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North Dakota Sets Production Records; Wary of Fracking Rules

In mid-October North Dakota likely exceeded last year's record-setting oil and gas production, according to state and industry officials who were quoted in a pre-Thanksgiving report out of Bismarck, ND, by the Associated Press. Separately, other local news reports Sunday depicted state officials as worried about proposed federal rules for hydraulic fracturing (fracking), but they told NGI's Shale Daily the reports were exaggerated.

While continuing to express concern about the draft federal fracking rules, state officials said North Dakota is not facing a possible shutdown of its oil/gas operations in the Bakken Shale and Williston Basin next year because of the potential rules. Energy analysts at Baird Equity Research and Tudor, Pickering, Holt & Co. (TPH) both on Tuesday echoed the fact that there is no "imminent threat" to the state's production activities.

In terms of the record production levels, officials were relying on data released earlier in November by the state Department of Mineral Resources (DMR), based on end-of-September drilling and production statistics that are still the most recent available (see Shale Daily, Nov. 22).

There was a record 113 million bbl of crude produced in 2010, and Ron Ness, president of the North Dakota Petroleum Council (NDPC), now has predicted that this year's total oil production in the state should reach 150 million bbl. Ness and others estimated that the 113 million bbl threshold was exceeded sometime in the middle of October.

Ness told NGI's Shale Daily Monday that all-time production was at the 80 million bbl level just two years ago, so "simple math would show that we have already exceeded our record production and we're likely to exceed it by a substantial amount. We're starting to talk about pretty major increases [in natural gas and oil] in production over the last five years that have been phenomenal."

Oil production has been growing at the rate of 15,000-20,000 bbl/d since June, Ness said. Thus it is easy to extrapolate that rate forward putting North Dakota on target to hit the 130- 150 million bbl range this year. "Considering we were at 45 million bbl in 2007, this is more than a 200% increase in four years," he said.

For now the September statistics are the latest available because of the lag of at least two months in oil production numbers. Nevertheless, Ness thinks the current drilling activity, which is high, is an indication that last year's 12-month production figure already had been exceeded.

Lynn Helms, director of North Dakota's DMR, told NGI's Shale Daily Monday that he is in the midst of compiling the October production statistics, and he already has 8 million bbl that has been recorded, so that confirms the state is well past last year's record by now. "We expect the October production to come in at way more than 13 million bbl," Helms said. "This is just an incredible rise in production. We're on track to be more than three times the 2007 production, so that is pretty amazing in four years."

Natural gas production is also on track for an all-time high in 2011, hitting 145.4 MMcf in September, or 485,075 Mcf/d. In total there are 200 rigs operating in North Dakota, according to the NDPC website. "We're going to knock the socks off the historic gas production levels," he told NGI's Shale Daily.

With nearly 99% of North Dakota's gas associated with the oil production, Helms said "we'll certainly set a record in that area; it follows the oil production."

In his report earlier in November, Helms cited 6,071 producing wells in the state at the end of September, an all-time high. At that time 199 rigs were operating, and Helms reported an all-time rig count of 201 in the period of Aug. 29-31 this year.

In the midst of this record-breaking production and continued economic growth for the state, Helms was quoted Sunday in the Bismarck Tribune as being worried that proposed Environmental Protection Agency (EPA) rules regarding fracking could bring the current boom to a virtual standstill for up to two years. "While there is a great deal of concern, I think the [local news reports] overstated the timing of the situation," he said. "We don't have any basis to predict that something terrible is going to happen in January."

Ness said the industry is doing research on the issue, trying to determine exactly what EPA is contemplating. "We've certainly had our finger on the monitor here, but now we are just trying to verify what EPA is saying and contemplating," he said. "We're doing some fact-finding around the issue today."

On Monday Helms said North Dakota continues to take the position that states generally are "in the best position to regulate hydraulic fracturing." He said it wasn't a case of either federal EPA regulation or no regulation because "North Dakota has been regulating hydraulic fracturing and is in the process promulgating new rules to continue to strengthen the sound regulatory oversight."

As Baird and TPH pointed out in their separate analyses, the pending EPA action centers on the use of diesel, and only a few wells are fracked with mainly diesel. In addition, settlement talks are ongoing between EPA and the Independent Petroleum Association of America, which has challenged the process used in promulgating the proposed federal rules.

EPA rules could be out this coming January, and North Dakota and other states could fight in court to block the implementation of any fracking rules until after studies of several major shale plays are completed by EPA and the U.S. Department of Interior (see Shale Daily, Nov. 8). Helms reiterated that his state was "fully prepared to assert and defend its regulatory rights" to oversee shale operations.

North Dakota's Industrial Commission already is on record with the EPA of opposing federal fracking rules, and other shale production states represented by U.S. Sen. Joe Manchin (D-WV) and Wyoming Gov. Matt Mead are among those who have earlier said regulation of shale gas and related issues -- including the use of fracking -- should be left to states.

"I don't think there would be much question that you would find most of the industry through trade associations engaging in something like that," Ness said. "And hopefully many other entities that rely on oil and natural gas for their energy would join in."

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