Output beats weatherND’s March oil production up, albeit slightly; rail exports holding at 71% Mike Ellerd For Petroleum News Bakken
Despite worse weather in March than February, including three major winter storms, daily oil and gas production in North Dakota actually increased in March, although the increase in oil output was minimal. However, given the adverse weather in March, Lynn Helms, director of the North Dakota Industrial Commission’s Department of Mineral Resources, was actually expecting a decline in March production, and views the slight increase as very positive.
“It’s a little bit ho-hum, only about a 4,000 barrel a day increase,” Helms said in a May 15 conference call. “But considering what the weather was like in March, we’re actually really pleased that the oil production rose instead of declined.”
Daily oil production in the state in March reached a record high of 782,812 barrels of oil per day, although that output was only a 0.5 percent increase over the 779,050 bopd produced in February. The number of producing wells in the state increased by 142 to 8,634, also a record high. However, the number of wells awaiting completion also went up in March.
The drill rig count at the end of March was 186, up three from the February. The rig count in April was steady with March at 186, but as of the May 15 conference call, the rig count had increased by seven to 193 rigs. Helms said he doesn’t expect the rig count to go past 200, but he does expect it to reach that mark at some point in the summer.
Wells waiting on completion The winter weather did affect well completions, and Helms said that as of the end of March the number of wells awaiting completion rose to 440, and that hydraulic fracturing services were heavily impacted by winter weather. “We had three major storms in March,” he said, and “when we look outside today it’s hard to look back to March and times when the entire western half of the state was under a road closure or the entire northern half of the state was under a road closure.”
But Helms said another factor affecting well completions is a shortage of workover crews and rigs. He noted that while drilling times have been reduced to 22 days, the average time it takes to actually complete a well is 110 days. He further noted that had more wells been completed, the March production numbers would have been higher yet.
Gas production and flaring Natural gas production also increased in March and at a much faster rate than did oil. Specifically, gas production increased from approximately 835 million cubic feet per day in February to approximately 847 million cubic feet per day in March, an increase of approximately 1.5 percent. That increase, according to Helms, is what Bentek Energy’s 2012 Williston Basin natural gas study predicted, i.e., as wells mature, the gas-to-oil ratio increases. “That continues to be a challenge as we deal with the flaring issue.”
Flaring, Helms said, still hovers around 29 percent, which he describes as unfortunate, but also said that flaring was not expected to decline in March. Instead, he said, he expects progress on flaring to come in the next few months and by mid-year he hopes to be caught up with connections so that wells are connected as soon as they go on production. At that point, he said, work can begin on the backlog of wells that have not been connected.
North Dakota Pipeline Authority Director Justin Kringstad said in the May 15 conference call that well connections to gas sales were up slightly in March, but he noted that many of the same winter weather constraints that affect production also affect gas gathering connections. Presently, he said, there are more than 6,000 North Dakota wells connected to gas gathering systems, but still some 1,600 still that are not.
Oil exports and pricing Rail still dominates crude oil transport from the state, and Kringstad said that exports of crude oil from North Dakota via rail remained steady with March at 72 percent. He estimated total rail exports in March averaged between 625,000 to 630,000 barrels per day.
Also consistent in March were pipeline exports at 20 percent, truck exports to Canada at 1 percent, and the remaining 8 percent of North Dakota’s crude oil going to the Tesoro refinery at Mandan. “Identical numbers for March,” Kringstad said. “We didn’t see big production swings. We didn’t see big swings in the movement of our crude oil.”
Market conditions, Kringstad noted, have been changing slightly, and the price spread between Brent crude oil and West Texas Intermediate has tightened some in the last month. The spread on May 14 was slightly over $8 per barrel compared to a spread of approximately $11.50 on April 16.
As that spread becomes too narrow, Kringstad said, market conditions start to rapidly change as far as how oil is shipped because it is slightly more expensive to ship crude via rail than through a pipeline. When the Brent/WTI spread is wider, i.e., in the $20 per barrel range, which it was as recently as February, rail transport has an advantage over pipelines because of the access rail has to coastal markets where Brent pricing is received. “It costs a little bit more to move this crude oil by rail car,” Kringstad said, “and so if that becomes too tight of a spread, the way we transport and where we market our oil will begin to readjust accordingly.”
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