For the second consecutive month the rate of growth of North Dakota's oil production slowed in August, and that slowdown may be attributable, at least partially, to the state’s new flaring rules.
While the state continues to set monthly production records, reaching 1.132 million barrels per day in August according to preliminary data released by the state’s Department of Mineral Resources on Oct. 15, the rate of production growth has declined noticeably over the last two months falling from a record increase of 52,050 barrels per day in June to 21,902 bpd in July, and then declining even further to 17,901 bpd in August.
That lower August production increase represents a production growth rate of 1.6 percent for the month, below the approximately 4 percent rise in growth rate that North Dakota saw in August 2013 and August 2012.
Department of Mineral Resources Director Lynn Helms said in a monthly press conference on Oct. 15 that from what he has heard from industry, the primary factor affecting production growth is the requirement that operators meet the state’s new, mandated gas capture requirements.
“The information I’m getting from industry - the number one factor there was gas capture plans,” Helms said in a monthly press conference on Oct 15. “I’ve talked to two different operators in the last week - both of them had postponed anywhere from 20 to 40 completions because they want to arrive at 74 percent-plus capture,” a level required of operators as of Oct. 1 (see story, page 4). “So based on what I’m hearing, the number one reason for that 2 percent growth versus 4 percent last year and 4 percent the year before is this focus on gas capture and delaying completions and slowing the drilling to some extent in order to arrive at that capture goal that’s set in the rule,” Helms said.
However, the slowdown in growth as a result of gas capture requirements does not come as a surprise to Helms, who said he recently told legislators that production curtailment could reach 90,000 bpd in December and January. “So we’ve been expecting it, we were anticipating it from the time we issued that order in July.”
What’s ahead?
While Helms believes gas capture has affected production growth, he believes that falling crude oil prices have also had an effect. And with crude oil prices steadily falling over the last several months (see story, this page), Helms said operators in the Williston Basin are now approaching and even falling below breakeven costs on wells.
He noted that on Oct. 15, the day of the press conference, North Dakota Light Sweet closed at $66.25 per barrel on the Flint Hills Resources exchange. He said that while the crude oil price realized by North Dakota operators is typically about 5 percent above the Flint Hills price, that realized price falls below the breakeven price in several counties, including the majority of Divide and Burke counties and all of Bowman and Slope counties.
There are currently eight to 10 rigs drilling in those counties, and Helms noted that if the lower oil prices persist, those rigs will be at risk when current drilling contracts expire.
August numbers and milestones
On the upside, Helms said several milestones were reached in August. First, while the state broke the 1 million bpd oil production mark in April, he said production from only the Bakken petroleum system broke the 1 million bpd mark in August. Specifically, preliminary data indicate oil production in the state averaged 1,132,331 bpd in August, 1,067,609 of which came from the Bakken and Three Forks formations. Furthermore, with the August production, North Dakota has now produced more than 1 billion barrels of oil since oil production in the state began in 1951.
The number of producing wells in the state increased by 270 wells in August to a total 11,563. Of those, 8,064 or 70 percent target the Bakken and Three Forks formations with the remaining 30 percent targeting conventional legacy pools.
Natural gas production increased from 1.295 billion cubic feet per day in July to 1.340 bcf per day in August. With that increase, gas capture actually fell slightly and stood at 73 percent in August (see story, page 4).
Drilling permits increased by 12 in August to 273, but fell to 261 in September.
The drill rig count increased by one in August to 193, and increased by another two in September to 195.
The number of wells waiting on completion decreased by 30 between July and August to approximately 600. Over 95 percent of the drilling activity in the state is targeting the Bakken and Three Forks formations.
