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North Dakota Sees Oil Price 'Gloom, But No Doom'

Recognizing the growing gloom over sharply falling global oil prices, North Dakota's chief oil/natural gas regulator Thursday told state lawmakers at a committee hearing in Bismarck that the situation doesn't necessarily spell doom for the state's robust energy production, which has set continuous growth records, elevating the state to the nation's No. 2 spot in oil production.

While some of his words were encouraging, the statistics from Lynn Helms, director of the Department of Mineral Resources (DMR), presented to the North Dakota House Appropriations Committee underscored initial impacts from a continued deep dive in prices, compared to less than a month earlier when he was reporting the latest state production totals on a webinar (see Shale Daily,Dec. 15, 2014).

In mid-December, Helms reported a posted price of $41.75/bbl for Flint Hills (Wichita, KS refinery) Bakken sweet crude oil, and characterized the sharp drops as a cause for concern, although he predicted the impact would be delayed, given the large volume of uncompleted wells and other factors.

On Thursday, Helms reported to the legislative committee that the Flint Hills posted price was $32.25/bbl and the state's average price $40.54/bbl, compared to a current WTI price of $48.83/bbl.

In the state's four biggest producing counties, in which the vast majority of the current rigs are operating, average break-even per-barrel prices are still well below the current depressed WTI price -- Dunn ($29), McKenzie ($30), Williams ($36), and Mountrail ($41) -- according to Helms.

Even with $25/bbl oil, Helms told lawmakers that Bakken oil production would stay at the 1 million b/d level this year, but if that level of prices remained longer term, production could taper to 700,000 b/d in two years. At the other extreme, if prices bumped back up to $85/bbl, production could go from 1.25 million b/d this year to 1.55 million b/d in mid-2017.

Helms also noted that the current rig count is 166, down for the 183 figure he reported Dec. 12. Nevertheless, current daily production was slightly higher than reported last month at 1.2 million b/d.

Sustained oil prices in the $40/bbl area could drive the state's rig count down to 120, according to Helms, who said sustained $25/bbl prices would drop the count to a low as 40 rigs.

On the positive side, Helms said new permits issued for drilling set an all-time record last year, hitting 3,030. He characterized the Bakken/Three Forks Shale play as still a "25-year development with 20 billion bbl" of production ahead.

In addition to global price volatility, Helms said several state and federal regulatory policies also could impact production levels, such as state gas capture requirements (see Shale Daily, Dec. 17, 2014), oil conditioning requirements (see Shale Daily, Dec. 11, 2014), and federal agency moves to set rules regarding hydraulic fracturing on federal and Indian lands, venting/flaring rules, and endangered species protections.

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