December 15, 2015

State’s oil, gas production up in troubling times

By Neal A. Shipman
Farmer Editor

While North Dakota’s production of oil and gas rebounded in October, Lynn Helms, North Dakota Department of Mineral Resources director predicts those numbers could be hard to maintain in light of current low oil prices.
“There are more variables in play now than we’ve ever seen in the past,” stated Helms during his monthly Director’s Cut report on Wednesday, Dec. 9.  
According to Helms, while October’s oil production increased by nearly 7,000 barrels per day to 1,168,950 barrels and gas production increased to 1,654,54 MCF, the number of drilling rigs operating in the state continues to decline. Currently there are 65 rigs actively drilling in North Dakota, compared to an all-time high of 218 in May of 2012.
“Unless oil prices improve, operators are saying that the state could lose another 10 rigs,” stated Helms.
And, according to Helms, with OPEC’s decision to not limit production, there is going to be a continued downward pressure on the price of oil until the middle of 2016.  
“North Dakota can’t compete with OPEC because we can’t export our oil,” stated Helms. “North Dakota producers are bottled up within the borders of the United States. And with OPEC having one-third of the world’s oil production and with them producing at record levels, there is a downward effect on price that affects North Dakota operators significantly.”
Currently, according to Helms, North Dakota Sweet Crude is selling for $27 per barrel, which is the lowest we’ve seen since the Bakken play began in December of 2008 at which time North Dakota oil was selling at $22 per barrel. The highest oil prices were in July of 2008 when it sold for $136.29
According to Helms, he doesn’t expect to see the state’s oil production go below one million barrels per day, even at today’s low prices.
“What we are seeing is some serious belt tightening by the oil companies,” stated Helms. “But we are hoping to see a rebound in prices by mid-2016, and producers are positioning themselves to be ready to expand at that time.”
 With all of the changing variables, Helms is calling October’s trends, “Where’s Waldo.”
“There are so many things at play that it’s not possible to predict what is going to happen in the next months,” stated Helms. “But we do know that OPEC is indicating that reductions in production will improve price. But that won’t happen until the second half of 2016.”
While Helms acknowledged that the drilling activity has slowed down in much of the state’s oil patch, there is still drilling occurring in the “sweet spot” of the Bakken, which includes all of McKenzie County, as well as the southern half of Mountrail County, the eastern half of Williams County, and the northern half of Dunn County.
“Virtually all of the rigs running in the state are focused in that small area,” stated Helms.
McKenzie County, which is in the epicenter of the Bakken play, remains the state’s leading oil and gas-producing county, and saw its production increase from September to October. In October of 2015, McKenzie County’s 3,355 active wells produced 12,712,457 barrels of oil, or roughly 35 percent of the state’s total, while the county’s natural gas production topped 22,691,572 MCF, or 44 percent of the state’s total. According to Department of Mineral Resources information, McKenzie County has nearly 500 wells that have been drilled, but not yet completed and brought into production.
But according to Helms, the biggest change that he is seeing as a result of low oil prices is the number of mergers and acquisitions occurring in the oil patch as some companies are selling off assets to improve their cash positions.
“There are currently 710 wells in merger/acquisition mode, with nine new operators acquiring North Dakota properties,” stated Helms.
According to Helms, 300 are being sold by Occidental Petroleum Corp. which is exiting the state, to Lime Rock Resources III-A L.P., a private equity firm, while Whiting Oil & Gas Corp. is selling the bulk of their legacy assets and a little of their Bakken/Three Forks holdings.