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North Dakota Doldrums to Last Through 2016; Producers Send Market Signals

The latest oil/natural gas statistics in North Dakota's Bakken point to a continued downtrend, and the state's chief oil/gas regulator said Friday he expects current price and production levels to continue throughout 2016. Larger producers are slowing down as a signal to the market, he said.

"Oil price weakness is now anticipated to last through next year, and it is the main reason for the continued slowdown," said Lynn Helms, director of the state’s Department of Mineral Resources. Production and rig counts continued to drop in September, and the number of uncompleted wells increased by 98 to 1,091.

Oil production in September was 34.8 million bbl (1.16 million b/d), compared to an August total of 36.8 million bbl (1.18 million b/d). Natural gas production in September dropped to 48.1 Bcf (1.60 Bcf/d) from 51 Bcf (1.64 Bcf/d) in August. Producing wells dropped slightly from an all-time high in August (13,031) to 13,025 in September.

Helms called the 2% (25,000 b/d) drop in production significant. "That's sending a definite signal to the market that oil and gas operators are not willing to do a lot of drilling or hydraulic fracturing or produce oil at these low prices," he said.

The current drop is deeper than operators would have anticipated going into this year, said Helms, noting that natural gas production also fell nearly 2% for the month. The number of producing wells also fell during September, which hadn't in at least 12 years, he said.

"With the mild weather, natural gas prices are very low, under $2/Mcf, and it's probably been more than a decade since that has happened [at this time of the year]," Helms said.

The rig count continued to fall, hitting 64 on Friday after coming in at 68 in October and 71 in September. Bakken sweet crude prices tumbled again, hitting $31.25/bbl currently, compared to $34.37/bbl in October. Only three of North Dakota's dozen producing counties now have break-even prices that are below the $31.25/bbl price, he said.

Helms said it could take up to a year for drilling to reverse course and ramp upward once prices turn around. "Many of the rigs that have been idled are being scavenged for parts," he said. "It is going to take some weeks or months to put all the pieces back together, mobilize the equipment, get the crews back together and be able to get up and running again.

"Even at $70/bbl oil, it could take us a year to fully put those [idled] rigs back to work."

In recent weeks, operators have indicated to Helms they are limiting production and shutting in more wells. Why? "I think some of the larger operators are trying to send a signal to the market that they are going to be responsive to the oil prices, and they are not willing to liquidate their assets at these low prices," he said. "In reality, all of these wells are economic to produce even at today's prices since the break even for operating costs is $15-17/bbl. It would be economic to produce but not profitable."

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