ND searches for oil production salve

North Dakota, nation’s second largest oil producer after Texas, has seen a drop in some 300,000 barrels per day in recent weeks

JAMES MacPHERSON

Associated Press

North Dakota’s top oil regulator said April 21 that nearly a third of the state’s wells have been idled and crude production has slid by more than 20% in recent days amid the COVID-19 outbreak.

State Mineral Resources Director Lynn Helms told the North Dakota Industrial Commission some 5,000 wells have been shut down in recent weeks, accounting for about 300,000 barrels of lost oil daily. Helms estimated the state has lost up to 60,000 barrels of oil production in “the last 24 hours” as oil prices crashed and in what Gov. Doug Burgum has called a potential “economic Armageddon for North Dakota.”

North Dakota’s coffers had been fatter than projected due to strong prices and near-record drilling in its oil patch. The state had forecast about $48 a barrel to craft its current two-year budget. Based on the state’s forecasted price and the loss of barrels in the past day, the state would lose about $288,000 in oil tax revenue in a single day, Tax Commissioner Ryan Rauschenberger said.

Burgum called an emergency meeting April 21 to discuss ways to aid the state’s oil producers that are wracked by falling oil prices due to meager demand amid the coronavirus outbreak.

Incentives discussed

“We know operators are going to have limited capital,” Burgum said.

Helms said a well could cost $50,000 or more to bring it back online and producing.

The price of U.S. benchmark crude that would be delivered in May fell as low as -$40 per barrel during the day April 20 because of a glut of oil on the market and the lack of places to store it. The glut is a result of worldwide economies that are typically reliant on crude for such things as air and ground transportation having been idled or slowed as countries try to slow the spread of the coronavirus.

That meant traders essentially offered to pay someone else to deal with the oil they were due to have delivered in May. Oil is still fetching $20 for a barrel of U.S. oil to be delivered in June.

Prorating in other states

Prorating oil production is being considered in both Texas and Oklahoma, Helms said, and suggested the state should monitor what happens in those states before taking action.

Another option being considered would including classifying oil and natural gas produced at a loss as a “waste.” By doing so, producers would not be penalized under state rules for cutting production or closing wells, such as a loss of a lease or a permit.

Burgum said April 20 the oil industry “pays a lot of bills here in North Dakota.” The goal is to prevent forcing companies to produce oil and associated natural gas at a loss, he said.

“We need to do everything we can to help them remain viable so when we come out the backside we have a functioning industry in our state,” Burgum said.

Ron Ness, president of the North Dakota Petroleum Council, said he supports action by the state.

“They are just trying to look at every way possible to limit the impact,” said Ness, whose group represents more than 500 companies working in the oil patch. “These holes are not designed to be shut down.”

Oil is a key contributor to the wealth of North Dakota, the No. 2 producer in the U.S. behind Texas. North Dakota’s oil production had exploded in the past decade with improved horizontal drilling techniques into the Bakken shale and the Three Forks formation below it.

Before the pandemic devastated the U.S. oil industry, daily oil production in North Dakota was at a near-record 1.45 million barrels daily in February, the latest figures available.