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Production, Prices Crash in North Dakota

North Dakota oil and natural gas production fell sharply at the start of this year, dropping from all-time highs at the end of last year. The backlog of uncompleted wells is expected to climb as the rig count falls between now and summer.

Lynn Helms, director of the North Dakota Department of Mineral Resources, said Thursday that a combination of economic and weather factors led to a "huge slowdown in activities" in January. Oil production dropped by about 37,000 b/d, or 2.5%. He said the January rig count (160) was down "drastically" compared to December and was continuing to slide.

"February followed that up by dropping to 133, and today we're at 111," Helms said, calling it the lowest level in rig activity in the Bakken since April 2010. "It is really a story mostly about oil prices."

North Dakota's sweet crude at the Foothills pricing point was $32/bbl on Thursday, which is the lowest price for Bakken-Three Forks Shale output since February 2009, Helms said. The low prices have sparked an upswing in uncompleted wells (825), and the numbers could get to more than 1,000 before coming back down, he said. Completed wells numbered 183 in December, but only 47 (on a preliminary basis) in January.

"We're going to see the number grow, grow, grow because companies are making $4 million investments to drill, but they are holding off on the $4-5 million investment to complete wells until they see a little bit better oil prices, and see what the taxes are going to be," Helms said.

All of this carried significant ramifications for the state's previously soaring production figures and corresponding state revenues. In regard to the latter, the current state forecast calls for tax revenues from overall oil/gas activities to be cut in half -- from last year's $8.3 billion to an estimated $4 billion, according to Ryan Rauschenberger, state tax commissioner.

In January, oil production was 36.9 million bbl (1.19 million b/d), compared to 38 million bbl (1.22 million b/d) in December. Natural gas production was 45.6 Bcf (1.47 Bcf/d) in January, compared to 46.8 Bcf (1.57 Bcf/d) in December.

A silver lining in the state's slowdown comes in the area of reducing wellhead natural gas flaring to meet target levels mandated by gas capture rules that went into effect last year (see Shale Daily, June 2, 2014). The industry exceeded the goal in January, capturing 78% of the wellhead associated gas, Helms said. The target was 77%.

On the Fort Berthold Reservation, where about 20% of the state's production takes place, operators achieved an 80% capture level, Helms said, attributable to a crash program for getting pipeline and compression infrastructure installed during the later half of 2014.

"People will be surprised to see that gas capture in Fort Berthold, particularly on trust lands, was measurably higher than it is on a statewide basis," he said. "It's much better than the [statewide] capture targets we have for this year."

While Helms in recent months had maintained optimism regarding state tax incentive triggers and overall production levels, on Thursday he was more cautious, noting that there would have to be about 150 wells completed monthly to maintain the current 1.2 million b/d production.

"At the current rig count and the anticipated rig count, we are going to see some months of declining production," Helms said. "The anticipation is that probably in June, particularly if the large tax incentive trigger kicks in, we'll see a surge in completions."

A growing inventory of uncompleted wells, the tax incentives and the state rules requiring wells to be completed within a year will all spur the completion upswing, he said.

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