Posted 5/19/15 (Tue)
By Kate Ruggles
Farmer Staff Writer
The North Dakota Industrial Commission reports that the March production figures yielded a surprise - a one percent increase in crude production and a three percent increase in natural gas production for the month.
“We did not expect that at all,” states Lynn Helms, director of Mineral Resources for the North Dakota Industrial Commission.
What Helms did expect was a decrease in the months of March, April and May, with a surge coming in June as operators work on the backlog of unfracked wells.
Contrary to that, however, not only did the state see production increases in both oil and natural gas production, but it also saw a four-fold increase in well completions.
“We believe this small surge is due to the small trigger kicking on in February,” states Helms.
In the month of March, North Dakota produced 1,190,583 barrels of oil per day and 1,521,478 MCF of natural gas per day. And as stated earlier, while the March figures are not a new all-time high, they are up from February’s production totals of 1,178,082 barrels of oil produced per day and 1,475,395 MCF of natural gas produced per day.
McKenzie County also saw considerable increases in production in the month of March, having produced a total of 12,840,198 barrels of oil and 20,486,933 MCF of natural gas.
The rest of the March news, according to Helms, is Picasso-esque in that there were lots of recognizable items, but they didn’t really seem to fit together.
Helms states that production and completions were up and yet the state managed to meet its gas capture goal of 80 percent. Conversely, rig counts continue to fall even though oil prices are stronger than they have been throughout the winter months.
Helms states that North Dakota operators will likely not go after the frack backlog in earnest until the oil price reaches $65 West Texas Intermediate (WTI). And they will not start to add rigs back until it rises above $70 WTI.
“The NYMEX shows North Dakota reaching $65 per barrel in the last half of 2016, and the Saudi projections have us at $70 per barrel in the fourth quarter of 2016, so we may be flat for a significant amount of time with 80 to 100 drilling rigs operating,” states Helms. “And month-to-month, we will either not have enough well completions to sustain production or we will have just enough to bring us back up to that 1.2 million barrel per day mark.”
The rig count has dropped 10 percent from April, and the number of rigs operating in the state to date is 83.
As for oil prices, the WTI average price to date is $59.46 for the month of May. This is considerably more than the average over the last four months.
According to Ryan Rauschenberger, North Dakota State Tax commissioner, January’s average was $47.98, February was $50.86, March was $47.76, and April was the lowest at $42.12.
With these WTI prices being so low, the big concern has been the large tax exemption triggering on, but Rauschenberger states that the passing of House Bill 1476 has made this less of a concern.
“The posted average price for WTI for the previous four months has fallen below $55.09, which would have made May the potential fifth consecutive trigger month,” states Rauschenberger. “However, because the average price to date is well above $55.09, based on calculations the average price for the rest of May would have to be $52.25 for the big trigger to trigger on.”
Then even if the big trigger did trigger on, Rauschenberger states that because of House Bill 1476, it would only be in effect until the new law is in effect on Jan. 1, 2016.
“The big trigger will more than likely not trigger on, but if it does, it will kick in and stay in place for five months,” states Rauschenberger. “Going forward there will be no more small trigger or large trigger, because starting Jan. 1, 2016, the extraction tax will be a flat five percent rate.”
Instead, House Bill 1476 puts a different trigger in place, in that if the average price of oil exceeds $90 for three consecutive months, the extraction tax rate would increase from five percent to six percent.
“It would then take three consecutive months of the price of oil falling below an average of $90 for the tax trigger to trigger off,” states Rauschenberger.
Looking forward, Helms still believes the state will see a production surge in the month of June, even if the large trigger doesn’t hit.
“There are still 885 wells waiting to be completed, and 100 of them must be completed in June,” states Helms.
Between June and the last half of 2016, Helms believes the state will be in a holding pattern of sorts - down months followed by up months, until prices recover above $65 per barrel.