February 17, 2015

Oil production up as rig count falls

By Kate Ruggles
Farmer Staff Writer

Oil production in North Dakota is experiencing a bit of a paradigm shift. December’s numbers showed an increase in production, yet all other market indicators show a definite slowdown.
In December, 2014, the state produced a new all-time high of 1,227,344 barrels of oil per day and 1,508,510 MCF of natural gas per day. There were 12,124 producing wells in the month of December, which is also a new all-time high.
“December was a tug of war,” states Lynn Helms, director of Mineral Resources for the North Dakota Industrial Commission (NDIC). “We saw declining oil prices, increased spending, increased completions, and increased production. But the rig count and oil prices were going down.”
One reason for the state’s continued production success, which Helms alluded to in last month’s Director’s Cut, could be the operators narrowing in on the Bakken and Three Forks, and specifically the four core producing counties.
Of the state’s producing wells, 73 percent are unconventional Bakken and Three Forks wells. Also, 95 percent of the state’s production total came from the Bakken and Three Forks.
Along those same lines, McKenzie County’s December production totals stood out above the rest. In December, McKenzie County produced 13,841,792 barrels of oil. That is 1.2 million barrels more than was produced in McKenzie County in November and 5.1 million barrels more than Mountrail County, the second highest producing county, produced.
In terms of natural gas production, McKenzie County produced 20,935,652 MCF of natural gas, 2.2 million more than was produced in November and 12.8 million more than Mountrail County.
McKenzie County contributed 37 percent of the state’s production total and the second highest producing county, Mountrail, provided 23 percent. And in natural gas production, McKenzie County contributed 45 percent, while Mountrail produced 17 percent of the state’s total.
Though the slowdown may not be seen in all aspects of North Dakota’s oil production, Helms states it is most definitely present and prices are the mail culprit. However, after some discussions with world oil market leaders, Helms believes there will be some stability in the market moving forward.
Also, though the small tax trigger was enacted on Feb. 1, 2015, Helms states that the large tax trigger will likely not hit.
“It is too soon to determine what the impact of the small tax trigger was on state revenue and production,” states Helms. “However, one company that I spoke with had a backlog of uncompleted wells, and when they called to find a frac crew, there were none available.”
“Companies are responding to the triggers, which tells us that the triggers are having an impact, but it will be a month or two before we can know how it has affected well completions,” states Helms.
According to Helms, falling oil prices also do not seem to be slowing down or halting infrastructure projects.
“Operators are not reducing their capital budgets for gathering or midstream processing at all,” states Helms. “Hess is one major operator, and they tell me that they have reduced their capital spending from $2.2 billion to $1.8 billion, but it is all on the drilling side. They are still spending as much money as they had planned for gathering and midstream projects.”
According to Helms, a lot of companies are not sure what to do with the current set of market circumstances. The small trigger has been enacted, but they are unsure if the large trigger will hit. Not only that, but the market indicates that oil prices are beginning to recover, but it is not yet certain what will happen.
The state Legislature is struggling to know what to do as well.
“We have based our revenue forecast around a 1.2 million barrel of oil per day number, so this month’s production total gives us a good solid operating number for the state’s revenue projection,” states Helms. “And we have a backlog of 750 uncompleted wells to bolster that.”
Looking forward, Helms states that oil prices are beginning to recover, but rig counts will likely continue to decrease between now and the spring. But if the state can maintain production between now and the spring, then in the summer there could be a significant increase in production.