Oil production fell in North Dakota again in February, marking the first time in more than four years that the state’s output declined for two consecutive months. Preliminary data released by the Department of Mineral Resources April 14 indicate the state produced an average of 1,177,094 bpd in February - a decrease of 14,104 bpd or 1.2 percent from the 1,191,198 bpd production in January.
“An unusual event,” is how DMR Director Lynn Helms described the second month of production decline during a monthly press conference on April 14. “Not an enormous decline - about 1 percent decline - but it’s the first time since December of ‘10-January of ‘11 we’ve had back-to-back production declines,” Helms said.
“At that time it was because of incredible winter weather,” Helms added. “I don’t know if you remember the winter of ‘10-’11, but it was the worst winter in the oil patch that we had had in probably several decades.” However, weather was not a significant contributor to the production decline in February, which Helms described as “pretty much normal” with “seven windy days and nine very cold days and little or no precipitation in February.”
Perhaps even more notable is that in February just one well was brought on production in the state, in stark contrast to the 47 wells brought on production in January, and the 173 put on production in December. “Only one increase - one well in terms of wells producing - between January and February, which is also a record in terms of the lowest increase that I could find as far as I went back,” he added.
Backlogs and tax triggers
And adding to the dynamic is the increasing number of wells drilled but not yet fractured, with another approximately 75 added to the list of uncompleted wells bringing the total number awaiting completion to an estimated 900, a record high. At that rate, Helms estimates that by June there could be 1,000 or more wells waiting on completion.
Contributing to the backlog of completions is the larger of two state tax incentive triggers, which at current crude oil prices is expected to go into effect on June 1. That trigger eliminates the extraction tax for all wells up to the first 24 months of production, and drops the extraction tax from 6.5 to 4 percent for all wells beyond the first 24 months of production.
Looking forward, Helms expects to see 1 to 2 percent declines in production in March, April and May. But in June he expects to see a rise in production as operators begin to catch up on well completions. Helms thinks production could get back in the 1.2 million bpd range the state hit in December 2014.
Another factor influencing 2015 production is the requirement that wells be put on production within a year of spudding. Helms said there are some 125 wells that have to be brought on production in June, and another approximately 200 that could be under the same requirement by December. As a result, he thinks production at the end of the year could be on par with production at the beginning of the year, which was approximately 1.19 million bpd.
Tumbling rig count
As of April 14, North Dakota’s rig count stood at 91 - a decline of 17 from the 108 rigs operating at the end of March. It is also a decline of 42 rigs from February and 69 rigs from the end of January.
Helms expected the rig count in mid-April would be in the 120 to 130 range rather than 91 as of the day of the press conference, and he was surprised at the rapid rate of the decline. “Going into this thing in December, operators were telling us they were going to ladder their rigs down as contracts expired and that’s what we had built our plans around,” he said. “But as they got into January and February and crude prices were as weak as they were, quite a few operators started actually buying their rig contracts and laying rigs down, which is a very expensive proposition.”
And the rig count could decline even more. “In the poll that we do of the major operators, it looks like there could be another five rigs that are on the line or on the margin in terms of possibly being laid down.”
Other February numbers
The one well that went on production in February put the number of producing wells in North Dakota at 12,198. Seventy-five percent were producing from the Bakken petroleum system with the remaining 25 from conventional “legacy” pools.
While oil production fell in February, natural gas production increased slightly with gas production averaging 1,473,826 thousand cubic feet per day, up from the 1,473,516 mcf per day in January.
A total of 197 drilling permits were issued in February, down 20 percent from the 246 permits issued in January. In March the number of drilling permits fell to 190.
