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Bakken Oil Production Drops Below 1M b/d

Oil production in North Dakota's Bakken Shale play dropped below 1 million b/d in August and is expected to stay in the 900,000 b/d area for the next nine to 10 months, according to Lynn Helms, director of the state Department of Mineral Resources (DMR), who released the latest production statistics on Thursday.

Helms characterized the negative milestone as more psychological than a harbinger of long-term production declines, and he said he anticipates the start of an upswing in production by the second half of next year or early in 2018.

For August, the latest month for complete statistics, oil production was 30.4 million bbl (981,039 b/d), compared 31.9 million bbl (1.029 million b/d) in July. For natural gas, production also decreased in August, dropping to 50.8 Bcf (1.63 Bcf/d), compared to 52.6 Bcf (1.69 Bcf/d) in July.

The latest statistics mark the first time since March of 2014 that the state's oil production has been below the 1 million b/d threshold, and Helms said he had been anticipating the reductions -- 5% for oil and 3.5% for gas. Based on the state's revenue forecasts for the year, production is still about 5% above the forecast, he said.

"We're tracking very well with the revenue forecasts and with expectations, but we all knew this month was going to come," Helms said, adding that there is "more slowing to come over the next year."

Based on the numbers of completions of drilled but uncompleted (DUC) wells and the lack of permitting activity, the bottom is still expected to be closer to 900,000 b/d in mid-2017 before the decline is reversed, and the acceleration upward will be slower, according to Helms. August production declined in all the producing counties, including "substantial declines" in the five core counties (Divide, Dunn, MacKenzie, Mountrail and Williams), he said.

"Our operators are responding to global price signals, and the drop below 1 million b/d is more of a psychological than a physical effect on the state. But this does send a signal to the world markets that North Dakota producers are serious about reducing costs and production and that should help support the recent [increased] prices we have seen.

"It will be a long process to bring production back up above 1 million b/d, so the anticipation is that it will take a significant amount of time to get back to that level and the production activity levels that will sustain production." At the same time, Helms said there is the concern about OPEC and the proposed future production declines because of some "dissention in the ranks" among some nations.

U.S. producers at $50/bbl oil are not likely to ramp up production until after they have a clear signal that OPEC nations actually begin to cut some of their production, said Helms, noting that the latest price on Bakken sweet crude was $39.75/bbl, up from the September average price of $32.98/bbl, which was down from July ($35.57/bbl).

The rig count has been relatively steady in the low 30s, hitting 33 on Thursday, Helms said, following 34, 32 and 31 for September, August and July, respectively.

On gas capture, North Dakota "lost a little ground" in August as flared volumes increased by 6.5 MMcf/d during the month and the capture rate was down to 89%, Helms said, adding that this situation will be helped in the months ahead by some new gas processing capacity that is now coming online. "There is not a great deal of concern about not meeting the gas capture targets," he said.

The next statewide goal for gas capture is 85% by Nov. 1, and meeting that target is not expected to be a problem, Helms said.

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