Telltale signs that North Dakota’s oil production is being impacted by the five-month downward spiral in global crude prices are beginning to appear in the form of hard numbers. The latest oil production data released by the Department of Mineral Resources on Dec. 12 indicate the state’s oil production declined slightly in October following nine consecutive months of production growth. Contributing to that decline are depressed oil prices.
Preliminary data from DMR indicate the state’s oil production averaged 1,182,174 barrels per day, a decline of 4,054 bpd from September production. The last time production declined in the state was in December 2013 when output fell by 49,766 bpd to an average of 926,687 bpd (see chart). However, that decline in production was generally attributed to severe weather conditions in the state. In contrast, production grew in September by 53,987 bpd over August production, the highest monthly production growth rate in North Dakota on record.
DMR Director Lynn Helms sees slumping oil prices as a primary factor behind the contraction in the state’s oil output, although operators curtailed production in an effort to meet the states recently-implemented gas capture requirements which he believes was also a contributing factor. Helms says that while “it’s really hard to tease out of the data” exactly what and how much affected the production decline, he does believe that “it’s dominantly oil price and maybe almost an equal amount of gas capture.”
In a Dec. 12 monthly press conference, Helms said crude oil prices are the lowest the state has seen since the financial crisis in 2009, which marked the beginning of the first major slowdown in the modern Bakken/Three Forks play. In November 2008, there were 93 rigs operating in the state, but by May 2009 that number fell to 34 and didn’t recover until February 2010. “So it took, in that case, about nine months to recover,” Helms said. “Everyone is hoping that this price collapse is of the same nature - that it’s very sharp and very hard and that it bounces back quite quickly,” Helms said. He cautioned, however, that “past performance is no guarantee of future performance.”
Helms also pointed out that many operators have put off bringing wells on production because of a lack of gas gathering infrastructure. He said the number of wells awaiting completion increased by 40 in October to approximately 650. “And that is dominated by gas capture,” he said. “Many, many companies reported that they were leaving wells uncompleted in order to accommodate the gathering capacity of the gas gatherers.”
A look at price trends
In August when Brent averaged $103.40 per barrel on the New York Mercantile Exchange and West Texas Intermediate averaged $96.38, the state saw a production increase of 1.6 percent. Crude prices fell some in September with Brent and WTI averaging $98.37 and $93.22, respectively, although production actually grew by 4.77 percent. However, Helms attributed that growth to operators shifting activity to and focusing on the most productive areas of the Bakken core where wells have higher yields and better returns.
Then in October, crude prices fell more sharply with Brent’s monthly average down more than $10 to $87.77 and WTI down nearly $9 to $84.40. Concurrently, the state’s production shrank by 0.34 percent.
With a two-month lag period before production data are available from DMR, output for November and December won’t be available until January and February. However, if production continues to follow price trends, which appears likely since a number of Bakken operators have announced cutbacks in spending and the release of drill rigs as contracts expire, the price trends portend further declines in the state’s oil output.
In November, the average Brent price fell by nearly $8 to $79.91 and WTI fell by more than $8 to $74.81. And through the first half of December those price declines were even more precipitous with the Brent average down more than $13 to $66.87 and WTI down more than $12 to $63.40. And as of Dec. 17, the day Petroleum News Bakken went to press, Brent had fallen below $60 settling at $59.80. WTI settled at $56.47.
Other October numbers
Unlike oil production, North Dakota’s natural gas production actually increased in October, rising one full percentage point to a record average of 1.430 billion cubic feet per day.
The state’s drill rig count stood at 191 at the end of October down two rigs from September. By the end of November, the rig count fell further to 188, and as of Dec. 12 the count stood at 183.
Interestingly, while production fell in October, the number of producing wells actually increased by 134 to 11,892. Seventy-one percent of those wells produced from the Bakken petroleum system, which includes the Three Forks formation.
A total of 328 drilling permits were issued by the state in October, up from 261 issued in September. In November, 235 permits were issued.
