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Oil counties’ annual meeting brings uncertainty, optimism

 

Posted 9/15/15 (Tue)

Oil counties’ annual meeting brings uncertainty, optimism

By Kevin Killough
The tone of the conversation in the oil patch has changed from one of concern to one of uncertainty, with a bit of optimism as well. 
The North Dakota Association of Oil and Gas Producing Counties held its annual meeting Thursday in Killdeer. While past meetings revolved around how to meet the challenges of the boom, this year the focus is on falling oil prices and what’s next for the Bakken.
“It’s a struggle. Commodity prices are a struggle,” said Jim Arthaud, founder and CEO of MBI Oil and Gas and MBI Energy Services.
Arthaud said he’s been working in the industry his whole life. So he witnessed the 1980s bust first-hand. He said the situation today, while unfortunate, is very different. In 1982, there were no rigs operating in the state.
“We still have 70 drilling rigs running today,” he said. 
The future of drilling
The biggest question everyone had is the one no one can answer with any certainty -- what is going to happen to oil prices? 
While no one can be certain what oil prices will do, Director of the Department of Mineral Resources Lynn Helms said they will likely remain low for the next couple of years. 
Helms said companies will continue to respond to that by improving efficiencies and cutting costs with operational and technological improvements in drilling and production. 
Helms provided projections of what counties in the oil patch can  expect in the way of industry activity at various ranges in the per-barrel price of oil over the next couple of years. 
If prices remain in 2016 about where they are now, Williams County, which has a break-even price of $38, would have about 12 rigs operating, 10 frac crews active, and be producing 193,448 barrels of oil per day. 
By the following year, the county would probably add a rig or two as operations move to the core areas of the Bakken where initial production rates on wells are much higher. 
Divide County, which lies outside that core area and has a break-even price of $81, would have only one rig and one frac crew working by next year. The county would produce about 35,000 barrels of oil per day. 
If the price were to fall into the range of $20 to $30 per barrel, the picture radically changes, with Williams County having no rigs or frac crews operating. Divide would still have one rig and one frac crew.
By 2017, neither county would have any rigs or frack crews, and the number of active wells would not increase. That means production rates would decline significantly. 
The point where all this turns around is at over $80 a barrel, which is not a number many are expecting to see again anytime soon. If it were to happen, the Bakken would again become flush with a booming oil industry. 
Divide County Commissioner  Doug Graupe said the projections suggest there may be a challenge ahead for the county.
“We have to weather it. It sure gives us some food for thought,” he said. 
Comeback?
While some of those figures look bleak and the rosiest projections appear unlikely, the discussion at the annual meeting wasn’t all gloom and doom. There’s reason to believe the industry will weather the storm.
Helms pointed out that permitting continues at the same pace the department saw in 2009 and 2010, which was not a slow time. 
“Oil companies want to be ready in a year or two to mobilize rigs if the oil price justifies it,” Helms said. 
Helms said if the price rises, it would be a boom all over again. The big question if that happens is whether or not the companies will be able to find the skilled workers needed to operate the rigs. 
When the boom descended on North Dakota, the country was sinking into a recession. Now, there’s a lot more opportunity in other states and other industries.  As workers leave the state, it may be hard to get them to come back. 
Arthaud also talked about the problem. 
“They come from a terrible economy. They come into a good economy, and it runs good for a while, then all the sudden, they have to tell their wife they got laid off,” he said.
The disappointment many feel after enduring the hardships of life in the Bakken may leave a lasting impression and discourage them from returning. 
“They lose their faith,” Arthaud said. 
Benefits
Despite these problems, the speakers at the meeting agree there are some positive outcomes from this slowdown. 
Deb Nelson, who administers Vision West, a consortium of counties in western North Dakota, discussed how the organization has helped its members create zoning plans and identify priorities. These priorities included housing, transportation, and childcare. 
In the rapid growth of the boom, planning for that growth was a challenge in and of itself. Actually reaching those objectives while problems mounted was going to be a whole new game. 
Now as things have slowed down, a lot of that planning work is done and the space is there to address immediate needs and look at more long-term goals.
“As oil prices now have diminished, our emphasis as a whole in the consortium has turned to economic diversification,” Nelson said. 
The hope is businesses will develop that meet the needs of not just the oil industry but of the quality of life in the state.
Arthaud is also optimistic about the ultimate effects of the oil prices. While it’s depleting jobs in the oil industry, he said low-cost energy can be a positive for other industries.
“My gut tells me that a low oil price is a stimulus for this economy,” he said. 
This will bring back manufacturing and lower construction costs, which will bring down prices on homes and commercial space. 
He said the state accumulated a great deal of wealth in the boom years, which will translate into greatly expanded infrastructure and improvements across the oil patch for the long term. 
Now as things slow down, it is unfortunate, he said, some companies are folding and some are consolidating. But he said the remaining operators will be the best of the bunch, leaving the state with great companies.