March 1, 2016

Ness: U.S. oil in war with foreign producers

By Neal A. Shipman
Farmer Editor

It is pretty hard to sugarcoat the short-term outlook for the United State’s oil industry.
After becoming a leading world oil producer thanks to the discovery of shale formations, like North Dakota’s Bakken Formation and oil prices that were above $100 a barrel just two years ago, the nation’s oil industry is now fighting for its life.
And that was the very somber message that Ron Ness, North Dakota Petroleum Council president, shared during the annual meetings of the Watford City Economic Development Corporation and the Watford City Area Chamber of Commerce on Wednesday, Feb. 24.
“We can’t sugarcoat where we are at as an oil industry,” stated Ness. “We’re in an all-out war with others in the world who supply oil.”
According to Ness, when oil companies unlocked the code for producing oil from the nation’s shale formations, it put the United States on the road to energy independence. The key to unlocking that code was the use of directional drilling and hydraulic fracing in the shale formations, which resulted in billions of barrels becoming recoverable.
“We’re making it happen in the Bakken,” stated Ness. “But Saudi Arabia wants to break the American shale producer.”
While the low prices are having a huge impact on American oil companies, and on communities, like Watford City which has seen its population increase from 1,400 to over 7,000 people in the past six years, Ness believes that oil prices will eventually turn around.
“It’s rough now, and it’s going to get rougher,” stated Ness. “After nine years, we’re having a correction in price. It’s hard to find the bottom, and at these low prices, oil companies are in a fight for their lives.”
But when oil prices do rebound, Ness says that the Bakken Formation in McKenzie County will be one of the first areas that will see an increase in oil activity.
“The Bakken Formation is a world class resource,” stated Ness. “We have a higher quality of oil than in the Eagle Ford in Texas. The Bakken is the place companies are going to want to put their resources.”
But Ness says that there isn’t going to be a turnaround in prices or an increase in oil activity in 2016.
“We are going to have to see oil prices in the $55 to $65 per barrel range to stimulate the industry,” stated Ness. “But on the plus side, we have reached a new normal in which oil companies can do more with fewer rigs, and with fewer people.”
Along with being able to drill more wells with fewer rigs, Ness says that improved technology will continue to make North Dakota’s Bakken Formation viable for years.
“Our oil recovery technology just keeps getting better,” stated Ness. “As an industry, we’ve seen a 20 percent increase in production as companies have moved into the core of the Bakken.”
While Ness remains very optimistic long-term for North Dakota’s oil industry, he says that the improvements that Watford City has made in the last several years will be a key to the city moving forward.
“What Watford City has gone through these last few years has not been easy,” stated Ness. “But you can now use this time to plan your community. You have the home court advantage when it comes to retaining quality businesses.”
And Brent Sanford, Watford City mayor, and Gene Veeder, McKenzie County Job Development Authority executive director, couldn’t agree more with Ness’ assessments.
“I feel that we are better today than we were five years ago,” stated Sanford. “We have buildable lots for single family homes. And we have great facilities such as our new high school, the Event Center, the new hospital and the new law enforcement center. There are a lot of exciting things happening here. We are poised and ready for next year.”
Likewise, Veeder reminded Chamber and EDC members that the future remains good for Watford City and McKenzie County.
“We’re not doing one, two or three-year projects,” stated Veeder. “We are building 30, 40 and 50-year projects. We have hundreds of motel rooms and apartments, and we have the Western Area Water Supply. We are well positioned to be ready for the future.”