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Oil production continues its downward slide

Posted 5/24/16 (Tue)

By Neal A. Shipman
Farmer Editor

While North Dakota’s oil production dropped by nearly 10,000 barrels per day during the month of March, McKenzie County, which is in the heart of the Bakken Shale Formation, continued to see an increase in both oil and natural gas production.
“We had thought that we would see the state’s March production numbers drop below 1.1 million barrels per day,” stated Lynn Helms, Department of Mineral Resources director, “but had four operators come in with significant production increases that kept production above the 1.1 million barrels per day level.
Statewide, oil production dropped to 1.1 million barrels per day in March, a roughly one percent decrease. McKenzie County saw its monthly oil production increase from 11,993,331 barrels in February to 13,150,116 barrels in March, while its natural gas production increased from 22,923,081 to 25,273,293 MCF in the same period.
According to Helms, while oil prices have rebounded in the past month to the upper $40s, oil companies are going to have to see sustained prices at that level or above before they have enough confidence to bring more wells on line.
“Currently, the oil price is below what we need to reactivate wells, to frac non-completed wells, and to activate drilling rigs,” stated Helms during his monthly Director’s Cut.
The state saw its number of uncompleted wells increase by 13 to 920 and the number of inactive wells increase by 84 to 1,523 during March.
“Companies aren’t completing wells as their No. 1 tool to manage cash flow,” stated Helms. “And the increase in inactive wells represents wells that aren’t economical to keep producing at today’s oil prices.”
But according to Helms, the recent rebound in oil prices is a good sign for a possible return to completing existing wells and possibly drilling new wells.
“We’ve got one month under our belts with oil prices above $40 West Texas Intermediate (WTI),” stated Helms. “We have two months to go with those higher prices before there is going to be enough confidence for operators to put some of the uncompleted wells into production.”
During March, the number of drilling rigs operating in North Dakota fell to 27, the lowest level since July of 2005. Currently, 14 of those rigs are operating in McKenzie County.
“All of the state’s 27 drilling rigs are currently operating in the core area of the Bakken,” stated Helms. “That area is a triangle from Watford City to Killdeer to Stanley.”
Oil companies are continuing to maintain their drilling operations in the core area of the Bakken, according to Helms, because of the high gas to oil ratio of the new wells.
“We are seeing very, very productive wells in this core area with an initial production of 3,000 barrels of oil per day,” stated Helms. “The gas to oil ration of these wells is two to four times what is seen in other areas of the state.”
Which, according to Helms, is why the industry has spent tens of millions of dollars in gathering lines and gas plants in McKenzie, Dunn and Mountrail counties.
According to Helms, using $40 WTI pricing, there are only six counties (McKenzie, Dunn, McLean, Mountrail, Stark, Williams and McLean) in the state that are still economical for the development of oil and gas. North Dakota’s other oil-producing counties have a break-even price ranging from $47 to over $100 per barrel.
“The industry has reduced drilling and operating costs by 65 percent in North Dakota, which makes the economics very robust for the state,” stated Helms. “And on the plus side, the industry says that with WTI prices above $60 per barrel, this is the best place for them to spend their money.”