to reduce the cost of Bakken oil and we have to become competitive at $60 to $75 a barrel,” Ness said.

And many, confident that a price correction is not far away, are looking to buy up assets.

Last month, a company advertised on the front page of North Dakota’s main newspaper, the Bismarck Tribune, that it is buying oil, gas, mineral and royalties in North Dakota and neighbouring states. “Now is the perfect time to buy,” said Bill L. Seerup from Oil & Gas Properties, the company that advertised.