With near-record production, prices for sweet Bakken crude oil continue to tumble, according to the latest report from the North Dakota Department of Mineral Resources (DMR) released Friday. However, officials said current production levels cannot be sustained at the price points reached early this month below $30/bbl.
Month-long oil and natural gas numbers were down slightly in June -- the most recent month for complete statistics -- while the daily totals were a second-best ever for oil and a new high for natural gas, according to Lynn Helms, DMR director and the state's chief oil/gas regulator. Helms added that the state now is gearing up for a period of low oil prices that could last up to two more years, but he thinks the capacity is present to sustain current production levels.
In June, oil production hit 36.3 million bbls (1.21 million b/d), compared to 37.2 million bbl (1.20 million b/d) in May, while natural gas production for the month was 49.5 Bcf (1.65 Bcf/d), compared to 50.5 Bcf (1.63 Bcf/d) during the previous month.
"There is real cause for concern with North Dakota sweet crude hitting $28.50/bbl today," Helms said. "Those kinds of production numbers can't last at those price points, so either we have to see some better prices, or see some further contraction in terms of oil/gas activity.”
Currently, the crude oil prices are running 12% below August forecasts for Bakken crude, Helms said. "So it is doubtful that production is going to be able to make up all of the forecast revenue," he said.
Helms said his department's assessment shows that North Dakota is not alone in seeing production levels maintained despite large drops in prices. He cited the Eagle Ford Shale and Permian Basin as two areas similar to the Bakken's experience so far, judging from the continuing large inventory of uncompleted wells. The Eagle Ford's inventory is about twice that of the Bakken, and the Permian is on par with the Bakken, according to Helms.
"U.S. oil/gas producers are not indicating any decreases in U.S. oil production," Helms said, adding that as prices have dropped "they have found ways to cut costs and be a lot more efficient with their drilling and completions. It seems that for relatively little capital investment, operators are able to maintain production."
In response to a question during a webinar, Helms said lifting the U.S. ban on crude oil exports, could add $8-10/bbl to the price of U.S. crude. He called that a potential "game changer" for the Bakken.
Helms said DMR's model for forecasting production indicated that 1.2 million b/d of production could be sustained for two years at the 848 uncompleted well level and with the state's current depressed rig count. "Even though we have the low prices, there is not a drop in production, which was what OPEC was trying to achieve," he said. "It would appear now that OPEC's efforts are geared more toward Russia and Iran.
Unconventional wells in the Bakken passed the 10,000 level in June and now 79% of the wells in the Bakken-Three Forks formations are unconventional, Helms said, adding that uncompleted well totals dropped to 848, down substantially from end-of-May numbers. "Companies were very aggressive in completing wells," he said. The rig count has stayed relatively stable, settling in at 74 today, following a July average count of 73, totals of 78 and 83 in June and May, respectively.