North Dakota oil production could be sustained at current record levels even if “the worst of worst happens,” such as a major downturn in commodity prices, said Lynn Helms, director of the state’s Department of Mineral Resources.
Helms said in a Nov. 20 Webcast that it would take only about 50 drilling rigs, or just over a quarter of the current fleet, and around 550 new wells per year to keep production at current levels of around 730,000 barrels per day. Currently, nearly 200 wells are being added per month alone.
Helms noted that the five top producing counties in North Dakota would be able to sustain their rig counts should oil prices drop well below $50 a barrel.
Moreover, even if drilling came to halt outside the five leading counties, he said, there still would be about 140 rigs left in the state operating at 10,000-15,000 barrels per day, “from now until we see a price recovery.”
“So we are very confident that we can sustain current production even under some pretty (difficult) scenarios,” Helms said.
Helms sees 3-5% growth rate
But “our best guess” is that North Dakota oil production will continue to increase at a 3-to 5 percent monthly clip, reaching or surpassing 800,000 barrels per day sometime in next year’s first quarter, Helms said.
“It’s a certainty that we are going to build production to that point,” he added. “And if things go right, we’ll go to over a million barrels per day. But we can’t build a budget on everything going right.”
North Dakota oil production hit a record high of 728,494 bpd in September, according to the state’s most recent monthly production report. That compares to 701,409 bpd produced in August.
“September weather was great for drilling and hydraulic fracturing resulting in a 4 percent oil production rate increase from August to September,” Helms noted in his monthly Director’s Cut report.
Natural gas, which represents roughly 6 percent of production, also set a new record in September, increasing to an average 793,548 thousand cubic feet, mcf, per day compared to 762,361 mcf per day in August.
Wells increase to 7,798
The number of producing wells also increased in September to 7,798, also a new record.
Drilling permits rocketed to 370 in October versus 273 in September and 260 in August. The dramatic increase in drilling activity was said to be necessary to accommodate more multi-well pads and the need to build locations before winter weather sets in. In fact, the department increased staff to handle the extra permitting load.
“Our goal was to make sure that we had (about) 200 rigs operating with 1,400 permits in front of them, so they all had enough locations to get through the first of June of next year,” Helms explained.
The price of Bakken sweet crude averaged $87.00 per barrel in October, $84.98 per barrel in September, and $80.65 per barrel in August. On Nov. 20, the price was $80.75 per barrel, while the all-time high reached $136.29 per barrel on July 3, 2008.
Fewer rigs, more production
Surprisingly, North Dakota achieved record production with fewer drilling rigs and reductions in company spending. Rapidly escalating well costs consumed budgets faster than many companies anticipated, Helms explained, and uncertainty over future federal policies on hydraulic fracturing is impacting capital investment decisions. More than 95 percent of drilling still targets the unconventional Bakken and Three Forks formations.
“Because well costs increased so rapidly in 2012, they (companies) actually had to scale back drilling and fracturing at the end of the year just to come in on target,” Helms said.
Rig count drops to 188
The rig count for October averaged 188 compared to 190 in September and 198 in August. On Nov. 20, the day of the Webcast, the count stood at 187 rigs, while the all time high was 218 rigs on May 29, 2012.
Utilization for rigs capable of drilling 20,000 feet or more was reported stable at about 90 percent. But for shallow well rigs that drill to 7,000 feet or less, utilization remains at about 60 percent
Helms attributed the production increases with fewer rigs largely to drilling efficiencies.
“We are able to add wells at (the same) or faster pace because of drilling efficiencies that come into the system,” he said.
“So I guess the good news is that even at that slower place and spending less money, we’re seeing record production increases. We continue to do more with less.”
