Surprise growth

North Dakota’s oil production unexpectedly increased in March

Mike Ellerd

Petroleum News Bakken

To the surprise of state officials who were anticipating another month of declining oil production, North Dakota’s production actually increased in March inching up by 13,489 barrels per day - just over 1 percent - to a monthly average of 1,190,583 bpd according to preliminary data released by the state’s Department of Mineral Resources on May 13. Also increasing in the month was natural gas production, which was up 3 percent averaging 1,521,478 thousand cubic feet per day.

“We did not anticipate that,” DMR Director Lynn Helms said in a monthly press conference on May 13. “We were expecting February, March and April - maybe even May - to be down months.”

But perhaps more surprising was the sharp increase in well completions in March when 189 wells were completed, up from only 42 wells completed in February. According to Helms, that four-fold increase was attributable to just four producers: Continental Resources, Hess Corp., ConocoPhillips subsidiary Burlington Resources and ExxonMobil subsidiary XTO Energy. “They appear to be more in tuned with having the normal capital flow … and continuing to complete their wells in a more aggressive manner than some of the other folks,” Helms said.

At the other extreme, Helms said companies who stand out as building an inventory of uncompleted wells are EOG Resources and Marathon Oil, both of which Helms said have indicated they are going to hold off on completions as long as they legally can and may not complete any Bakken wells in the remainder of the year.

Falling rig count

What did decline in March was the state’s rig count, which stood at 108 at the end of March compared to 133 at the end of February. Since March the rig count has continued to fall with just 91 rigs operating at the end of April and as of May 13, the count was down to 83, the lowest count since January 2010. The highest North Dakota’s rig count ever reached was 218 in May 2012.

However, based on operator polling, Helms believes the rig count is close to bottoming out. “We think we’re at or near the bottom,” Helms said. “When I went through the 17 companies that we poll on a monthly basis - or even on a weekly basis sometimes - it looked like there was maybe only one more rig that was at risk - with us sitting at 83 today.”

Tax trigger prospects

Ryan Rauschenberger, North Dakota’s tax commissioner, provided an update during DMR’s May 13 press conference on crude oil prices and the prospects for the larger of the state’s two tax incentives to go into effect.

The larger trigger reduces extraction taxes on produced oil under depressed commodity market conditions, and for calendar year 2015, the incentive is triggered when the average monthly price of West Texas Intermediate remains below $55.09 per barrel for five consecutive months.

Throughout the first half of 2015 it appeared the average monthly WTI price might remain below the $55.09 threshold, but with a rise in crude oil prices in May, it’s not as likely that the tax break will be triggered.

According to Rauschenberger’s calculations, in order for the larger incentive to kick in, the price of WTI would have to average at or below $52.25 from May 13 through the end of the month. However, with WTI closing at $60.50 on May 13, the prospects of the trigger kicking in look to be in doubt.

Looking ahead, during any month when the average WTI price exceeds the trigger price, the five-month clock starts over, so if the WTI price does not fall below the trigger for May, another five-month period would begin on June 1. But with the North Dakota Legislature having done away with the larger trigger effective Dec. 1, the larger tax incentive is no longer likely to be a factor for operators in the state.

Montana’s production declining

The latest production data for Montana available through the North Dakota Pipeline Authority show that production in the eastern end of the state has been falling off since reaching a high of 78,150 bpd in November 2014. In December, eastern Montana’s production fell to 65,317 and in January it fell further to 62,724 bpd. The most recent Montana production data are for February when the state’s eastern production was virtually flat at 62,898.

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