November 17, 2015

State sees drop in producing oil wells

By Neal A. Shipman
Farmer Editor

The month of August was a bad month for North Dakota’s oil and gas industry according to Lynn Helms, director of the North Dakota Department of Mineral Resources.
For the first time in nearly 12 years, the number of producing oil wells in North Dakota showed a decline, and the state saw a drop in both the production of oil and natural gas.
“Companies are sending a definite signal to the market,” stated Helms, during last Friday’s Director’s Cut. “Oil and gas operators are not willing to do a lot of drilling, hydraulic fracturing, or produce oil at these low prices.”
During the month of September, the state of North Dakota saw oil production drop by 25,000 barrels per day, while the state’s natural gas production dropped by two percent.
In September, North Dakota’s preliminary production numbers were 34,867,577 barrels of oil and 48,113,551 MCF of natural gas compared to 51,032,167 barrels of oil and 51,032,167 MCF of gas in August.
Following state trends, McKenzie County also saw its oil and natural gas production levels decline. During September, the 3,290 active wells in the county produced 12,002,975 barrels of oil and 20,03,161 MCF of natural gas. McKenzie County is still the state’s leading oil and gas-producing county as it produced 34 percent of the state’s oil and 44 percent of North Dakota’s natural gas.
Part of the reason that the state saw the slowdown in oil and natural gas production is a direct result of the number of wells that have not been fracked and brought into production as a result of the oil prices.
According to Helms, at the end of September, there were approximately 1,091 wells that had been drilled, but not fracked.
“McKenzie County is the king by a large portion when it comes to the number of non-completed wells,” stated Helms.
According to Helms, there are only three oil-producing counties (McKenzie, Dunn and McLean) in the state that have break-even prices below the $40 per barrel price level for oil. McKenzie County, which leads the state with 26 active drilling rigs, has a break-even price of $33 per barrel, while Dunn and McLean counties have break-even prices of $27 and $25 per barrel, respectively.
According to Helms, McKenzie County’s increase in break-even price is attributed to the migration from the shallower to the deepest parts of the Bakken Formation in the county, which resulted in higher drilling and fracking costs.
“The best production is being found in the deepest part of the basin,” stated Helms.
During Friday’s presentation, Ryan Rauschenberger, North Dakota Tax Commissioner, also noted that the state’s big trigger would go into effect in December as the price of oil has fallen below the $55.09 per barrel level for five consecutive months.
However, Rauschenberger stated that the impact of that tax reduction to oil companies would have a minimal impact on the state’s General Fund as legislators during the past legislative  session removed the incentive for new oil production from the Bakken and Three Forks wells.
According to Rauschenberger, as a result of the legislative action, on Jan. 1, 2016, the state’s oil extraction tax will be reduced from six to 5.5 percent with an overall taxation rate of 10.5 percent.