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State’s oil industry running on empty

Posted 1/19/16 (Tue)

By Neal A. Shipman
Farmer Editor

Even with continued low oil prices and fewer drilling rigs operating in North Dakota in November of 2015, the state’s oil production increased to 1,176,314 barrels per day. And no one was more surprised by the increase in production than was Lynn Helms, North Dakota Department of Mineral Resources director.
“That is really quite a surprise,” stated Helms, during his monthly Director’s Cut webinar on Jan. 15. “Daily oil production was up about 5,200 barrels, while gas production was up 3.3 percent to 1,667,994 MCF per day, which is a new all-time high.
“What we are seeing is the effects of concentrating on the core of the core where this is more gas associated with the oil,” stated Helms. “These are the only places in North Dakota that are economical to see continued drilling at today’s oil prices.”
According to Helms, the core area of the Bakken which is continuing to see new well drilling and well completions is within McKenzie, Dunn, Mountrail and McLean counties.
During November, McKenzie County had 3,354 wells in production and produced 12,562,472 barrels of oil and 22,497,833 MCF of natural gas. During the month, the county produced 35.6 percent of the state’s oil and 45 percent of the state’s natural gas.
However, an area that troubles Helms is the number of wells that are being permitted, which will ultimately impact the state’s production numbers.
“We went from 152 permits in October to 125 in November, and then to 95 in December,” stated Helms. “The last time that we saw less than 100 permits issued was in May of 2010.”
According to Helms, the decline in permits is an indication of a decreasing optimism about short-term oil pricing. And that companies are reducing their drilling plans through  2016.
“There’s not much optimism in the short-term,” stated Helms. “Today’s North Dakota Sweet oil price is $20 per barrel, which is the lowest since March of 2002, while the highest was $136.29 in July of 2008.”
As of Jan. 15, North Dakota only had 49 rigs operating, which is the lowest number since August of 2009, when there were 45 rigs in the state. The state’s all-time high for drilling rigs was 218 in May of 2012.
According to Helms, many of the wells that are being drilled are not being completed.
“What we are seeing is an accordian affect,” stated Helms. “We see wells going into waiting on completion status in batches of four to six. But they come out one at a time.”
During November, according to Helms, the state saw a lot of wells go into waiting on completion status, And he expects to see a number of those wells to be completed in the next three months.
While Helms indicated that 2016 is going in the opposite direction than oil companies had anticipated, there is optimism for price recovery in the long term.
“There is some optimism that we could see $60 oil by the end of the year,” stated Helms. “That would be fantastic.”
But in reality, if Helms had to have a theme for November’s oil numbers, it would be “running on empty.”
“We’re at the bottom of the bottom of the tank in terms of cash flow and capital to remain active in the state of North Dakota,” stated Helms, in regard to oil company finances. “Everyone is scrambling to figure out what to do with their business, how to maintain cash flow and production.”
According to Helms, at today’s oil prices, the state is at a critical stage for oil production.
“With prices between $20 and $30 per barrel, we could see production drop below one million barrels of oil per day,” stated Helms. “It’s a different story at $30 to $40 per barrel. We would see production stay at one million barrels per day. That $10 price difference is really huge.”