North Dakota oil production declines for first time in a year

By Patrick C. Miller | December 12, 2014

Low oil prices combined with regulations on gas flaring and crude conditioning will likely lead to a plateauing of North Dakota oil production, said Lynn Helms, director of the state’s Department of Mineral Resources, during his monthly report Friday.

For the first time since, November 2013, North Dakota’s oil production declined. The 1.182 million barrels per day in October represented a slight decrease of about 4,000 bpd.

Helms cited three factors for the production decline: low oil prices, state flaring reduction regulations going into effect Oct. 1 and the recently implemented regulations requiring the conditioning of crude before shipment.

“This time of year, we would expect to set a production record,” Helms said. “It’s very unusual not to have a production increase from September to October. We’re looking at production under this current paradigm with the three pressures on it really, perhaps, plateauing.”

Currently, there are 183 drilling rigs operating in the state, down from 193 in September and 191 in October.

“We’ve already been advised by a half a dozen companies that from January through March, they expect to ladder their rig count down by 30,” Helm said. “If this price decline holds well into next year, we could see another 12 or 15 rigs being released.”

He said there wouldn’t be a drastic, sudden drop in the rig count, but companies will probably be releasing rigs over time rather than renewing contracts.

Helms said the current price for sweet crude of $60 a barrel is the lowest since March 2009. Because the crude conditioning requirement won’t go into effect until April 1 next year, Helms attributed much of the production slowdown to low prices and the flaring reduction regulations.

Helms had good news about the state’s flaring reduction goal. He said 78 percent of the gas was captured in October, exceeding the goal by four percent. Sixty of 68 producers were in compliance. Of the eight not in compliance, four are very close—requiring additional calculations—and four face potential production restrictions.

However, Helms noted that the flaring regulations caused the number of well completions to drop from 193 in September to 134 in October with a resulting impact on production.

“Many, many companies reported that they were leaving wells uncompleted in order to accommodate the gathering capacity of the gas gatherers,” he said.

According to Helms, the impact of low oil prices will likely be delayed for two reasons.

“One is we have this inventory of wells already drilled that haven’t been completed,” he explained. “We’re going into 2015 with an inventory over 600 drilled and not completed. That’s a major cushion.”

Another factor is that the core counties of the Bakken have break-even prices of well below $50 a barrel, which could result in more concentrated activity in McKenzie, Mountrail, Williams and Dunn counties.

In May 2009 following the national economic collapse of 2008, Helms noted that the price of oil dropped to $27 a barrel and reduced North Dakota’s the rig count from 93 to 34. The price didn’t rebound until February 2010.

“Everyone is hoping that this price collapse is of the same nature, that it’s very sharp and very hard and that it bounces back quite quickly,” Helms said. “But past performance is no guarantee of future performance, as we know.”