As they have already done for flaring, North Dakota officials are considering relaxing their one-year deadline for operators of newly drilled wells to complete them or face loss of permits and the need to plug the well.
Lynn Helms, director of the state’s Department of Mineral Resources, said well completion requirements would be eased. "That is going to help with the folks who drill a lot of wells, but it is a delicate balancing act," he said, adding that royalty owners and other mineral rights owners could complain because they don't get paid until after a well's completion.
Helms said this is probably the major action the state can take to help producers in the face of low commodity prices because "everyone benefits from putting the well on the market at $60/bbl, and nobody benefits when it goes to market at $35/bbl." The other major step he cited -- flaring -- has already been addressed by the state’s Industrial Commission (see Shale Daily, Sept. 29).
In an analysis Tuesday, RBN Energy LLC's Sandy Fielden predicts the number of drilled but not completed wells in North Dakota likely will continue to increase, "effectively storing the oil underground for later production when prices improve." Shutting down incomplete wells and plugging them permanently at $200,000/well doesn’t benefit the state, according to Fielden and Helms.
With four years of significant tax revenues from the Bakken Shale boom, North Dakota political leaders have done all they could to keep producers happy, Fielden said. Existing laws include "triggers" that reduce or eliminate extraction taxes on oil/gas producers when the price of crude stays below a benchmark ($57.50/bbl) for a set time period.
Fielden said that the strategy of holding drilled-but-incomplete wells works best for producers with deep pockets. Smaller firms with shorter credit lines cannot always afford the high upfront cost of drilling wells without completing them to generate cash flow, no matter how hard the prices look. The number of incompleted wells in North Dakota has totaled more than 900 in recent months and the number of wells nearing their one-year anniversaries also is increasing.
As the backlog grows, it provides the state with an inventory of wells that can keep production from falling without the higher costs of starting new wells from scratch.
Helms has warned that the state and industry both need to be ready when higher commodity prices return, and he thinks it's not a matter of whether prices will rebound, but when. "We would like to think prices will come back in a nice slow upward curve, but that is very doubtful. They will come rushing back on a hurry most likely," he said.
"Right now the policy is leaning toward allowing all these incomplete wells to have an extra year [without penalty] by staying off the market," Helms said.