Posted 9/16/14 (Tue)
By Kate Ruggles
Farmer Staff Writer
July brought new records, just like the North Dakota Industrial Commission thought it would. With July’s production numbers finally in, the state saw a 18,000 barrel per day increase in oil production and a three percent MCF increase in natural gas production.
In July, North Dakota produced 1,110,642 barrels of oil per day and 40,035,470 MCF of natural gas per day. There were also 11,287 producing wells in the month of July.
McKenzie County produced 11,478,438 barrels of oil and 16,887,989 MCF of natural gas in July. The county continues to be the state’s top oil and natural gas producer, producing more than three million barrels of oil than the second highest oil-producing county and eight million MCF more than the second highest natural gas-producing county.
As usual, however, that is only a small section of this month’s oil report.
Lynn Helms, director of Mineral Resources for the North Dakota Industrial Commission (NDIC) states that, in a nutshell, flaring news is good and rig counts are looking strong, but oil pricing is soft.
“With crude oil pricing, when you look at the record from June to today, there is an 18 percent drop in the price of North Dakota Sweet Crude,” states Helms. “And that price drop is putting some pressure on the industry, especially in the fringe areas of the Bakken.”
According to Helms, this information indicates that the NDIC should support the state’s oil industry’s effort in establishing a Bakken Benchmark Crude Oil. Doing so will not only help stabilize the price of the North Dakota Sweet Crude product, but it could also cause North Dakota oil to be sold at a premium price, similar to crude products from other markets in Texas and in the North Sea.
It is even likely, as far as Helms is concerned, that the state could establish a benchmark prior to the 2015-17 biennium.
“It is not a short timeline to establish a benchmark like that, but it is realistic to get one in place in the next year,” states Helms. “And doing so will give us the ability to improve North Dakota Crude prices for the coming biennium.”
Until that time, however, the current price of North Dakota Sweet Crude will push the state’s product to rail transportation, rather than by pipeline, in order to push it to a market that offers better prices.
Conversely, in regards to flaring, news is finally on the upswing. Helms reports that in July the state was able to achieve 74 percent natural gas capture, which means the state held a flaring percentage of only 26 percent, the lowest it has been in some time.
“We have issued letters so that industry operators are aware of whether or not they are in compliance with the state’s 74 percent gas capture goal,” states Helms.
In addition to operators, there are two other factors affecting flaring - the Tioga Gas Plant is still only operating at 70 percent of its capacity due to a project slowdown on federal lands and the ONEOK Garden Creek Plant III has hit somewhat of a roadblock due to a gathering pipeline project, also across federal lands.
The good news, according to Helms, is that the state reached 74 percent in July. The bad news is that with winter on the horizon, drilling activity up and federal land obstacles creating gas gathering slowdowns, it will be hard to maintain that level of natural gas capture. Operators have little choice though, because the statewide goal mandate of 74 percent gas capture will take effect on Oct. 1, 2014, and on Jan. 1, 2015, the state is increasing the mandate to 77 percent gas capture.
On a final note, Helms is positive that rig counts will continue to increase. Rig counts hovered around 180 for most of the summer, but as of Sept. 13, there were 198 rigs operating in the state. And the highest number, 71, were operating in McKenzie County.
“We are seeing a recognition among the oil industry that there is no better place to make money than in that core of the Bakken and Three Forks,” states Helms. “That is the four-county juncture between McKenzie, Mountrail, Dunn and Williams counties. Where those four counties come together is the best place in the North American continent to make money.”
Helms states that the focus on this area has been and continues to be very intense; hence the increase in drilling rigs. But it will also make gas capture achievement more difficult.
“It will take a lot of work to move the gas and capture it, while making sure that we are reaching our goals, especially when there is that kind of drilling activity in that focused of an area,” states Helms.
Helms states that the state is working very hard to accommodate the industry’s permitting needs, so that 198 drilling rigs have a place to go, and to construct and expand locations so that operators can keep working through the winter.