Posted 1/19/16 (Tue)
By Kevin Killough
If oil prices do not rebound within the year, North Dakota’s oil industry could see further declines.
Lynn Helms, director of the Department of Mineral Resources, in his monthly address last week compared industry activity to Jackson Browne’s song “Running on Empty.”
“Quite honestly, we’re at the bottom of the bottom of the tank in terms of cash flow to maintain activity,” Helms said.
While oil production in the state remained steady in November, the influence of low oil prices remains heavy on the drilling side of the industry.
Helms also reported Friday on issues at Tioga’s Hess gas plant late last year, which led to a small increase in flaring in the state.
He said the plant was effectively not processing gas for six days due to a mechanical problem. The problem was related to an aiming tower, which removes the hydrogen sulfide from the gas. The tower was shut down while the situation was assessed.
Helms said the issue at Hess was was later determined to be related to some fittings in the tower and finally resolved.
But since the plant is a crucial piece of infrastructure for processing the natural gas by product of oil production, the six-day shutdown caused the Bakken capture rate to go from 85 percent in October to 84 percent in November, the latest month for which figures are available.
Ups and downs
Helms also reported oil production rose by a little less than 5,000 barrels in November. Gas production was also up slightly.
“Both are up, and that is really quite a surprise,” Helms stated.
He attributes this to the practice of focusing in the core region of the Bakken, which consists of portions of Williams, Mountrail, McKenzie, and Dunn counties.
The slight increase over the previous month comes at the end of a small decline of 51,000 barrels since Dec. 2014.
Industry activity was showing further contrition on the drilling side, including permitting, as a result of falling oil prices.
The West Texas Intermediate price had fallen as of last week $6.50 since the beginning of the month. Helms said the price has not been this low since Mar. 2002.
Permits fell from 125 in November to 95 in December. Helms said this was the first time permits were under 100 since May 2010.
This is an indication that operators are expecting prices to remain low for well into next year and possibly beyond.
“There is decreasing optimism about short-term oil prices,” Helms said.
Helms mentioned Harold Hamm’s statements earlier this month predicting a rise in oil price to $60 before the end of 2016.
He noted operators have a significant permitted inventory to draw upon should prices rise again this year.
The department had hired a number of temporary employees as a result of the high demand for application reviews, and they scaled back from five temporary employees to 1.5. So far, the department has not laid off any full time employees.
In November, the number of uncompleted wells dropped by only six, leaving an estimated 969 wells drilled but not completed.
Rig counts remained steady through all of last fall and into December. Now they’ve begun to fall, and were at 49 last week. This is about the same level they were at in August 2009.
Oil production is likely to stay above 1 million barrels per day through the year, even if prices remain low, Helms said. But if this continues into next year, he said production is likely to drop to 950,000 barrels a day or less.
To stay at the current level, Helms speculated a WTI price of $50 per barrel would be needed. At $40, the state would see a continued and sustained decline in production, and at $30 production would be significantly curtailed.
These prices are based on current drilling and production costs. Over the past year, shale operators have been showing a high degree of resilience in cutting operational costs so profitability levels fall. Whether or not these can fall further is hard to say but possible.
“I keep getting surprised,” Helms said.