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Oil production continues to decline

Posted 4/21/15 (Tue)

By Kate Ruggles
Farmer Staff Writer

February is the second month in a row that North Dakota saw a decline in oil production, thus confirming the North Dakota Industrial Commission’s (NDIC) prediction that the state would see a roller coaster-like trend in production while oil prices wavered.
“It is not an enormous decline, about one percent,” states Lynn Helms, director of Mineral Resources for the NDIC. “But it is the first time since December 2010/January 2011, that we’ve had back-to-back production declines,”
According to the NDIC, the state produced 1,177,094 barrels of oil per day in the month of February, roughly 14,000 barrels per day less than what was produced in January. There was an increase, however, in the state’s natural gas production of around 310 MCF per day, making the state’s natural gas production for the month of February 1,473,826 MCF per day.
Though the state saw a decline in oil production alone, McKenzie County saw a production decline for both oil and natural gas. The county produced a total of 11,244,153 barrels of oil and 17,638,907 MCF of natural gas, an 0.85 percent decrease from January’s production figures. Although the county saw a decline, it is still the leading producer, with Mountrail County having produced 7,459,720 barrels of oil, and Dunn and Williams counties trailing close behind at roughly five million barrels of oil produced in February.
As for the next three to four months of production, Helms is anticipating a one percent decline each month leading into June.
“We will enter June with an inventory of around 1,000 unfracked wells, 125 of which will have to be brought online that month,” states Helms. “The big tax incentive will also likely ‘trigger on’ in June, which should lead to a big catchup in June and could take us back up to the 1.2 million barrel per day oil production mark.”
Though there are some predictions that the state will see a five percent production decline by the end of 2016, Helms states that the NDIC feels the state will exit 2015 close to the same point in which it began.
“I believe we will see a see-saw pattern, which will be difficult to track,” states Helms. “But there are 125 wells that must be brought online in June, and another 200 or so wells that have to be completed in December. So we could see a significant catchup by the end of the year.”
As for other industry markers, the state’s rig count continues to decline. In December, operators stated that they planned to ladder their rigs down as their contracts expired. However, according to Helms, as they entered into the weak crude prices of January and February, quite a few operators began buying out contracts and laying rigs down.
“That is a very expensive undertaking, so I was a bit surprised when we began seeing it take place,” states Helms. “I thought we would have been at around 120 rigs today, but instead we are down to 91.”
Helms also states that the storage situation around the country is not as dire as he once thought. The country is at record storage levels, but at the same time the country was building tremendous amounts of crude storage. At the same time, the country was drawing on gasoline storage supplies, bringing those levels to record lows.
“So now we see refiners ramping up to put a draw on their crude storage, in order to rebuild their gasoline storage as we head into the summer months,” states Helms.
Finally, the state has achieved 81 percent natural gas capture, which is a significant achievement, even though the focus on gas capture has helped hinder production.
“Natural gas capture has had a significant impact on the decrease in production,” states Helms. “Had the flaring regulations not been in place, the state’s decrease in production would have been less than half.
But according to Helms, North Dakota citizens were very firm that they wanted less flaring. And curtailing production is a necessary part of the business if the state wants to achieve its goal of 10 percent flaring.
Helms feels that, though production has declined, what the state has been able to achieve in gas capture has been very positive.
In other oil-related news, Helms reports that the Legislature is working on three very significant pieces of legislation, SB2271, HB1358 and HB 1390. These bills include new ideas and concepts for the way that the state of North Dakota deals with oil field waste, oil field spills and pipeline oversight and regulation.
This new legislation could, according to Helms, help to decrease spills, reduce waste and improve pipeline construction, as well as help facilitate right-of-way issues between land owners and the pipeline industry.
Additionally, Helms reported that the Bureau of Land Management published its final hydraulic fracturing rules for Federal and Indian lands on March 26, 2015. Unless an injunction is issued, the rules will take effect on June 26.
Helms states that North Dakota has joined Wyoming in a court action against the federal rules and one of the points of that action is the issuing of a temporary restraining order or an injunction to prevent the rule from going into effect.
There are several other matters of conflict, namely the Environmental Protection Agency’s (EPA) toxic substance control action, the Obama Administration’s announcement about methane controls, the EPA and Corps of Engineers talk about the waters of the U.S. and the U.S. Fish and Wildlife and Endangered Species Act. Through HB1442 and HB3009, the state is hoping to address these matters.