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Oil prices won’t rebound until 2017

Posted 2/23/16 (Tue)

By Neal A. Shipman
Farmer Editor

The impact of continued low oil prices is definitely having an effect on North Dakota’s oil and gas production. And according to Lynn Helms, North Dakota Department of Mineral Resources director, the state is in danger of seeing oil production drop below one billion barrels per day by 2017 if prices don’t increase.
Daily oil production in December declined by 29,500 barrels per day to 1,152,280 barrels per day, down from November’s total of 1,181,787 barrels per day. Natural gas production in December also fell slightly to 1,670,836 MCF, compared to 1,676,279 MCF in November. The state’s all-time oil production was 1,227,483 barrels per day in December of 2014, while natural gas production peaked at 1,676,279 MCF per day in November of 2015.
“We are seeing the first real production cuts based on lower rig count, lower completion numbers, and wells being placed in inactive status,” stated Helms during his monthly Director’s Cut on Wednesday, Feb. 17.
“Prices are significantly lower than anyone expected six months ago,” stated Helms. “And they are going to stay lower longer than was expected.”
As of Feb. 17, North Dakota sweet crude oil was selling for $16.50 a barrel, while West Texas Intermediate, a U.S. benchmark for oil, was selling for just over $31 per barrel. The all-time high for North Dakota oil was $136.29, which was set on July 3, 2008.
“The prices speak for themselves,” stated Helms, on the impact that the low oil price was having on the state’s oil industry. “We’ve not seen this low of a price since February of 2002, which was the last time that the markets believed that the world had a surplus of oil.”
The continued low prices, according to Helms, being seen in the drop of drilling rigs, the number of well completions and new well permitting.
“We only have 41 rigs drilling in North Dakota at the present time,” stated Helms. “That is the lowest number since July 2009 when it was at 40.”
The state’s all-time rig count was set on May 29, 2012, when 218 rigs were actively drilling in North Dakota.
According to Department of Mineral Resources data, the number of drilling permits has been steadily decreasing as a result of the low prices. In January of 2016, the department issued 78 drilling permits compared to 125 in November of 2015, and 95 in December of 2015.
According to Helms, while oil companies are positioning themselves for a rebound in prices, he doesn’t anticipate an increase in oil prices until 2017.
“I don’t anticipate an improvement in prices for another nine months,” stated Helms. “The talk by foreign energy-producing countries to limit oil production is only going to keep prices from falling further. The United States has more oil sitting in storage tanks than we’ve had since 1935 or 1936. And the rest of the world looks the same.”

McKenzie County Still Leads State In Oil Activity
Sitting in the epicenter of the Bakken Shale formation, McKenzie County is still leading the state’s oil patch in the number of drilling rigs, as well as in oil and natural gas production,
According to Department of Mineral Resources figures, 20 of the 40 drilling rigs currently operating in North Dakota are drilling in McKenzie County.
In December, the 3,378 active wells in McKenzie County produced 12,930,807 barrels of oil and 23,745,877 MCF of natural gas, which represents nearly 36 percent of the state’s oil production and 46 percent of the state’s natural gas production.
McKenzie County also has the greatest number of uncompleted wells in North Dakota. As of the end of December, 2015, 369 of the state’s  945 wells were waiting on fracing and being brought into production.

New Technology Could Boost Bakken Potential
According to Helms, new technology is on the horizon that could significantly improve the production of the state’s Bakken wells.
“Two of the more exciting technologies that are being discussed are the use of super fracs and new gas lifts,” stated Helms. “Both of these technologies are going to be discussed at the upcoming energy conference in Williston.”
According to Helms, the super frac technology would substantially increase the amount of sand and water being used in fracing Bakken wells.
“The average frac involves 10 million pounds of sand and eight million gallons of water,” stated Helms. “The super frac would increase the amount of sand to 20 million pounds of sand and more water. Companies have found that as frac volumes go up, so does the production.”
Helms also stated that companies are also looking at improving well production by increasing the number of fracing stages from 40 to 100, as well as reducing well spacing to 500 feet which will increase overall recovery of Bakken oil.
“There is a lot of excitement about the new technology,” stated Helms. “Companies are not sitting still and they are planning to invest their money in enhanced recovery tests even this year with lower prices.”
Which is why Helms is optimistic that with increased prices in 2017, North Dakota’s oil patch will see a rebound in activity.
“Companies are trying to position themselves so that they have enough capital so that they can get back to work in 2017 when oil prices will be better,” stated Helms.